By BUSINESS DAILY

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Kenya defaulted on the Ksh19.6 billion ($178 million) loan for the controversial Arror and Kimwarer dams having failed to make the first instalment payments to Italian Bank Intesa San Paolo in May.

Treasury documents tabled in Parliament show Kenya was to pay the first instalment for the Ksh11 billion ($100 million) lent to the Arror dam on May 18 and initial repayment of the Ksh8.63 billion ($78 million) Kimwarer loan on May 9.

The Italian bank says that Kenya has failed to make the payment amid investigations into the billions of shillings that were shared in foreign banks and never wired to Kenya government accounts.

“No payments have been made in 2021,” a representative of the Italian bank who did not wish to be named said in an email response to the Business Daily queries. Records before Parliament show the Treasury is yet to make payments for loans linked to the two dams.

“Loan of Eur 258,688,881.72 (Ksh33bn or $300m) repayable in semiannual instalments commencing 9th May 2021 and ending on 9th November, 2035,” said the Treasury disclosures in reference to the Kimwarer dam debt.

On the Arror dam debt, the Treasury documents said: “Loan of Eur 319,620,697.07 (Ksh40.8bn or $370m) repayable in semiannual instalments commencing 18th May 2021 and ending on 18th November, 2035.”

The Treasury did not respond to the Business Daily’s requests for comment on failed payments to the Italian bank.

Defaults on foreign loans come with risks, including international investment funds avoiding the country concerned.

If they are prepared to put their money in they will seek a high return to compensate them for the risk of losing it.

But analysts say the non-payment of the loan cannot be viewed strictly as a default given the ongoing probe and court action over the suspected irregular transfer of the billions of debt and misuse of funds for the two dams.

“The guess is that the failed payments could be linked to the scandal involving advance payments for two dam projects. This does not amount to a straight default that comes from lack of resources,” said an analyst at a leading commercial bank who sought anonymity.

Former Treasury Cabinet Secretary Henry Rotich was in July 2019 charged alongside some senior officials with, among others, conspiring to defraud the public. Up to Ksh19.8 billion ($180m) had been paid in advance to various offshore firms for the Arror and Kimwarer projects despite the dams not being built.

Project cancelled

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

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

The Italian lender said since the cancellation Kenya had stopped making requests to draw more money from the bank.

“For any such financing disbursements are made only after a request of the borrower. Once the investigations began, we did not receive any requests and no further disbursements were made,” the bank representative said.

Mr Rotich has been accused of aiding a Ksh11 billion ($100 million) irregular offshore payment to an Italian insurance firm entangled in the suspect loan deal to finance the two dams, triggering concerns about possible kickbacks to officials involved in the projects.

Court filings by Director of Public Prosecutions (DPP) Noordin Haji show that Mr Rotich facilitated direct payment of the amount to Italy’s SACE Insurance contrary to the law, which requires that all payments are processed through the consolidated account in Kenya.

Section 50 (7) of the Public Finance Management Act (PFMA) says all public debt has to be paid into the consolidated fund at the Central Bank of Kenya (CBK) and any subsequent expenditure mandatorily approved by the Controller of Budget (CoB) for accountability and transparency.

The government reckons that the push to bypass wiring the cash to the consolidated fund was engineered to facilitate payment of bribes and kickbacks.

“SACE collected the Ksh11 billion ($100m) from the four private commercial Italian banks and lenders (of what is falsely alleged to be a Government-to-Government loan) posed as having loaned the GOK the said money but instead of releasing the funds to GOK as required by our Constitution and our law, the applicant as Cabinet Secretary for Finance allowed and assisted SACE to pay themselves. The funds never saw a Kenya government bank account or the Consolidated Account,” Gilbert Kitalia, an officer with the Directorate of Criminal Investigations, said in court filings.

The DPP said Mr Rotich disregarded the requirements of the PMFA and ‘willingly turned a blind eye’ to the irregular payment deal with the Italian insurer— raising the red flag on his intentions.

The government made advance payments of Ksh19 billion ($173m), including the Ksh11 billion ($100m) in unnecessary debt insurance, which prosecutors say was shared out in accounts belonging to the conspirators and their agents.

“This is an express and very serious breach of the law. It is also a necessary component of the conspiracy and the crimes alleged and gives life to the same since by bypassing the consolidated fund, payment of all kickbacks and the distribution of all proceeds of the crimes was made exponentially easy,” Mr Kitalia said in court filings.

There were also concerns that the contractor CMC Di Ravenna- Itinera JV had gone bankrupt even after receiving Ksh7.2 billion ($65m) in advance payment for the project.

Evidence presented in court showed that CMC Di Ravenna- Itinera JV received Ksh4.3 billion ($39m)on September 27, 2018 as advance payment for Arror dam and for Kimwarer, an advanced payment of Ksh3.5 billion ($32m) was approved on July 2, 2018.

- This story was first published in the Business Daily.