When the Kerio Valley Development Authority (KVDA) requested for proposals for the funding, design, building and transfer of the Arror and Kimwarer dams in the daily newspapers, the bidders omitted something crucial from their bill of quantities: The designs.
Whether this oversight was an error of omission or commission is not clear, but it has now returned to haunt the officials behind the project.
Also, there is no evidence that KVDA asked potential bidders to submit an "expression of interest" as required by the law before requesting for proposals.
Why KVDA asked bidders to put up money for the design, when it had a design (for Arror) is one of the giveaways that something was amiss.
A May, 2019, report by the Auditor-General says that Arror was designed by NTM Consulting Engineers on behalf of the Ministry of Regional Development, and that the design was forwarded to KVDA. But there is still no design for Kimwarer, meaning the tendering was done without a crucial document.
The other question is why the government asked a private entity to source for funds on its behalf when there is no indication that it (government) had limited borrowing capacity.
"The Cabinet Secretary to the National Treasury, Mr Henry Rotich, and the Managing Director of KVDA, Mr David Kimosop, engaged a consortium of foreign financiers ... to finance the construction of two projects through a loan amount of $501.8 million (Sh50 billion) without evidence of limited borrowing capacity by the National Treasury... ," says the Auditor-General in a tightly held report.
This was illegal since it did not conform with Section 6.8.2 of the Procurement Manual for Works, the auditor notes, adding that the Treasury should have sourced for funds directly from lenders without involving CMC di Ravenna-Itinera Joint Venture.
"It should have considered other public private partnership models such as build, operate and transfer, which does not involve a financing component," the Auditor-General said.
A consortium of five private international financial institutions lined up to bankroll the two projects through a London-based agent, Intesa Sanpaolo SPA, a leading Italian banking group. While this was disguised as a "government to government" loan, in the financial agreement signed by Mr Rotich on April 18, 2017, and representative of the financiers, it was actually a commercial loan, and "there was no representation of the Government of Italy".
Instead, the financiers sent five representatives: Stefawo Leo, Maria Simeon, Daniele Di Mrio Birgh Dollman and Peter Haiteingerer.
Why the National Treasury did not issue a sovereign guarantee, an assurance that all obligations would be satisfied when, and if, the primary obliger defaulted, is not clear. But Mr Rotich agreed to pay an insurance company a Sh10.7 billion premium, meaning it was a commercial loan.
Economists at the Treasury had all along questioned why the loan did not have a 35 per cent grant element and called for negotiations for better terms for the projects.
More shocking, the insurance agency, SACE, was paid a non-refundable fee of Sh10.7 billion, yet it was one of the project's co-financiers.
"This represents a conflict of interest, where SACE, as one of the lenders, single-handedly decided on the amount of insurance payable," notes the Auditor-General. "There was no evidence that the Cabinet Secretary to the National Treasury obtained an expert opinion in regard to the competitiveness of this insurance charge so as to guarantee value for money."
Also, the loan agreement gave the insurer express leeway to determine the amount of insurance premium without recourse to the Treasury. And the Sh10.7 billion insurance covered only the loan capital, while the projects were not insured.
Treasury economist Bernard Gibet had also advised Mr Rotich in a March 3, 2017 memo that when the borrowing of Sh61 billion was added to the total public debt as at February 27, 2017, it increased the debt to 52.9 per cent of the GDP, which was above the legal limit of 50 per cent.
KVDA and the Treasury are also on the spot for making payments before acquiring the project site for Arror, and before a feasibility study was done for the Kimwarer dam. The payments were authorised by Mr Jackson Kinyanjui, a director for resource mobilisation, and Mr Kennedy Nyakundi, chief economist. They authorised the lenders' agent, Intesa Sanpaolo, to credit part of the proceeds (66.6 million Euros) to the account of CMC di Ravenna-Itinera JV.
"The National Treasury, while negotiating for this loan, failed to take into consideration the value for money risks occasioned by advance payment to a contractor without evidence of work done that is worsened by the fact that the land under which the project will be constructed is yet to be acquired," the Auditor-General notes.
168.5 MILLION EUROS
Records show that so far, the contractor has received 168.5 million Euros, but the Treasury did not maintain journal ledgers recording these disbursements.
Two firms, Chinese Sino Hydro, with a score of 57 points, and CMC di Ravenna, with 56.8 points, were picked as the most responsive and were asked to submit their proposals. Both sent their proposals by October 15, 2015, and the financial and technical committee recommended that Sino Hydro be considered for further discussions.
During a meeting in the KVDA boardroom on December 21, 2015, attended by a "negotiating team" led by Mr David Onyango, Sino Hydro was said to have failed to demonstrate its ability to undertake the project. This is because it was not willing to review its financial proposal, unless it was issued with an award letter.
On January 27, 2016, they invited CMC di Ravenna to present its proposal and gave it the letter on February 1, 2016.