Israeli firm SBI paid Sh6bn for KeNHA road contract breaches

SBI was awarded Sh6.96 billion after KeNHA terminated road deals it had awarded the firm for works in Kisumu and Kericho, some of which were due to “delays in releasing project funds”.

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The highways authority paid SBI Sh400 million, or about 5.74 percent, of the total amount awarded during Mr Kenyatta’s last financial year in office. The Roads and Transport ministry report shows Sh6.19 billion was paid during the last financial year ended June 2023. The latest payment leaves a balance of Sh371.09 million balance, which was yet to be paid to the contractor by June last year.

KeNHA unsuccessfully pleaded with the High Court in 2021 to stop payments awarded to SBI by the Dispute Adjudication Board (DAB) in the UK for cancelled road contracts.

“In FIDIC [International Federation of Consulting Engineers] contracts, the process of dispute resolution by adjudication is contractual in nature.

“The terms are contained in the agreement between the parties in the form of a dispute resolution clause,” Court of Appeal judge John Mativo (then at the High Court) ruled.

“By submitting to the contract, the parties willingly agree to be bound by the terms of the agreement, including the dispute resolution process. Courts cannot rewrite a contract validly entered between parties.”

KeNHA has paid the Israeli firm Sh1.81 billion for illegal termination of three projects related to dualling of Kisumu Boys Roundabout-Mamboleo Project, nearly Sh1.59 billion for Kericho-Nyamasaria Project and Sh1.39 billion for Mau Summit–Kericho Project.

SBI has further received compensation of Sh611.48 million for terminated contracts for the roads running from Kisumu Airport through Kisian, Obote Road, Otieno Oyoo Road and Port and a further Sh522 million for Ahero Interchange Project.

The SBI windfall accounted for 82 percent of Sh7.52 billion which the road agencies, largely KeNHA and Kenya Rural Roads Authority (KeRRA), paid for breaches of contracts with various firms in the fiscal year ended June 2023 after losing protracted court battles.

The court awards to the construction firm had earlier caught the attention of the taxman who had unsuccessfully demanded that KeNHA wire Sh3.6 billion from the compensation to Times Tower following a tax dispute with SBI.

The KRA had notified the roads agency to seize the cash awarded to the Israeli contractor, but SBI successfully appealed against the move.

“KRA without any colour of right and before the statutory timelines allowed under the law for the filing of a notice of objection could lapse, issued agency notices to KeNHA seeking to enforce the collection of the purported tax liability of Sh3.6 billion,” SBI argued before the Tax Appeals Tribunal.

“This was after KRA got wind that SBI had been awarded a sum of money by the High Court in contractual-related matters against KeNHA.”

The Tax Appeals Tribunal in 2022 ruled that the KRA had overstepped its mandate and should have asked KeNHA instead to freeze the amounts due to SBI until the dispute was heard and determined.

Road infrastructure was a priority sector under the previous administration, although it came with the burden of debt load on taxpayers largely through loans contracted from China.

When he left power, Mr Kenyatta said his administration had built more than 11,000 kilometres of tarmac roads since taking power in April 2013, claiming the additional network was nearly six times that built by his three predecessors since independence combined.

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“The naysayers said that we should not invest so heavily in infrastructure because people don’t eat roads and floating bridges,” he said on June 1, 2022.

“I refused their pessimism because I know what a new road means to the farmer who has for decades been unable to get their produce quickly to the market.”

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