Kenya renegotiates Arror, Kimwarer Sh19bn defaulted Italian loans
Tuesday March 14 2023
Kenya and Italy have agreed to renegotiate the Sh19.8 billion controversial loan that Nairobi took to construct the Arror and Kimwarer dams, setting the stage for the revival of the projects that were cancelled by former President Uhuru Kenyatta.
The review of €578.2 million (Sh79.2 billion) syndicated loan package provided by Italian commercial banks was the highlight of the talks in Nairobi between President William Ruto and his Italian counterpart, Sergio Mattarella.
The projects stalled after the Director of Public Prosecutions (DPP) said the cost of parts of the projects was inflated and that the contracts were awarded without regard to procurement laws.
President Ruto said Kenya was looking to resolve legal hurdles that stalled the projects after Kenya froze payments of the syndicated loans in the wake of the fraud allegations.
“We have now agreed on a framework to settle all the outstanding court cases and have agreed that the facilities that had been provided for the construction of these dams will be renegotiated,” Dr Ruto said on Tuesday.
Former Treasury Cabinet Secretary Henry Rotich was in July 2019 charged alongside some senior officials and forced out of office over allegations that they conspired to defraud the government while implementing the dam projects. Mr Rotich denied wrongdoing.
Read: Kenya defaults on Sh19.6bn Arror, Kimwarer dams loan
Up to Sh19.8 billion had been paid in advance to various offshore firms for the Arror and Kimwarer projects from the syndicated loans despite the dams not being built.
Mr Kenyatta in September 2019 cancelled the Kimwarer dam project following an investigation that established that it was technically and financially unfeasible.
He also issued an order for the commencement of the Arror dam project at half the costs as the technical committee he appointed to look into the developments found it economically viable.
On Tuesday, Dr Ruto said Italy and Kenya were in the process of withdrawing the court cases linked to the cancellation of the dam projects.
Kenya has filed a suit against Italian firms while the contractors have also sued Nairobi in a counter-suit.
Three Italian firms –Cooperativa Muratori & Cementisti -CMC Di Ravenna Societa Cooperativa (Italy), Itinera S.P.A and CMC Di Ravenna- Itinera JV S.C.P.A — in 2021 filed a case before the International Court of Arbitration for what they said were illegal cancellations of the projects.
“We intend to clear the court issues in the next one month and be able to start the process of starting the restructuring of financing and hopefully we should be able to go on with the project,” said Dr Ruto.
Kenya defaulted on the Sh19.6 billion loan for the controversial Arror and Kimwarer dams having failed to make the first instalment payments to Italian Bank Intesa San Paolo in May 2021
Treasury documents tabled in Parliament showed Kenya was to pay the first instalment for the Sh11 billion lent for the Arror dam on May 18, 2021 and the initial repayment of the Sh8.63 billion Kimwarer loan on May 9, 2021.
Records before Parliament show the Treasury is yet to make payments for loans linked to the two dams.
“Loan of Eur 258,688,881.72 (Sh33bilion) repayable in semiannual instalments commencing 9th May 2021 and ending on 9th November 2035,” said the Treasury disclosures in reference to the Kimwarer dam debt.
On the Arror dam debt, the Treasury documents said: “Loan of Eur 319,620,697.07 (Sh40.8 billion) repayable in semiannual instalments commencing 18th May 2021 and ending on 18th November 2035.”
But analysts say the non-payment of the loan cannot be viewed strictly as a default given the ongoing probe and court action.
Mr Rotich has been accused of aiding a Sh11 billion irregular offshore payment to an Italian insurance firm entangled in the suspect loan deal to finance the two dams.
The DPP in court filing says Mr Rotich facilitated the direct payment of the amount to Italy’s SACE Insurance contrary to the law, which requires that all payments are processed through the consolidated account in Kenya.
Read: Rotich loses bid to stop Arror dam scam case
The prosecution reckons that the push to bypass wiring the cash to the consolidated fund was engineered to facilitate the payment of bribes and kickbacks.
There were also concerns that the contractor CMC Di Ravenna- Itinera JV had gone bankrupt even after receiving Sh7.2 billion in advance payment for the project.