The dams and the dammed in Kenya: Will we ever clear the waters?

In December 2018, distressed CMC Ravenna entered a debt restructuring process under Italian solvency law. The firm said this was the most effective way to secure its assets and protect all stakeholders.

CMC di Ravenna was founded in 1901 as Cooperativa Muratori & Cementisti - C.M.C. (cooperative of bricklayers/masons and cementers) in Ravenna (a beautiful Italian city where it is headquartered).

According to Bloomberg’s companies overview, CMC has built transport infrastructure networks, including roads, motorways, tunnels, bridges, viaducts, railways, undergrounds, and airports. The company also designs and builds water and irrigation works comprising dams, hydroelectric plants, tunnels, aqueducts, and irrigation channels; and ecology and environment projects that include water treatment and sanitation services, sewage systems, and toxic waste treatment facilities.

The company overstretched itself financially and got into deep trouble. It was placed under receivership and struggled for several years to meet its contractual obligations.

Few people in Kenya knew of CMC until March-April 2019, when all hell broke loose about certain dams where goats and sheep were still grazing. Billions had been paid out and Arror was as dry as a bone.

The Arror Dam project began many years ago, perhaps more than fifteen. It was originally supposed to be an Italian funded aid project, but many delays and bureaucracy made the Italian government pull out of the project.

The name of Arror Dam still lingered in many heads, and the matter should have been revived as a Public Private Partnership (PPP) and joined to other dam projects, such as Kimwarer, which were not in the original plans. However, Kimwarer’s viability and convenience had not been properly established.

If the project had been revived as a PPP, CMC might have got a breath of fresh air that promised the company a lifeline for survival. Everything could have gone well had it not slipped into political manoeuvring. Arror needs a dam badly. The place is amazingly beautiful, wild, dry and poor. I have visited the area and its stunning beauty is in sharp contrast with its poverty and the misery of its people.

Sadly, a good project seems to have been taken over by unscrupulous individuals. Those types of people who have a special gift for turning the common good into public misery.

MOBILISATION FEES

In these cases, truth is mingled with politics, legal inaccuracies and worsened by shallow or misleading statements. The fact that a contractor was paid in advance is a common practice. This is called mobilisation fees, which is an advance payment to allow the contractor to mobilise on site. In fact, no large project will ever start without an advance payment, which is actually repaid in full when 75 percent of the work is done. It is effectively an interest-free loan, and all big contracts work in this way.

Mobilisation fees are part of the contractual terms; they could be as much as 20 percent or sometimes more, depending on the nature of the project. These payments must be backed by irrevocable bank bonds which safeguard the Kenyan government. In the case of Italy, there is a company (S.A.C.E.) that insures Italian contractors for overseas projects. The same happens in Germany and other developed countries.

The drama with CMC in this case, may be that some of its employees could have joined the scam. Paolo Porcelli, its Head of Southern Africa Operations, certainly has some tough questions to answer.

The fraud scheme will be unravelled if the authorities focus their attention on a few key indicators, such as costing, procurement, compensation, approvals and then follow the money.

The project had originally been planned as an Italian-funded aid project. When Italy pulled out it became a Government of Kenya project, and as such its procurement should have been guided by the procurement laws and regulations that bind any government-funded project.

In some public declarations, government officials said the project was a PPP and this argument was used to bypass certain key procurement processes not applicable to PPPs.

A PPP is where the private sector and the government join hands to undertake an activity that will attract enough earnings to repay the investment made by both parties. How were these dams going to repay themselves?

Of course, repayments cannot be calculated without proper costing, and this brings to the fore our first essential point, costing. Were international standards followed in costing the project? Why was there a later addition of contingencies in a project of such magnitude? Why was a second dam added which had not been in the original plans? Who approved this?

Contingency is a must in these large projects, where variations are huge, but one thing is contingency (included in the contract sum and financing package) and different one is unjustified and unjustifiable percentage additions.

Why were procurement processes not followed? On what basis? These mysteries have not been explained coherently.

The second key indicator is compensation. Was anyone compensated for the land? When were these title deeds issued? By whom? How much was paid for the land? Was the National Land Commission involved? Or was this done directly from the Treasury? These are important questions and they would point at serious insider trading crimes and conflicts of interest.

APPROAVALS

The third point deals with approvals. Was due process followed? Was due diligence carried out? What was paid and what for? Were these payments related to the project? Who authorised such payments? If these questions can be answered coherently there would be no reason for this whole hullaballoo.

How did the project pass the Sh60 billion mark? In the end, this money comes from all tax payers, and tax payers have a right to question and get straight answers. After all, that is what transparency is all about, and transparency in Kenya is a national value and a constitutional duty.

Prof Luis Franceschi
Founding Dean – Strathmore Law School
[email protected]