Auditor warns on Arror, Kimwarer loans

Thursday, May 12th, 2022 01:00 | By
Earth movers and lorries at the site of the stalled Itare dam project in Nakuru county. PHOTO/File

Kenya risks penalties for defaulting on servicing three loans amounting to Sh5.2 billion advanced by an international commercial bank to finance the Arror, Itare and Kimwarer dams.

Auditor General Nancy Gathungu has warned that the country could be staring at legal suits for defaulting on a binding loan agreement.

In her report on public debt expenditure for the year ending June 2021, Gathungu says the credit agreements for the loans were not provided for audit review to confirm the terms of the payment and if termination of the credit was concluded in accordance with the provisions of the agreement.

“The default of the debt repayment exposes the government to risks of legal suits that may lead to punitive penalties and subsequent loss of public resources,” notes Gathungu in the report tabled before Parliament yesterday by the Leader of Majority Amos Kimunya.

Fraud investigations

Early this year, Treasury in a report to Parliament indicated that the country had already defaulted on the Sh19.6 billion loan for the three dams having failed to make the first installment payments to Italian bank Intesa San Paolo.

According to the Italian bank, Kenya has not made a single payment as stated in the loan agreement citing the fraud related investigations launched on the projects.

The first installment to Italian bank Intesa San Paolo, were due in May last year. According to the Treasury, Kenya was to pay the first instalment for the Sh11 billion lent to Arror dam on May 18 and initial repayment of the Sh8.63 billion Kimwarer loan on May 9.

The Italian bank in a complaint letter to the Treasury said Kenya had failed to make the payment.

Treasury has not responded to queries as to why the payments have been delayed.

“Loan of Sh33 billion repayable in semiannual installments commencing 9th May 2021 and ending on 9th November, 2035,”  Treasury documents disclose in reference to the Kimwarer dam debt.

On the Arror dam debt, the documents say: “Loan of Sh40.8 billion repayable in semiannual instalments commencing May 18, 2021 and ending on November 18, 2035.”

Former Treasury Cabinet Secretary Henry Rotich and former Principal Secretary Kamau Thugge were in July 2019 charged alongside other senior officials with, among other things, conspiring to defraud the public. Thugge’s charges were, however, dropped after he became a State witness.

By the time the project was stopped, Sh19.8 billion had been paid in advance to various offshore firms for the Arror and Kimwarer projects despite the dams not being built.

President Uhuru Kenyatta in September 2019 cancelled the Kimwarer dam project following an investigation that established that it was technically and financially unfeasible.

Uhuru issued an order for commencement of the Arror dam project at half the cost as the technical committee he appointed to look into the project found it economically viable.

Deputy President William Ruto said no money was lost in the projects despite reports by the DCI that over Sh7.5 billion had been paid to the contractor who had not even started the works.

Rotich is charged with aiding a Sh11 billion irregular offshore payment to an Italian insurance firm entangled in the suspect loan deal to finance the two dams.

There were also concerns that the contractor CMC Di Ravenna-Itinera JV had gone bankrupt even after receiving Sh7.2 billion in advance payment for the project.

Evidence which has been presented in court by the Director of Public Prosecutions Noordin Haji, indicated that CMC Di Ravenna- Itinera JV received Sh4.3 billion on September 27, 2018 as advance payment for Arror dam and for Kimwarer, an advanced payment of Sh3.5 billion was approved on July 2, 2018.

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