Kenya Pipeline Company managing director Joe Sang. FILE PHOTO | NMG
Summary
- KPC management struck a deal with Zakhem International Construction on April 9 for payment of $44 million (Sh4.4 billion) to cover the four years delay that hit construction of the 450-kilometre pipeline.
- Kenya Pipeline warns that Zakhem could block the ongoing commissioning of the pipeline, whose completion is set for next month, and engage KPC in a costly legal battle to recover the amount.
- A well-known family enterprise still led by its founders George Zakhem and his brother Abdallah, the Kenyan business was started by the latter, managing director of Zakhem International Construction Group in Kenya from 1970 to 1982.
Kenya Pipeline Company (KPC) management is once again in the eye
of a storm following revelations that it agreed to pay a Lebanese
contractor Sh4.4 billion for operational delays in the building of the
Mombasa-Nairobi pipeline, whose large cost variation has been subject of
parliamentary investigation.
Documents seen by the Business Daily
show that the KPC management struck a deal with Zakhem International
Construction on April 9 for payment of $44 million (Sh4.4 billion) to
cover the four years delay that hit construction of the 450-kilometre
pipeline.
The KPC is pushing for a speedy settlement of
the claim, arguing that it has enough cash to pay on the strength of
the Sh9.2 billion in its budget for the year ending June 2018.
Kenya
Pipeline also warns that Zakhem could block the ongoing commissioning
of the pipeline, whose completion is set for next month, and engage KPC
in a costly legal battle to recover the amount.
Divided
The proposed payment
has divided the KPC board, with some directors agreeing with the
management that a speedy settlement is necessary and another asking for a
wider approval, including from the Treasury cabinet secretary, Henry
Rotich, John Munyes (Petroleum Cabinet Secretary) and State House, ahead
of the payment.
John Ngumi, who chairs the KPC board,
said the directors had passed a resolution requiring additional
approvals before payment of the claim and that it’s now immaterial
whether the directors were split over the payment. “The board is fully
aware of the wider public interest in the matter and has impressed upon
the management to ensure the public interest is taken into account,”
said Mr Ngumi.
The resolution to seek additional
approvals on the Zakhem deal came after a board meeting held on April 11
but the management had already paid $10.5 million (Sh1 billion) to the
Lebanese contractors.
KPC managing director Joe Sang in an April 19 letter sought Mr Munyes’ approval.
“We
therefore write to advise on the progress made in evaluation,
determination and settlement of the claims and seek your guidance on the
matter,” said Mr Sang in the letter copied to Mr Rotich, Andrew Kamau
(Petroleum principal secretary) and the Attorney-General.
It has emerged that the Petroleum ministry has established a team to vet the claims afresh.
“A team is looking at the claims. We need to ensure everything is above board,” said Mr Kamau.
When
the firm won the tender in 2014 to build a 20-inch pipeline in Kenya,
it promised to complete the work in 18 months at a cost of Sh48 billion.
That target was not achieved and Zakhem instead
demanded additional $189.2 million (Sh18.9 billion) for the contract
delays, triggering a parliamentary investigation that froze the Zakhem
claim.
“We are in a haste to pay Zakhem and very slow
to make a counter-claim for costs and damages for delays associated with
the contractor,” said a KPC director, who requested anonymity given the
sensitivity of the matter.
Blamed contractor
An
earlier KPC report had partly blamed the contractor for the delays,
including in taking over some construction sites and purchase of
equipment as well as submission of a programme of works — which details
the sequence of tasks in a construction project.
Mr Sang informed Mr Munyes in the April 19 letter that the KPC will make a counter-claim at a later date.
“Management
is in the process of preparing its final accounts with the project
consultant, and shall at the appropriate time lodge its counter-claim
for any costs or damages associated with delays in the project,” said Mr
Sang.
Zakhem reckons the delays were caused by
amendments to the design, a row on who was to pay Sh240 million
regulatory fees and the suit opposing award of the contract to the
Lebanese firm. Ibrahim Zakhem, the head of Zakhem’s Africa business,
declined parliamentary summons to shed light on the claims, prompting
MPs to issue fresh ones.
The National Assembly’s Public
Investment Committee (PIC) noted that Mr Zakhem had evaded Parliament
for four years since his company was awarded the 450-kilometre
Mombasa-Nairobi pipeline contract.
Zakhem won the
tender to replace the 43-year-old pipeline in a cloud of controversy and
its alleged backlisting in several other countries.
Although
the other shortlisted companies cried foul, the Public Procurement
Administrative Review Board (PPARB) gave Zakhem’s bid a clean bill of
health. Zakhem has been one of the politically connected engineering
firms in Kenya since the 1970s.
Big tenders
A
well-known family enterprise still led by its founders George Zakhem
and his brother Abdallah, the Kenyan business was started by the latter,
managing director of Zakhem International Construction Group in Kenya
from 1970 to 1982.
Mr Abdallah, now head of Zakhem
International, built solid political networks and won big tenders,
including building the premier 14-inch 450-kilometre oil pipeline from
Mombasa to Nairobi at $100 million in the late 1970s.
The
14-inch pipeline has outlived its 30-year lifespan and was prone to
ruptures, prompting its replacement with the 20-inch line.
Zakhem
is also required to build a fibre optic cable along the route, install
four pumping stations for the pipeline and upgrade existing KPC
firefighting equipment in Nairobi.
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