Kenya: Oil Pipeline Contractor Zakhem Suffers Financial Blow

14 January 2020

Lebanese firm Zakhem Construction, which constructed the 450-kilometre Mombasa-Nairobi oil pipeline suffered a financial blow, following a court order that has allowed consultancy Quality Inspectors to recover Sh170 million from its accounts held at Stanbic Bank.

Last month, Justice David Majanja allowed Quality Inspectors to recover the money, but court proceedings now show that Zakhem only had Sh393,000 in the two Stanbic Bank accounts identified for attachment.

This means that Quality Inspectors, which conducted pre-commissioning tests on the new pipeline, still has Zakhem on its radar in the event that the Lebanese firm receives funds from State claimed for delays in the project.

Quality Inspectors had asked the judge to allow it attach monies owed to Zakhem by Kenya Pipeline Company (KPC), but the judge declined after being informed that the amounts are already frozen through a separate court order.

On August 29, 2018, Justice Mary Kasango issued an order stopping KPC from releasing any of the money owed to Zakhem unless it is paid to Togolese lender Eco Bank, which says the Lebanese firm is trying to avoid payment of Sh5.2 billion loan.

WITHHELD FUNDS

Eco Bank sued Zakhem and KPC in 2018 over claims of colluding to evade loan repayment.

But the amount KPC owes Zakhem is also hazy, as the Lebanese firm first claimed Sh4.4 billion for delays in releasing funds and site access, but last October it sued KPC seeking Sh13.2 billion.

In the case Quality Inspectors filed against Zakhem, KPC claims to have only withheld Sh1.4 billion, indicating that how much it owes the contractor may have to be determined by the courts.

KPC hired Zakhem in 2015 and was to part with Sh48 billion for the new pipeline. But the project now risks plunging taxpayers into more debt if Zakhem's claim for Sh13.2 billion against KPC is successful.

After Zakhem accused Quality Inspectors of violating the pre-commissioning tests, the two parties were contacted for arbitration.

Details of the arbitration proceedings are not in the court papers seen by the Nation, but they indicate that the two parties appeared before arbitrator John Ohaga, who on August 24, 2018 held that Zakhem owed its subcontractor Sh170 million.

TAX BILL

Zakhem challenged enforcement in court but Justice Francis Tuiyott ruled that the Lebanese firm's arguments could only be considered in an appeal against the tribunal decision.

But Eco Bank and Quality Inspectors are not the only ones baying for Zakhem's wallet, as the Kenya Revenue Authority (KRA) has also slapped the contractor with a Sh17 billion tax bill.

Zakhem is also at the centre of Directorate of Criminal Investigations probes surrounding the pipeline project.

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