Trouble looms over dam tenders awarded to Italian firm

Sunday February 24 2019

Simon Chelugui

Water and Sanitation Cabinet Secretary Simon Chelugui. He has said officials from CMC di Ravenna will table a document detailing how they will complete three dams the company is currently constructing in Rift Valley at a cost of Sh104.5 billion. PHOTO | FILE | NMG 

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Officials of the cash-strapped Italian construction firm suspected of bribing government officials to win lucrative tenders for dam construction in the country are expected to table a proposal Monday on how they intend to complete the projects.

Water and Sanitation Cabinet Secretary Simon Chelugui said officials from CMC di Ravenna will table a document detailing how they will complete three dams the company is currently constructing in Rift Valley at a cost of Sh104.5 billion.

COMMERCIALS LOANS

“We might end up with a white elephant if we don’t save this project,” he said on Friday, referring to Itare dam in Nakuru County.

“We will evaluate their proposal and then forward it to the Treasury for their input. We will then invite the lender and the insurer of the project to give their views as well before we make a decision,” he said.

It has also emerged the troubled construction conglomerate is in fact holding contracts of five dams, and not three, as earlier reported.

The Sunday Nation has learnt the company also won tenders to construct Radat dam in Marigat, Baringo County, at a cost of Sh20 billion, and Kithinu dam in Nkubu, Meru County, at a cost of Sh26 billion.

This is besides three other mega dams the company is constructing in Rift Valley region — Itare dam in Nakuru County at a cost of Sh38 billion, Arror dam for Sh38 billion and Kimwarer dam for Sh28 billion.

The last two dams are located in Elgeyo Marakwet County. All the three projects are being financed through commercial loans from Italian banks underwritten by the Italian government.

SH150 BILLION

This brings the total worth of the projects the beleaguered company has been awarded in the country over the past five years to more than Sh150 billion.

Curiously, the company has only indicated on its website that it is undertaking the Itare, Arror and Kimwarer projects.

One possible explanation for the omission of the other two is that the contracts were awarded conditional to the availability of funds.

Contracts for the five projects were awarded at various dates between 2015 and 2017 when Mr Eugene Wamalwa was the minister for Water and Irrigation. Mr Wamalwa is now the Devolution Cabinet Secretary.

Last year, the Department of Irrigation was moved to the ministry of Agriculture and Irrigation headed by CS Mwangi Kiunjuri. The ministry is in charge of the Radat dam project.

Kithinu dam is under the ministry of Water and Sanitation. “We have not paid a shilling to the company for this project,” CS Chelugui said yesterday.

Sleuths from the Directorate of Criminal Investigations (DCI) are investigating allegations CMC di Ravenna paid a bribe to senior government officials from a Sh4.9 billion down payment it received last year for the design of Arror dam.

QUESTIONED

They will also be seeking to know why due diligence was not done to ascertain the company’s financial health before being awarded the multi-billion-shilling tenders.

The firm’s lawyer, Mr Ahmednassir Abdullahi, this week termed as “rubbish” claims his clients have sworn a tantalising tell-all affidavit about the bribery allegations to Kenyan investigators.

Treasury CS Henry Rotich was questioned by DCI officers this week about the scandal. CSs Chelugui, Wamalwa and Kiunjuri all told the Sunday Nation that they have not yet been asked to appear before the DCI. “Not true,” said Mr Wamalwa in a text message Saturday.

CMC di Ravenna is one of the biggest construction firms in Europe but it has hit financial turbulence in recent times and was declared insolvent by an Italian court last December, thus putting in doubt its ability to undertake massive projects to completion.

The Sunday Nation has learnt the government has already paid the company Sh11 billion out of the total Sh38.5 billion budgeted for Itare dam.

Out of the money paid so far, the government can still recover about Sh8.5 billion — Sh5.5 billion for advance payment and Sh3 billion for performance bond, both of which have bank guarantees.

IN LIMBO

Financing for the Itare project came from Intesa Sanpaolo, one of Italy’s biggest private banks, and the loan was guaranteed by the Italian government through another Italian company called Sage.

As is often the case with such deals, the terms of the contract are restrictive and punitive for Kenya to even contemplate terminating the deals in favour of other contractors not approved by the lender.

Mr Chelugui said CMC di Ravenna has indicated it will subcontract the remaining main works for Itare dam to Chinese firm Sinohydro Corporation Ltd. In line with the government’s Vision 2030 and its own election campaign promises, the Jubilee administration has vastly expanded the dams’ network over the past five years.

Today there are more than 60 dams under construction at a cost of more than Sh500 billion, according to a count done by the Sunday Nation based on the projects listed in the websites of the three ministries handling the projects.

Inevitably, as it often happens where multibillion contracts are involved, some of these noble projects end up being dogged by claims of tender manipulation and outright bribery.

Currently the government is mulling over the fate of the Sh31 billion Soin-Koru dam at the border of Kisumu and Kericho counties, which has been in limbo since the contract was awarded in 2016.

Our sources disclosed engineers from the National Water Harvesting and Storage Authority (NWHSA) expressed reservations about the figure quoted by the local company that won the tender, Frabo Company Ltd, saying the project could be delivered for less than that amount.

DOUBLE THE COST

There are two main factors to consider when doing costing for a dam: The height and size of the embankment to hold the water back stream, and the volume of the dam.

When compared with other dams of its size, the engineers from NWHSA concluded the taxpayer might not get value for money should they proceed with the Soin-Koru project.

For example, Mwache dam in Kwale county, which is being funded by the World Bank to a tune of Sh15 billion, will supply 186 million litres daily to Mombasa and Kwale counties.

In comparison the Soin-Koru dam will supply only 70 million litres yet at more than double the cost of constructing the Mwache dam. “This does not make economic sense at all,” said a senior official of NWHSA who did not wish to be named for this article for fear of being perceived to have already taken sides in the matter.

The fate of Soin-Koru dam has already been discussed three times in the Cabinet’s National Development Implementation and Communication committee chaired by Interior CS Fred Matiang’i as local leaders lobby hard for it.

However, since the 210-days period provided for the signing of the contract, as stipulated in the Public Procurement and Disposal Act, lapsed without it being signed, officials at the Ministry of Water and Sanitation feel the contract has died and the only remedy is to re-tender it. The ministry has written to Attorney General Paul Kihara for his advisory opinion.