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Ecobank takes KPC to task over repayment of Sh5.2bn loan



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As Kenya Pipeline Company battles to calm a storm caused by its plan to pay Zakhem Construction Sh4.4 billion for delays in the controversial Mombasa-Nairobi line, the corporation has found itself in another muddle following claims that it is aiding the Lebanese firm to evade servicing a loan.

Togolese lender Ecobank accuses KPC of helping Zakhem to evade a $52 million (Sh5.2 billion) loan, in the latest of several questionable dealings surrounding the new 20-inch Mombasa-Nairobi oil pipeline.

High Court judge Mary Kasango issued an order freezing Zakhem’s bank accounts and assets in Kenya on Friday, while also stopping the firm and KPC from releasing payment for the $484 million pipeline to anyone other than Ecobank.

On July 25, the judge froze Zakhem’s bank accounts at CFC Stanbic and KCB banks but the order expired six days later.

“A temporary mareva injunction is granted restraining Zakhem International Nigeria, Zakhem Nigeria, Zakhem Kenya and Zakhem Cyprus either by each one of them or jointly whether by themselves, their employees, their agents or nominees or any other person claiming through them from disposing, transferring…or otherwise dealing in any manner whatsoever with any of their bank accounts or assets in Kenya,” the judge said on Friday.

In law, a mareva injunction leads to freezing of assets and is issued to protect a plaintiff where there is threat that the assets may be removed from jurisdiction.

The injunction will restrain the Zakhem firms and KPC “…from paying…or disposing any proceeds or money due under the July 1, 2014 agreement between Zakhem Cyprus and KPC other than to Ecobank Nigeria and Ecobank Kenya”, the court ruled.

The dispute has also set the stage for a battle of lenders —Ecobank and CFC Stanbic.

When a process server moved around Nairobi furnishing the affected parties copies of the July 25 freeze order, KPC, Zakhem and KCB received the documents while Stanbic refused to accept it.

Mr Ronald Mwania, a process server sent by Oraro & Company Advocates, was given a copy of the order and court documents on July 26 to furnish the parties.

In his affidavit, Mr Mwania said that around 12.30pm, he proceeded to the legal office of Stanbic Bank Kenya on Chiromo Road, Nairobi, and served a copy of the order upon a legal officer called Elisha Nyikuli, but he refused to accept it on grounds that the order is not addressed to Stanbic.

KPC insists that the only arrangement it is aware of was to see it remit Zakhem’s proceeds to CFC Stanbic, which was one of the banking consortium that arranged for the financing of the new pipeline.

Zakhem completed the construction of the pipeline in June, and is at the testing stage.

The pipeline transports about 800,000 litres of fuel per hour but the amount is expected to hit a million litres.

Some of its competitors said the Lebanese firm submitted two figures during procurement — $591 million and $485 million.

Zakhem International Construction Cyprus won the Sh48 billion tender in July 2014 but the firm rallied for funds with the help of three sister companies — Zakhem International Construction Nigeria, Zakhem Construction Nigeria and Zakhem Construction Kenya.

The four Zakhem firms argue that they are separate entities, but the court ruled that the freeze order is necessary as their mode of operation in the project makes it difficult to determine where one company’s boundary ends and another’s starts.

Kenya Pipeline’s attempt to wriggle out of the case on grounds that it has no contract with Ecobank also flopped.

Justice Kasango said the State corporation’s presence is key, because the billions of shillings at the centre of the fight arise from the contract between KPC and Zakhem Cyprus.

Through Zakhem Nigeria, the Lebanese-owned firm borrowed $215 million from Ecobank’s Nigeria and Kenya headquarters.

Ecobank released the funds after agreeing to issue bank guarantees to the Zakhem companies in their different countries of presence.

The Togolese lender says it financed the project on condition that KPC would directly deposit 70 percent of its Sh20.6 billion dues in an account Zakhem Cyprus has at Ecobank Nigeria.

KPC was to pay the 30 percent balance to Zakhem Cyprus’ account at Ecobank Kenya.

KPC also borrowed from a consortium comprising CFC Stanbic Bank, Citibank Kenya, Co-operative Bank of Kenya, Rand Merchant Bank and Standard Chartered Bank to complete the pipeline.

“The plaintiff has established a good cause of action against the defendants for $52 million and the prayers it seeks are of an urgent nature.

“Zakhem Cyprus colluded with KPC and the balance of the contract was not remitted to Ecobank Nigeria. As a consequence, Zakhem Nigeria — which arranged for the loan — fell into arrears of the facility with Ecobank,” Ecobank says.

Zakhem International Construction Nigeria, Zakhem Nigeria and Zakhem Cyprus have filed objections to the case, arguing that the loan documents Ecobank is relying on are not governed by Kenyan laws because the transaction was to be performed in Nigeria.

“The said facility from Ecobank Nigeria to Zakhem Nigeria was intended to be utilised by Zakhem Nigeria for projects in terms stipulated in the facility letter,” Zakhem Cyprus and the two Zakhem firms in Nigeria say.

For its part, Zakhem Kenya says it did not apply for any loan from Ecobank, and that it did not receive any funds from the lender.

Zakhem Kenya has also asked the High Court to dismiss the suit.

The Kenyan Zakhem firm says a reading of Ecobank Nigeria and Ecobank Kenya’s suit papers shows that the lender “is totally clueless as to which of the entities they have been dealing with”.

Zakhem Kenya says it closed the account it had with Ecobank Kenya.