The construction of Kimwarer, Arror and Itare dams, which were subjected to court cases, is set to resume following an announcement by President William Ruto.
Speaking at a joint press briefing with visiting Italian President Sergio Mattarella at State House Nairobi, President Ruto said the two sides had agreed on a framework to resolve the issues that were before court.
He said Kenya had agreed to withdraw the suits against the Italian companies that had been given the contracts in one month and in the same breath, the companies would withdraw arbitration cases against the government of Kenya.
The Arror and Kimwarer dams were among the many alleged graft scams under the Jubilee administration.
The case has various narratives, some politicized, with the perception that money was set aside and looted. But what actually happened?
Government projects are normally executed under specific departments — the contracting authority.
The Kimwarer Dam, which this an engineer who spoke to The Brief was involved in (name withheld for obvious security reasons), was under the Kerio Valley Development Authority (KVDA), a corporate legal entity established in 1979.
Arror Dam is in Marakwet West, while Kimwarer Dam is in Keiyo South in Elgeyo Marakwet county.
There are two main ways in which the government may execute such contracts.
One is Design Build Finance procurement model, what is widely and generally known as Public-Private-Partnership. PPP is actually a type of DBF.
In this model, the contract is awarded for the design, construction, and full or partial financing of a project.
The two kinds of DBF are the PPP and Design Build Finance and Maintain (DBFM), the model that built the Nairobi Expressway.
According to the Public-Private Partnership Act of 2013, “public private partnership” means an arrangement between a contracting authority and a private party under which a private party—
(a) undertakes to perform a public function or provide a service on behalf of the contracting authority;
(b) receives a benefit for performing a public function by way of-
(i) compensation from a public fund;
(ii) charges or fees collected by the private party from users or consumers of a service provided to them; or
(iii) a combination of such compensation the arrangement provides for the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the government through concession or other contractual arrangements.
The types of PPP arrangements, as provided in the Policy Statement on Public Private Partnerships Policy by the Ministry of Finance in 2011, include, but not limited to, management contracts, leases, concessions, Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO), Build-Operate-and-Transfer (BOT), Build-Lease-and-Transfer (BLT), Build-Lease-Maintain-Transfer (BLMT), Build-Transfer-and-Operate (BTO), Develop-Operate-and-Transfer (DOT), Rehabilitate-Operate-and-Transfer (ROT), Rehabilitate-Own-and-Operate (ROO), Land Swap and output-based maintenance contracts.
One key provision in the Act is that the cost of delivering a facility or service in relation to a project by the contracting authority — a state department, agency, state corporation or county government that intends to have a function undertaken by it performed by a private party — does not impose an unreasonable financial burden on the end users.
This latter on will inform the charges against top officials at the National Treasury ministry.
The 2013 Act, under which the Arror and Kimwarer project was executed, has since been repealed by the PPP Act of 2021.
The difference between PPP and DBFM is that while the project sponsor hands over the project back to the government upon completion in the PPP arrangement, in the latter, the financier only gives back the project when they recoup back their funding and profits as will happen with the Nairobi Expressway.
The responsibility for the long-term maintenance and operation of the project remains with the project sponsor, but could be included in a separate agreement.
The Arror and Kimwarer were to be PPPs, and were to be handed back upon completion and the developer paid for the work done.
So, CMC Di Ravenna/ Itinera JV, which was to execute the project, was to do the feasibility study, design, finance and build. KVDA was to compensate for the land.
In the PPP arrangement, the company does everything and agrees on the mode of payment and timelines. In this case, therefore, the company needs guarantee or surety from the government, and thus comes in insurance.
This is a departure from the old system where the government had the idea, the designs and finances and the contractor’s job was to execute the project.
The government has to insure the project and pay a certain percentage , so that if the contractor completes the project and is unpaid the insurance company will pay.
The amount the government paid was about Sh7.7 billion. This is the amount then Deputy President William Ruto in February 2019 said was in question and not Sh21 billion as initially reported by the media.
“You’ have heard the government has lost about Sh21 billion, which is a flat lie! The money in question is about Sh7 billion, and for every coin that has been paid, we have a bank guarantee,” Ruto said on February 28, 2019 at a Judiciary function.
That was the amount paid for the insurance.
This is corroborated by the State Department for Northern Corridor and KVDA.
In February 2022 they told Parliament it is seeking Sh7.7 billion from Heritage Insurance and Standard Chartered Bank for insurance guarantees paid for the dam projects
Then Regional Development Principal Secretary Belio Kipsang said they were demanding Sh4.1 billion from Heritage Insurance for the Arror dam and another Sh3.6 billion from Standard Chartered Bank for the Kimwarer dam ahead of the expiry of the guarantee in June 2023.
Another Sh11 billion offshore payment was made to Italy’s SACE Insurance.The payments were due to the failure to construct the two dams by Italian construction company CMC di Ravenna, which has since filed for bankruptcy.
“The scandal is there was no money budgeted for the insurance. So, Treasury was pushed to borrow money to pay this insurance. That’s where [former Treasury Cabinet Secretary Henry] Rotich comes in. He was nowhere when the contract was being issued. He comes in at the insurance point because he borrowed money to pay for it”.
“And the problem is him borrowing more than was required under unfavourable rates. I think the rates were too high. That is what is crucifying him,” the engineer says.
CASE IN COURT
In July 2019, the Director of Public Prosecutions ordered the arrest and prosecution of Treasury CS Henry Rotich, PS Kamau Thugge and at least 20 others linked to the award of the two tenders.
They included Paolo Porcelli (Director CMC di Ravenna) CMC di Ravenna – Itinera JV Italy), William Kipkemboi Maina (Head of Supply Chain Management), Paul Kipkoech Serem (Manager Engineering Services) and Francis Chepkonga Kipkech (Tender Committee).
Others were Samuel Kimutai Koskei (Tender Committee), David Juma Onyango (Tender Committee), Patrick Kiptoo (Tender Committee), Elizabeth Kebenei (Tender Committee), Esther Jepchirchir Kiror (Tender Committee), Moses Kipchumba (Ad hoc Technical and Financial Evaluation Committee Team 2) and Eng. Nelson Korir (Ad hoc Technical and Financial Evaluation Committee Team 2).
Also apprehended were Eng Isaac M. Kiiru (Ad hoc Technical and Financial Evaluation Committee Team 2), Eng. Patrick Kipsang (Ad hoc Technical and Financial Evaluation Committee Team 2), Fredrick Towett (Ad hoc Technical and Financial Evaluation Committee Team 2), Jotham Rutto (Ad hoc Technical and Financial Evaluation Committee Team 2), Charity Muui (Ad hoc Technical and Financial Evaluation Committee Team 2), Geoffrey Mwangi Wahungu (CEO, National Environment Management Authority), David Walunya Ongare (National Environment Management Authority) and Boniface Mamboleo Lengisho (NEMA).
ExTreasury CS Henry Rotich was in May 2021 charged afresh in a consolidated case with conspiracy to defraud the government Sh63 billion in the scandal alongside former KVDA boss David Kimosop, former Chief Economist at Treasury Kennedy Nyakundi, Director of Resource Mobilization Jackson Kinyanjui, Inspector General of State Corporations Titus Muriithi.
According to DPP Nordin Haji, whereas the commercial contract signed between KVDA and CMC Di Ravenna/Itinera JV clearly stated that Kimwarer Dam would cost $204,020,149.02, while Arror Dam would cost $252,188,732.27 totaling to $456,208,881 (about Sh46 billion), the National Treasury negotiated a commercial facility increasing the amount to approximately Sh63 billion, which was Sh17 billion more than necessary or required amount.
Other charges were conspiracy to defraud, failure to comply with applicable procurement laws, engaging in a project without prior planning and abuse of office among other economic crimes.
Rotich, who had served as head of macroeconomics at the Treasury since 2006 before being named in the Cabinet by Kenyatta in 2013, and the co-accused denied all the charges.
In November 2019, the DPP withdrew charges against Bernard Kibet and Livingstone Bumbe, who had been charged with breach of trust. The two were senior officials at the National Treasury.
In January 2021, DPP also dropped charges against former PSs Thugge (Treasury) and Susan Koech (Wildlife) and made them state witnesses after entering a plea bargain. Thugge is currently an economic adviser to President Ruto, while Koech is the new Deputy Governor, Central Bank of Kenya.
Thugge faced one count of conspiracy to defraud, willful failure to comply with applicable laws relating to procurement, one count of engaging in a project without prior planning, 10 counts of abuse of office and one count of committing an offence of financial misconduct.
Koech, on the other hand, had three counts of conspiracy to defraud, willful failure to comply with applicable law relating to procurement and engaging in a project without prior planning.
The directors of the CMC Di Ravena Company did not appear in court to take a plea. In fact, the court issued a warrant of arrest against Paolo Porcelli for failing to appear in court for the second time.
Others whose cases have been dropped are Jotham Rutto, Charity Muui, David Walunya, Nelson Korir and Samuel Kimutai Koskei. They were found not culpable.
Rotich was in May 2021 charged afresh in a consolidated case with conspiracy to defraud the government Sh63 billion in the scandal alongside former KVDA boss David Kimosop, former Chief Economist at Treasury Kennedy Nyakundi, Director of Resource Mobilization Jackson Kinyanjui, Inspector General of State Corporations Titus Muriithi.
They were accused of failing to comply with the Public Procurement and Asset Disposal Act by directly procuring loans from Italian financiers for the development of the dams.
Rotich was also accused of using his office to improperly confer contractual rights and benefits to CMC di Ravena totalling Sh34 billion being the contractual sum for building the Kimwarer Dam.
“Between April 2017 and November 2018 being the CS Treasury, you used your office to improperly confer a benefit to SACE SPA Insurance by agreeing and promising to pay insurance fee totaling Sh5.5 billion in respect to the construction of Kimwarer Dam,” read the charge sheet.
The prosecution also accuses the suspects of unlawfully entering into a commercial loan agreement with Italian companies that exceeded the national public debt limit and placing Kenya business with an insurer that is not registered.
In an interview on K24 on June 8, 2020, DPP Haji said the case “is about a national project that was applied wrongly. It is about commercial loans taken to the detriment of the Kenyan people”.
According to investigations, Kenya received Sh16.2 billion from Italian bank Intesa San Paolo reportedly as part of the money to insure the construction of the dams. This was one of the red flags as it did not make sense to borrow so much to pay for insurance that was almost half the amount.
Even considering the Sh6 billion compensation to 900 families over accusation of land for the project, the amount was still high. KVDA was to acquire 6,000 acres, including part of a forest, for the two dams.
A report by Business Daily said Treasury’s public debt registry shows the Italian bank wired the billions starting July 2019, days after Rotich was arrested.
According to the report, the register showed Kenya had received Sh3.4 billion ahead of July 2019, when reports of and investigations into the alleged financial misconduct linked to the construction of the dams were in the public domain.
President Kenyatta intervened in the projects in September 2019 after receiving a report from a technical committee that cited irregularities and improprieties surrounding the projects.
He allowed implementation of the Arror dam but at a reduced cost of Sh15.4 billion and cancelled Kimwarer dam project after it was found unviable due to the site.
But there were advance payments.
Evidence presented before court by the state show CMC Di Ravenna got Sh4.3 billion on September 27, 2018, as an advance payment for Arror dam and Kimwarer, and that an advanced payment of Sh3.5 billion was approved on July 2, 2018.
The engineer explained that in this case, since the Italians were not liquid (they filed for bankruptcy) they borrowed from their government to execute the project.
“But those are issues far from what we are dealing with. Those are their issues. They were not to concern us … The issue is that Rotich borrowed money that was not budgeted for under terms that were not clear and paid for the insurance,” the engineer says.
So, was the insurance money looted?
“What I have previously seen is that most of the time, the money that comes back first is kick back. Whether it is insurance or whatever at the county or national government, the money that first comes back is kick back money and they make sure it is around 10 per cent. The brokerage percentage.”
“So, if anything was eaten, it was the kickback money from Italy. And this brings about the issue of corruption and ethics because if you have to pay back 10 per cent kickback, what is the assurance what is delivered is of good quality?” he posed.
In the case, prosecutors argue that Rotich allegedly aided a Sh11 billion irregular offshore payment to an Italian insurance firm entangled in a suspect loan deal to finance the construction of the dams, triggering concerns about kickbacks to officials involved in the projects.
Kenya also risked losing Sh12.4 billion as Italian firm CMC Di Ravenna filed an arbitration case at the International Chamber of Commerce demanding KVDA pays for the amount as compensation for the cancellation of the tender, a case Ruto says will be withdrawn.
Why was Ruto linked to the project?
“What DP Ruto tried to do initially was political. He defended the projects because they were in his stronghold and he had pushed for them. In fact, Kimwarer was not a recommended project because the site had fault lines, which is not advisable for dam construction as the water could leak,” the engineer says.
Ruto, therefore, wanted the dam done at whatever cost because it was a political project and other regions were getting dams. There were Thwake, Thiba, Koru, Mwache, Karimenu, Badana, Soin-Koru, Badasa dams.
So, when the scandal broke out, he had to defend his position politically”.