TAXPAYERS LOSSES

Alarm over delayed projects staging demands for billions

In Summary

• Costs accrue from delayed payments, extended contract periods, and interests charged on unpaid pending bills.

• Kenya Airports Authority was recently slapped with a demand for Sh19 billion by a Chinese contractor it assigned works on the stalled Greenfield Terminal.

Construction equipment at the site of the Sh56 billion Greenfield Terminal project at the Jomo Kenyatta International Airport, July 21, 2014.
Construction equipment at the site of the Sh56 billion Greenfield Terminal project at the Jomo Kenyatta International Airport, July 21, 2014.
Image: FILE

Details have emerged of how taxpayers are losing billions of shillings in penalties for violated contracts putting top government officials on the spot.

The Star has established that Kenya National Highways Authority alone has accrued Sh6.4 billion as penalties for flouting its contractual obligations.

Some of the charges are as a result of late payment for certified complete works and where the contract period has been extended – for lack of cash, or terminated by the State.

 
 

Kenya Airports Authority was recently slapped with a demand for Sh19 billion by a Chinese contractor it assigned works on the stalled Greenfield Terminal.

Anhui Construction Engineering Group was executing the work in a joint venture with China Aero-Technology International Engineering Corporation.

Part of the demand includes Sh500 million interest and penalties for delayed payment of VAT to KRA and Sh5.6 billion for design works.

Parliament may also not escape additional costs in the face of a contractual dispute around the Sh5.8 billion 18-floor office block.

The delays arose after China Jiangxi International Ltd – the main contractor, rejected Nightingale - a subcontractor, on grounds the firm was recruited without its input.

The row has occasioned delays beyond the January 2018 deadline, with China Jianxi demanding compensation for a 12-month extension. The amount is yet to be computed.

The firm, having petitioned the Public Procurement Administrative Review Board (PPARB) over the matter, has also threatened to terminate the contract.

 

Kenya National Examinations Council is yet to complete its Sh1.5 billion Mtihani House headquarters for 30 years; the last bit stalling in May.

MPs have raised the red flag that the costs - amounting to Sh27 billion for the studied entities, are bleeding the state coffers.

The concerns come at a time President Uhuru Kenyatta is grappling with funding for stalled projects, a situation worsened by billions of pending bills.

A Deloitte report in February said only 13 per cent of Kenya’s capital projects are completed, with Treasury now grappling with a Sh295 billion funding gap to complete stalled projects.

Public Investments Committee chairman Abdulswamad Nassir said it was regrettable that the significant demands are as a result of non-adherence to procurement laws.

“The Procurement Act states that you cannot procure unless you have the finances. We are looking at a couple of billions which can be spent on other areas that deserve roads,” he said.

“At the same time, it is not right for a contractor not to be paid yet they have done a project. It is alarming that some of the pending bills have existed since 2013,” the Mvita MP said.

His Wajir North counterpart Abdisalan Ibrahim sought explanation on whether the contracts being entered into are open or have a strict time-frame.

“What is the time-frame within which a contract can raise an interest? Or is it applicable to all projects?” the PIC vice-chair asked calling for a review of such contract clauses.

For the case of the Greenfield Terminal, KAA boss Jonny Andersen said the authority is not keen on paying the cash.

KeNHA director-general Peter Mundinia attributed the situation to the late release of funds from the Exchequer.

He said that most contracts have a clause requiring the roads agency to pay for certified works within 90 days.

“The contracts indicate the time within which a certificate is made, that is 90 days. The moment we go beyond the period, the certificates then attract the extra charge,” Mundinia explained.

“We have been engaging the National Treasury on this matter. It is a general problem in the roads and public works sector,” the KeNHA boss added.

“Even in occasions where we have the budget with us, the Exchequer release still delays despite certificates of completion being raised in good time.”

He added that lengthy court process also delayed some of the works in question, with KeNHA at times barred from accessing the affected sites.

Some of the flagged projects were completed in 2014, begging the question of why it has taken the authority or Treasury that long to close the books.

KeNHA had as at June 30 accumulated Sh1.6 billion in penalties for projects fully funded by the government and Sh4.83 billion for those executed by donors.

A number of the contracts attracting interest are those executed by Chinese firms with China Wu Yi leading the pack.

The contractor is seeking Sh496 million in interest for the Thika Road project; Sh184 million for Turbi – Moyale road; Sh143 million for Masara-Suna-Kehancha road; Sh123 for Timboroa – Eldoret road project.

Wu Yi further wants Sh10 million for delayed payment for the James Gichuru – Rironi project; and Sh57 million for Isiolo – Merille project.

China Road and Bridge Construction is also seeking Sh434 million in penalties for Nairobi Southern Bypass and Sh130 million for works on Njoro Turnoff – Mau Summit road.

The other big beneficiary of the delays is Zhongmei Engineering Group which is seeking Sh488 million for works on Nuno-Modogashe road.

Close to the hefty demand is Sh413 million sought by China Civil Engineering for Mombasa Port road development project (MPARD).

Apart from China Wu Yi, three other companies are also seeking payment of penalties arising from the Thika Superhighway project.

Sinohydro Corporation wants KeNHA to pay it Sh519 billion in interest arising from the Sh11 billion venture; and Sh403 million for Emali-Oloitoktok project.

Others who took part in the Thika Road project and are owed interest are Shengli Engineering (Sh10 million), CES (India) PVT (Sh84 million), and Wu Yi.


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