•At that time, Kenya owed the Italians Sh790 million in respect of the Arror Dam, Sh3 billion for Itare and Sh1.2 billion for Kimwarer.
•The performance bond and contract performance guarantees for the Sh30 billion project also expired in April 2022.
Image: PCS
A loan that the Jubilee administration took from the Italian government but the government has since defaulted in repaying has ballooned to Sh11 billion.
The loan was taken for the construction of the Arror, Kimwarer and Itare mega dams which stalled amid a probe into graft allegations at the projects.
A new audit says taxpayers are at risk of paying more billions in legal suits that may arise from the debt which was flagged last year when it was Sh5 billion.
At that time, Kenya owed the Italians Sh790 million in respect of the Arror Dam, Sh3 billion for Itare and Sh1.2 billion for Kimwarer.
Barely a year later, records held by the National Treasury’s Commonwealth Secretariat Debt Recording and Management System revealed that the amount had grown to Sh11,039,138,761.
Auditor General Nancy Gathungu has sounded an alarm about the precarious situation in her latest review of national government books of accounts for the year ending June 2022.
The records show that Kenya has defaulted on repaying Sh2.8 billion in respect of the Arror dam, Sh5.3 billion for the Itare dam project, and Sh2.8 billion for the case of Kimwarer.
Ex-President Uhuru Kenyatta's regime advanced a loan of 305,283,626 Euros (Sh37.8 billion at Sh124.04 per Euro) towards the construction of the three dams.
The government should have repaid Sh8.9 billion as principal and Sh2.9 in interest as of June 30, 2022, but has not met the obligations.
“The default on debt repayment exposes the government to risks of legal suits that may lead to punitive penalties and subsequent loss of public resources,” Gathungu said.
Itare dam stalled after CMC di Ravenna Societa Cooperativa – the contractor, applied for bankruptcy proceedings in Italy.
Following the contractor’s challenges with the Italian financier – BNP Paribas and Intesa San Paolo, the project stalled.
Frustrated, the Jubilee administration ended her dealings with the contractor, setting the stage for the suit.
The performance bond and contract performance guarantees for the Sh30 billion project also expired in April 2022.
Gathungu in her review stated that the credit agreements for the three loans were not provided for audit review.
The auditor needed the documents to confirm the terms of the loans and whether the termination was done procedurally.
“The credit agreements were not provided to confirm if the termination of the credit was conducted in accordance with the provisions in the respective agreements,” Gathungu said.
The auditor indicated that the management informed her teams that the lender - BNP Paribas and Intesa San Paolo, has canceled the remaining balance.
She further stated that the credit agreements were still in the custody of the Directorate of Criminal Investigations “as the matter is in court”.
Gathungu said her “opinion is not modified in respect of the matters,” a position that casts the spotlight on the fresh efforts to revive the projects.
Defaulting on international commercial contracts is a recipe for sanctions.
The Italians have petitioned the international court of arbitration after Uhuru canceled the contract in September 2019.
Apart from stating that the ventures were pricey, Uhuru justified the cancellation citing grounds the projects were conduits of graft.
Kenyans may have lost Sh14 billion that was paid to an Italian insurance firm to cover the loans against default.
The dams are said to be among the central issues in the talks between President William Ruto and his Italian counterpart Sergio Mattarella in Nairobi last week.
The Kenya Kwanza administration has lined up works on the stalled mega dams as part of its legacy water projects.
While hosting his Italian counterpart, President Ruto made an undertaking that the dams would be revived.
He said that Kenya and Italy had committed to re-establish cooperation on the construction of the Arror, Kimwarer and Itare dams.
According to a statement State House released following the meeting, the leaders are banking on the dams to secure their agenda on food security and climate action.