Taxpayer risks losing Sh15bn as works on new airport stopped

Sunday February 28 2016

Moi International airport in Mombasa. Kenya Airports Authority acting managing director Yatich Kangugo said that as far as he was concerned, the construction of a new airport has not started. PHOTO | LABAN WALLOGA | NATION MEDIA GROUP

Moi International airport in Mombasa. Kenya Airports Authority acting managing director Yatich Kangugo said that as far as he was concerned, the construction of a new airport has not started. PHOTO | LABAN WALLOGA | NATION MEDIA GROUP 

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Kenyans risk losing an estimated Sh15 billion over a decision to stop construction of a new airport in Nairobi in one of the mega projects launched by President Uhuru Kenyatta in 2013.

Already, the Kenya Airports Authority has fallen behind in scheduled payments as intrigue surrounds the conclusion of a financing arrangement to get the Sh56 billion Vision 2030 project off the ground.

The Sunday Nation has learnt that the KAA board of directors has stopped payments to the Chinese company contracted to deliver the Greenfield project.

Already the parastatal has engaged British lawyer Saul Daniel to advise on how they can demobilise the contractor “until the financial situation becomes clearer”.

When contacted about his role, Mr Daniel replied curtly through a spokesman: “No comment”.

It turns out that KAA would have to bear the cost of such demobilisation – where the contractor would have to move out of the site – which is estimated at more than Sh600 million.

Documents show that at a meeting chaired by the KAA acting managing director Yatich Kangugo, acting General Manager Finance Patrick Chonde said payments to Anhui, the Chinese firm, had been stopped by the board.

But in an illustration of the intrigues around the project, KAA board chairman David Kimaiyo told the Sunday Nation that he was not aware of the said stoppage of payments.

“Those are management issues. At the board we only deal with policy. I’m not aware,” said Mr Kimaiyo over the phone.

Anhui Construction Company moved to site on September 14, 2013, and President Kenyatta launched the project on November 13, 2013.

Documents show that so far, the contractor has done preliminary works worth more than Sh8 billion but has only been paid half the amount.

The contractor has also engaged a civil works consultant to the tune of Sh5.1 billion.

Owing to the stoppage of payments, the taxpayer is losing approximately Sh45 million every month as boardroom wars and official backpedalling in the completion of financing arrangements continue.

What is even more baffling is why the government has not taken up offers by the Chinese Development Bank and the African Development Bank to finance the project, which was initially projected to be completed last year.

Sources have told the Sunday Nation that highly placed government officials are intent on cancelling the contract – which would set the taxpayer back by hundreds of millions of shillings in penalties and which money would have ended up down the drain for zero return.

Kenya is strategically located to be one of Africa’s major aviation hubs but the old airport has little capacity to take advantage of growing traffic to Africa, create jobs and bring in millions of dollars.

The $700 million project, which was mooted under the Grand Coalition Government, underwent layers of approval by the KAA board, the Cabinet, Parliament, public procurement authorities, the Ethics and Anti-Corruption Commission and was eventually launched by President Kenyatta.

Documents further show that bidders for the tender were supposed to submit a letter of intent to finance the project from a reputable financier.

In this respect, Anhui presented two institutions who were ready to finance the project: China Exim Bank and China Development Bank.

KAA subsequently engaged China Development Bank, which in turn issued what is known in financial circles as a term sheet in 2013.

A term sheet is a non-binding agreement setting forth the basic terms and conditions under which a deal would be struck.

Talks with the African Development Bank stalled after KAA indicated that some of the terms offered were not attractive.

It appears that KAA favours the model where Treasury would guarantee the loan, a model that China Development Bank was willing to go by.

Documents show that when President Kenyatta travelled to China in August 2013, he met the President of China Development Bank in which the bank agreed to fast-track a financing arrangement for the project.

CDB, on assessing Kenya’s debt situation, required that the government guarantees KAA so that the loan would assume what is known as sovereign status.

Correspondence shows that the contractor offered to make available a financing arrangement that would ensure that works were not interrupted while the finer details were worked out between KAA and China Development Bank but the parastatal is yet to take up the offer.

Analysts have told the Sunday Nation that in the circumstances that the board would choose to demobilise the contractor or cancel the contract altogether, members could be held directly liable for placing on taxpayers an unnecessary burden, going by the provisions of the State Corporations Act.

When contacted, Mr Kangugo introduced a new twist and said that as far as he was concerned, the contractor had not “commenced works”.

“In our case, we have not given the consent to commence works and what has been happening is just site clearance. According to us, the contractor has not been immobilised,” he said.

He said that no payments had been delayed or stopped.

“What payments? This contract is a design and build contract. It’s like a public-private partnership. The contractor was to get a financier,” said Mr Kangugo.

“Mobilisation only happens when finances are available. The financing arrangements we were looking at initially did not yield desirable results but we have three others that we are talking to with the hope of arriving at agreeable terms,” said Mr Kangugo.

The acting MD said that there were financiers who had asked for the government to guarantee the loan but Treasury is of the view that the project can be financed by the KAA balance sheet.

“Until we get financiers it will be very difficult really to progress. Some financiers are optimistic and we can even open talks with others,” he said.

“If we do not get financiers, we can look at other options like government financing or restructuring the project but at this stage, none of that has been considered.”