- The government indicated that the contractor had withdrawn its case at the International Court of Arbitration at The Hague.
- CMC de Ravenna had sued for Sh12 billion but left no doubt it could also pursue the total costs of the projects.
Image: LOISE MACHARIA
Kenyans could pay tens of billions of shillings to an Italian construction company for the termination of the contracts to build Itare, Kimwarer, and Arror dams.
A Cabinet brief released this week indicated that President William Ruto’s administration has settled with the firm trading as CMC de Ravenna Societa Cooperativa to resume the works.
“Members of Cabinet approved the terms of a negotiated settlement of the commercial contracts and financing agreements for Itare and Arror dams,” the brief reads.
The government indicated that the contractor had withdrawn its case at the International Court of Arbitration at The Hague.
CMC de Ravenna had sued for Sh12 billion but left no doubt it could also pursue the total costs of the projects and the ensuing penalties – which puts the figure at Sh80 billion.
But the government said the “matters that the contractor, CMC de Ravenna, had taken for arbitration has since been withdrawn.” The works were yet to commence.
“Consequently, the government and CMC de Ravenna will enter into a court settlement. In the new terms, Itare Dam will be completed, while the construction of Arror Dam will begin,” the brief reads.
Lawyer Danstan Omari told the Star that an out of court settlement doesn’t mean the aggrieved party has dropped quest for damages.
“The out of court settlement might take what is called global settlement. Here all issues are settled including damages,” he said.
Besides the damages, taxpayers may also be forced to part with billions to repay loans which were borrowed for the dams.
Kenyans may have also lost Sh14 billion that was paid to an Italian insurance firm to cover the loans against default.
An audit recently revealed that the loan that the Jubilee administration took from the Italian government has ballooned to Sh11 billion after the government defaulted.
The amount is in respect of three loans advanced by an international Commercial Bank towards the construction of the three dams.
At least Sh2.8 billion is outstanding in respect to the Arror dam, Sh5.3 billion in the case of Kimwarer, and Sh2.8 billion for Itare mega dam.
“The default on debt repayment exposes the government to risks of legal suits that may lead to punitive penalties and subsequent loss of public resources,” Auditor General Nancy Gathungu said.
“In the circumstances, the management was in breach of the credit agreements for the loans,” she noted, adding that management indicated that the lender has cancelled the remaining balance.
Itare Dam was being financed by Intesa San Paolo – an Italian bank, [Sh28 billion] and was to commence in June 2016 and be completed by July 2022.
The works were under the supervision of the Kerio Valley Development Authority which sought competitive bids for a contractor which could also finance the project.
Five bids were received and three were shortlisted including China’s Sinohydro which proposed Sh33 billion. The engineer's cost estimate was Sh39.6 billion.
Construction however stalled in 2018 after the contractor ran into financial challenges back at home and filed for bankruptcy, forcing it to abandon the works at 30 per cent.
Following the contractor’s challenges with the Italian financier – BNP Paribas and Intesa San Paolo, the project stalled.
After months of protracted negotiations, the government terminated the tender, including that of the Arror and Kimwarer dams leading to the arbitration case.
Taxpayers had expended Sh11 billion on the Itare Dam project, being the mobilisation and preparatory works by September 2019 when President Uhuru Kenyatta’s team terminated the tender.
Apart from stating that the ventures were pricey, Uhuru justified the cancellation citing grounds the projects were conduits of graft.
The key question that MPs that probed the project was why Kenya was negotiating with the Italian construction firm yet the problem emanated from their end.
The National Assembly Environment Committee of the 12th Parliament castigated the government for giving the financer more say on the project’s management.
MPs at that time urged the government to ensure there was a negotiated extension of the advance payment and performance bond guarantees.
“This is to avoid a situation where the government would lose money,” the committee said in a report.
MPs also called on the government to ensure proper background checks are done on contractors before the award of contracts.
“Upon engagement of the contractor, the project consultants should engage in continuous due diligence checks to ensure a contractor is technically and financially sound throughout the life of the project,” the committee said.