Money clouds airport tender after Anhui win

The financing details of the Sh55 billion new terminal at the Jomo Kenyatta International Airport (JKIA) in Nairobi remain a mystery even as the government signed a deal with the contractors.

On Monday, Kenya Airports Authority (KAA) remained non-committal on how the project would be funded as its parent Transport ministry denied knowledge of any financing details.

KAA managing director Stephen Gichuki said the project’s financing was sensitive, only divulging that “the government will facilitate the financing arrangement of the project.”

In response to a query by the Business Daily on the terminal’s funding, Transport minister Amos Kimunya, who once ordered the cancellation of project, said: “KAA can best explain this.”

The uncertainty about the project’s financial backers comes after KAA signed a contract with two Chinese firms –Anhui Construction Engineering Group (ACEG) and state-owned China National Aero-Technology International Engineering Corporation (Catic). Perhaps incidentally, a company called Catic Cement owns 20 per cent of Savannah Cement.

Treasury had committed to finance the project by raising airport charges and taxes, with KAA keen on tapping funds from international lenders like China Development Bank.  Mr Gichuki in August told a parliamentary committee that KAA was in direct negotiations with international financiers since the contractors did not have their own financial backers.

“We are negotiating directly with financiers such as China Development Bank. We are not under anyone’s terms,” Mr Gichuki had told the joint parliamentary committee on Transport, Finance and Budget.

The statement raised questions over why KAA was looking for a financier for a project that the Treasury had guaranteed to support up to the tune of $654 million (Sh54.9 billion).

“Why would a bidder need to identify a financier to qualify when the project is to design and build the facility? The Treasury was to support and identify the financier. It has already revised service charge and airport taxes,” said Nambale MP Chris Okemo, who co-chaired the joint committee.

The committee further questioned why the tender was awarded before Parliament approved its financing as required under the Loans Guarantees Act, adding that the project may be delayed if the financiers refused to back it.

It remains to be seen whether the government will fund the terminal on its own or if it will offer guarantees to international investors backing the terminal.

Mr Kimunya’s statement that KAA is better versed on the terminal’s financing comes after Cabinet approved the project on Thursday, further clouding the matter. KAA has, however, signalled its intention to push forge forward with the project after it withdrew a case it had filed in court seeking to cancel orders requiring it to sign the contract with the two Chinese firms.

Mr Gichuki on Friday directed the Authority’s lawyer, Eric Mutua, to withdraw the case he had filed on September 11, arguing that the project’s financing—which was at the centre of the dispute—had been resolved.

“As you are aware, the project was later approved by the Cabinet on September 13, 2012. Subsequently, the government will facilitate the financing arrangement of the project, which is basically the main subject of the suit,” Mr Gichuki instructed the lawyer.

“You are, therefore, formally instructed to proceed and withdraw the case from court.”

The parastatal had gone to court to block orders from the Public Procurement Oversight Authority (PPOA) requiring it to sign a contract with two firms that had been picked in the tendering process, notwithstanding the uncertainty of the project’s financing.

PPOA on August 29 ordered the Authority to execute within 30 days, the signing of a deal with the two contractors. The order followed a complaint by AnHui, which raised fears that the tender it had been awarded on December 16, 2011 was about to be terminated by Mr Kimunya’s cancellation orders dated January 10, 2011. PPOA ruled that though KAA had not formally entered into a contract to start the process, the fact that the company had been awarded the tender had legal backing.

Anhui’s appeal came after Mr Kimunya pushed for the cancellation of the tender, saying it was not competitive enough in a controversy that sucked in various arms of the government.

Mr Gichuki was suspended by KAA’s board following disagreements over the tender awards, with the managing director going back to office recently after the courts rejected the move by the directors. Former KAA board chairman Martin Wambora said the board was kept in the dark and exercised its oversight role.

He said alarm bells started ringing when it emerged that the contract had been varied from the approved $500 million to $668 million, a $154 million difference.  Mr Gichuki said more details had been included in the 2011 version, which raised the cost of the project.

A total of 110 companies bought the tender documents, but only five companies submitted their applications on time.

The new terminal, dubbed Greenfield Terminal, is Kenya’s single largest and most important project in the aviation sector since 1978.

It is aimed at enhancing Nairobi’s status as a regional transport hub that has supported Kenya Airway’s expansion plans in Africa and Asian markets.

The project, which is expected to take three years, is already nine months late. Ethiopia, Rwanda, and Uganda also plan to expand their airports to attract large aircraft, rivalling Nairobi’s status as the east Africa’s aviation hub.