Kenya defaults on Sh5bn Arror, Kimwarer dams loans

Abandoned equipment where Aror dam was to be built.

Abandoned equipment at Kipsaiya in Elgeyo Marakwet where Aror dam was to be built. Kenya’s inability to honour its debt obligations has been exposed in the latest report of the auditor-general that revealed the government had defaulted on servicing Sh5.11 billion.

Photo credit: File | Nation Media Group

Kenya’s inability to honour its debt obligations has been exposed in the latest report of the auditor-general that revealed the government had defaulted on servicing Sh5.11 billion.

The default on debt repayment exposes the government to risks of legal suits that may lead to penalties and subsequent loss of public resources.

The defaulted amount relates to three loans advanced by an international bank towards the construction of three dams – Arror and Kimwarer multipurpose dams in Elgeyo Marakwet County and Itare dam in Nakuru County.

The audit report on the accounts of the National Treasury for the 2020/21 financial year shows that Sh790.7 million was to be paid for the Arror dam loan, Sh3.1 billion for Itare and Sh1.26 billion for Kimwarer.

“The credit agreements for these loans were not provided for audit review to confirm the terms of the loans and if the termination of the credit was conducted in accordance with the provisions in the respective agreements,” the audit report says.

Debt stock

The country’s debt stock currently stands over Sh8.6 trillion.

Recently, the National Assembly approved a proposal to increase the country’s debt ceiling from Sh9 trillion to Sh10 trillion to allow the government room to borrow more to finance the Sh846 billion deficit in the Sh3.33 trillion budget for the 2022/23 financial year.

The construction of Arror and Kimwarer dams was to cost Sh63 billion, while Itare dam whose construction was scheduled to start in 2016 and end in 2022, was to cost Sh30 billion, to yield 100,000 cubic metres of water a day. It was expected to serve more than 800,000 people in Molo, Njoro, Rongai, Kuresoi and Nakuru town.

Three international firms- Cooperativa Muratori and Cementisti - CMC Di Ravenna Societa Cooperativa (Italy), Itinera SPA and CMC Di Ravanna - Itinera JV SCPA were contracted to build Arror and Kimwarer.

Projects cancelled

However, the projects were cancelled over irregularities in the tendering, with the Directorate of Criminal Investigations (DCI) taking up the matter.

The three companies are already in court seeking Sh11.4 billion in breach of agreement against the government. They also want the court to establish that the cancellation was illegal.

The Itare dam project had been awarded to CMC Di Ravenna, but the Italian firm deserted the site and filed bankruptcy proceedings in its home country, even before work on the two projects could start, but was not declared bankrupt.

Three years ago, President Uhuru Kenyatta formed a technical committee to establish the viability of the Arror and Kimwarer projects.

The technical committee, chaired by Infrastructure Principal Secretary Paul Maringa, presented the report on the findings of the two dams to the President on September 18, 2019, at state house, Nairobi. 

Report disappeared

Surprisingly, the report disappeared without a trace. This is notwithstanding that the report’s handover was a public event covered by the media.

What is now emerging is that the State House and the ministries of National Treasury and Water, Sanitation and Irrigation that were critical in the conceptualisation and development of the two projects, do not have a copy of the document.

Parliament has been requesting to have the report tabled in the House for more than a year now.

Regional and Northern Corridor Development Principal Secretary Bellio Kipsang, whose department is in charge of implementing the two projects, recently added mystery on the whereabouts of the report after he claimed that he did not have it and that he has never had it.

At a past meeting with the Public Accounts Committee (PAC) of the National Assembly, Dr Kipsang’s revelations surprised MPs.

“A task force is set up by the President. It puts together a report, hands it over to the President in the full glare of the cameras. But now we can’t lay our hands on that report, not just as citizens but as Parliament,” said Mr Opiyo Wandayi, the chairperson of PAC.

Recommended cancellation

The technical committee, in a press release to the media at State House, had recommended cancellation of the two projects for being overpriced, with the Kimwarer dam that was to cost Sh22.2 billion cited as not viable.

Prof Maringa’s committee in the press release at State House, however, recommended that Arror dam should progress but be scaled down to Sh15 billion.

At the time of the cancellation, the government had already pumped in Sh7.5 billion in two separate advance payment guarantees to the projects.

The advance payment guarantees to the contractor behind the two dams were financed by a commercial loan from a bank in Sao Paulo, Brazil.

It was the first time a Brazilian bank was being linked to the two projects but it remains unclear whether the amount was paid directly to CMC Di Ravenna, the Italian company that was contracted to build the two dams, or through intermediaries.

At the time CMC Di Ravenna was filing for bankruptcy, Sh4.1 billion had been paid to Heritage Insurance Company as security guarantee for the Arror dam and Sh3.4 billion to Standard Chartered insurance company for Kimwarer.