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Kenya defaults on Sh 19.6 billion Arrror and Kimwarer dam loan


Economy

Kenya defaults on Sh 19.6 billion Arrror and Kimwarer dam loan


National Treasury building. PHOTO FILE | NMG

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Summary

  • Kenya defaulted on the 19.6 billion shillings loan for the controversial Arror and Kimwarer dams, failing to make the first payments to Italian bank Intesa San Paolo.
  • The Italian bank says Kenya failed to make the payment amid investigations into the billions of shillings that were shared in foreign banks and never transferred to Kenya.

Kenya defaulted on the 19.6 billion shillings loan for the controversial Arror and Kimwarer dams, failing to make the first payments to Italian bank Intesa San Paolo in May.

Treasury documents tabled in Parliament show that Kenya was due to pay the first installment of the 11 billion shillings loaned to the Arror dam on May 18 and the initial repayment of the Kimwarer loan of 8.63 billion shillings on May 9.

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

“No payments were made in 2021,” said a representative for the Italian bank, who declined to be named in an email response to Business Daily questions. The files before Parliament show that the Treasury has not yet paid the loans related to the two dams.

“Loan of 258,688,881.72 EUR (33 billion shillings) repayable in semi-annual installments starting May 9, 2021 and ending November 9, 2035,” the Treasury said in reference to the Kimwarer Dam debt.

On the Arror Dam debt, Treasury documents stated: “Loan of EUR 319,620,697.07 (40.8 billion shillings) repayable in semi-annual installments starting May 18, 2021 and ending November 18, 2035. “

The Treasury did not respond to Business Daily’s requests for comment on payment failures at the Italian bank.

There are risks associated with defaults on foreign loans, especially with international investment funds avoiding the country concerned.

If they are willing to invest their money, they will look for a high return to compensate them for the risk of losing it.

But analysts say the default on the loan cannot be viewed strictly as a default given the ongoing investigation and lawsuit regarding the alleged irregular transfer of billions in debt and embezzlement for both. dams.

“It is speculated that the failed payments could be linked to the scandal involving advance payments for two dam projects. This is not a simple default due to a lack of resources, ”said an analyst from a large commercial bank who requested anonymity.

Former Treasury Cabinet Secretary Henry Rotich was indicted in July 2019 alongside senior officials, among others, with conspiracy to defraud the public. Up to 19.8 billion shillings had been prepaid to various offshore companies for the Arror and Kimwarer projects despite the dams not being built.

CANCELED PROJECT

President Uhuru Kenyatta canceled the Kimwarer Dam project in September 2019 following an investigation that found it to be technically and financially unfeasible.

He also issued an order to start the Arror dam project at half the cost, as the technical committee he appointed to review the developments found it economically viable.

The Italian lender said that since the cancellation Kenya has stopped making requests to withdraw more money from the bank.

“For any financing of this type, disbursements are made only after a request from the borrower. Once the investigations started, we received no requests and no further disbursements were made, ”said the bank representative.

Mr Rotich has been accused of aiding an irregular offshore payment of 11 billion shillings to an Italian insurance company involved in the suspicious loan deal to finance the two dams, raising concerns over possible kickbacks to the managers involved in the projects.

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

Section 50 (7) of the Public Financial Management Act (PFMA) states that all public debt must be paid into the Consolidated Fund of the Central Bank of Kenya (CBK) and any subsequent expenditure must be approved by the Comptroller. of the budget (CoB) for accountability and transparency.

The state believes that the pressure to bypass the transfer of the money to the Consolidated Fund was designed to facilitate the payment of bribes and bribes.

“SACE collected 11 billion shillings from the four Italian commercial banks and private lenders (of what is falsely alleged to be a government-to-government loan) allegedly to have lent the said money to the Korean government, but instead of releasing the funds to the Korean government as required. by our Constitution and our law, the applicant as secretary of the Cabinet of Finance authorized and helped SACE to pay itself. The funds have never seen a government of Kenya bank account or the consolidated account, ”Gilbert Kitalia, an officer with the Criminal Investigations Directorate, said in court documents.

The DPP said Mr Rotich had ignored PMFA’s demands and “willingly turned a blind eye” to the irregular payment deal with the Italian insurer, raising the red flag over his intentions.

The government made prepayments of 19 billion shillings, including 11 billion shillings of unnecessary debt insurance, which prosecutors said was distributed to accounts belonging to the conspirators and their agents.

“This is an express and very serious violation of the law. It is also a necessary component of the plot and the alleged crimes and brings them to life since by bypassing the consolidated fund, the payment of all bribes and the distribution of all the proceeds of crimes have been returned. exponentially easy, ”Kitalia said in court. deposits.

There were also concerns that entrepreneur CMC Di Ravenna-Itinera JV had gone bankrupt even after receiving 7.2 billion shillings upfront for the project.

Evidence presented to the court showed that CMC Di Ravenna-Itinera JV received 4.3 billion shillings on September 27, 2018 as an advance payment for the Arror dam and for Kimwarer an advance payment of 3.5 billion shillings. shillings was approved on July 2, 2018.


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