KPC in a fix over deal to pay contractor Sh4.4bn
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.
KPC in a fix over deal to pay contractor Sh4.4bn
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.
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.“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. 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. 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.