China firm seeks Sh1.5bn for idle tools at JKIA

A Chinese contractor hired to expand a runway at the Jomo Kenyatta International Airport (JKIA) has slapped the airports authority with a Sh1.5 billion bill for penalties and idle equipment.

The Kenya Airports Authority (KAA) told Parliament that Sinohydro Corporation Limited was seeking compensation after plans to put up the second runway stalled.

The runway plan stalled as government priority shifted to expanding the existing terminals to increase the number of passengers using the facility.

Sinohydro has since 2017 been on the project site at the JKIA with equipment lying idle.

Now, the Chinese firm is seeking compensation for the idle equipment and penalties for freezing the project despite the firm has completed the first phase of the upgrade, earning Sh2.6 billion from the KAA.

Alex Gitari, the KAA managing director, told the Public Investments Committee (PIC) that the works were to be undertaken in phases subject to the availability of funds.

“The contractor is claiming Sh1.5 billion from us for outstanding certificates, interests accrued on delayed payment, tax refunds, retention money, and idle resources and claims by its subcontractors,” Mr Gitari said.

He told MPs that the Sh1.5 billion bill is in addition to Sh2.6 billion that the KAA paid Sinohydro for the first phase of the runway expansion project.

There have been claims the second runway plan was put on hold to focus on other projects within the facility, even after African Development Bank, which was financing the project, had approved the funds.

This marked the second major project at JKIA to be financed by AfDB to have been abandoned by the Transport and Infrastructure ministry.

The Green Field Terminal project or construction of a second terminal was cancelled in 2016.

The ministry said in March 2016 that the cancellation of the plan was informed by a finding that the terminal would yield little value for money and that the funds were better used constructing a second runway.

Kenya has since opened compensation talks with another Chinese firm for compensation linked to the cancelled Green Field Terminal project amid fears a standoff could cost taxpayers hundreds of millions of shillings.

The KAA board has approved negotiations with China National Aero-Technology International Engineering Corporation (Catic)—which wants Sh22 billion for the termination of its contract.

The airports authority entered into a Sh6.2 billion contract with Sinohydro in October 2014 for runway capacity upgrade and rehabilitation of aircraft pavements at JKIA.

The contract was to be executed in three phases but the KAA ran out of money after completing the first phase.

The contract was signed in October 2014 for 30 months and the contractor was scheduled to complete works in August 2017.

The KAA made an advance payment of Sh625 million to the contractor, being 10 percent of the entire contract sum.

Auditor-General Nancy Gathungu flagged the anomaly and cast doubt on the KAA’s ability to recover excess payments to the Chinese firm since the advance payment guarantee expired in 2017.

“We completed the first phase but the contractor could not proceed to the second and third phases due to lack of budget. The contract had a condition that the next phases will only be carried out subject to availability of funds,” the KAA told PIC.

Mr Gitari told the committee chaired by Mvita MP Abdulswamad Nassir that the KAA could not proceed with the project because it lacked funds.

“We are engaging the contractor to find an amicable settlement to pave the way for us to disengage,” he said.

Mr Gitari was hard-pressed to explain why the KAA awarded the Sh6.2 billion to the contractor without an adequate budget and went ahead to pay Sh625 million down payment on the full amount when the contract was to be executed in three phases.

“Why did you decide to pay the contractor Sh625 million instead of Sh200 million per the three phases? You should have awarded the contracts in three lots of Sh2 billion each and pay Sh200 million as a down payment for each lot,” Mr Nassir said.

Mr Gitari said the KAA had managed to recover only Sh79 million from the Sh625 million that was paid to the contractor as 10 percent of the entire contract sum.

He said the agency was yet to engage the contractor in negotiations to terminate the contract for the remaining two phases to save taxpayers money.

The KAA is facing mounting debt and is at risk of asset seizures and auction as contractors pursue Sh37 billion in debt claims against it in court.

The claims are at different stages of adjudication at the arbitration tribunals, the High Court and the Court of Appeal.

The agency owes local and foreign contractors billions of shillings in claims arising from cancellation of contracts, variation of contracts, interests on delayed payments and accrued penalties.

Data submitted to PIC shows that the KAA had a contingent liability of more than Sh36.9 billion as at end of June 2017.

A contingent liability is a cost incurred depending on an uncertain event such as the outcome of a pending lawsuit.

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