The Kenya Pipeline Company (KPC) incurred Sh3 billion in penalties and interests following a directive by the National Treasury that halted payment to a Lebanese firm that built the Mombasa-Nairobi pipeline.
As a result of the Treasury’s directive, Zakhem International Construction (Kenya) Ltd slapped the KPC with a Sh3,027,732,573 bill for operational delays in the construction of the 450-kilometre pipeline.
The penalties and interests arose from the failure of the KPC to settle $44,019,025 (Sh4.4 billion) in respect of four Extension of Time (EOT) claims.
“According to management, delay in the settling of the payments was occasioned by a directive from the National Treasury to clear with the Directorate of Criminal Investigation (DCI) and seek guidance from the Attorney General,” Nancy Gathungu, the Auditor General, said in the latest audit of KPC accounts for the year to June 2023.
“However, the non-settlement of the amount led to the accumulation of penalties and interests which could have been avoided.”
The DCI in 2019 stopped the KPC from making payments worth Sh3.3 billion to the Lebanese contractor pending the conclusion of an investigation into the procurement of the Sh48.4 billion oil pipeline commonly known as Line 5.
The KPC contracted Zakhem International Construction (Kenya) Ltd to build the Sh48 billion ($484,502,886.40) new Mombasa –Nairobi oil pipeline.
The penalties and interests arose from a dispute on the EOT claims amounting to $204,511,82 (Sh18.4 billion).
The dispute led to the appointment of an expert scheduler in 2018, who determined the total payable as $44,019,025 (Sh4.4 billion) in respect of the four EOT claims. However, one claim, EOT 5 was not assessed.
Zakhem had put in a Sh18.4 billion claim but the expert scheduler, M/s Nyara reduced the amount to Sh4.4 billion.
Ms Gathungu said despite the assessed amount having been agreed by both parties, KPC management declined to pay the amount leading to the contractor seeking redress in the High Court in a suit filed on September 26, 2019.
Zakhem International Construction (Kenya) Ltd, owned by Abdallah Zakhem had been locked in disputes with the KPC over additional claims on delays in completion of the multi-billion shillings project.
