Kenya: Italian Firm in Dams Scandal Abandons Project in Nepal

Site in Nakuru where Itare dam is to be constructed by CMC di ravenna. The project has stalled (file photo).

The Italian firm at the centre of a raging controversy over two dams in Elgeyo-Marakwet County is fighting a legal battle in Nepal after it abandoned a project last December, casting further doubt on its ability to undertake the works in Kenya.

The Nation has learnt that the Nepalese government was forced to seize the company's performance bond of 2.1 billion rupees (Sh1.84 billion) after it failed to complete a Sh35.5 billion project.


The Himalayan Times reported that the "government had previously provided advance payment of around Sh800 million to the Italian contractor in three instalments to address cash-flow problems faced by the company."

Now, the Asian Development Bank says it will not support the project in Nepal if the government reappoints CMC di Ravenna to complete the unfinished works.

The company had abandoned the project after facing severe financial problems at home, forcing it to seek court protection for its assets.

In Nepal, CMC got the advance payments "on condition that they would be recouped after 80 per cent of the contract work was executed". That, however, did not happen, according to the newspaper report.

Financial records indicate that the company has been going through financial problems back home, but it appears Kenyan officials failed to detect this before signing a multibillion-shilling deal with the firm, one of Italy's oldest construction companies.

At the same time, the Nation Monday discovered that the contract amount for the Arror and Kimwawer dams does not include the Sh6 billion required to compensate families for the project land, which means the Exchequer could be forced to fork out the extra billions.


CMC di Ravenna negotiated an EPC+F contract with Kenya, which meant that the Kerio Valley Development Authority would allow the firm to engineer, procure, construct and finance the project.

While the project was to be completed in 60 months, it has yet to start, triggering uproar after the government admitted over the weekend that it has spent more than Sh20 billion so far.

Back in Italy, CMC di Ravenna is not only going through bankruptcy motions, but is also facing charges of fraud after the public prosecutor in Trani, southern Italy, opened a criminal investigation into the awarding of a contract for building the new port of Molfetta.

The prosecutor says company officials "knowingly participated in a fraudulent scheme organised by the Municipality of Molfetta".

While the investigation involved the previous chairman of CMC di Ravenna (who has since died), the case is of interest in Italy because the prosecutor has requested the court to "prevent the company from carrying out its business activities".

Detectives are still keen to interrogate the CMC officials in Italy after those managing the Kenyan office told detectives they know little about the contract.

Last week, the Directorate of Criminal Investigations interrogated KVDA Managing Director David Kimosop, who blamed "political interests and interference from interested quarters for the delay".

Last month, the National Land Commission published a notice in the Kenya Gazette on its intention to acquire 2,345 acres for the two dams.

The NLC said 800 families would receive a total of Sh6 billion as compensation, thus pushing the cost of the dams to over Sh70 billion.


This also means that the NLC plans to pay farmers an average of Sh2.6 million per acre, even though this was not part of the funding received from the financiers of the project.

The bills of quantities for the projects, seen by the Nation, indicate how the cost of construction was arrived at, with a huge chunk of the money going to preliminary costs -- Sh5.3 billion for Kimwarer and Sh7.1 billion for Arror.

But Elgeyo-Marakwet Governor Alex Tolgos has told the affected families to take back their land until further notice. He said his government will not allow residents to be frustrated by cartels.

Documents with the Nation indicate that the actual building of the Arror dam was budgeted at Sh6.6 billion while the dam embankment at Kimwarer was to cost Sh5.4 billion.

Without a design for the project, detectives are wondering how these figures were arrived at.

The project also intended to carry out irrigation downstream, which was to cost Sh2.5 billion for Kimwarer and Sh1.8 billion for Arror. About 2,000 hectares was to be irrigated.

Another huge procurement was for the waterways and powerhouses, which were budgeted to cost Sh3.5 billion at Kimwarer and Sh5.9 billion at Arror. The type of equipment to be installed was left to the financiers and contractors as it was not specified in the contract documents.

Engineering fees, which include the design, was to cost another Sh1.5 billion for the two dams.

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