Lebanese tycoon sues KPC for Sh13.2bn after Uhuru freeze order

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Lebanese tycoon sues KPC for Sh13.2bn after Uhuru freeze order

Thursday, October 3, 2019 10:07

By BONFACE OTIENO

A Lebanese tycoon is suing the Kenya Pipeline Company (KPC) for Sh13.26 billion after State House froze payment to his construction firm over cost escalation during the building of the Mombasa-Nairobi pipeline.

Abdallah Zakhem, through his construction firm, Zakhem International Construction, filed the suit at the High Court against KPC and is seeking prompt payment of $128.8 million that he says is owed for the construction of the 450-kilometre pipeline.

The firm is demanding $67 million (Sh6.9 billion) for unpaid works, $59.2 million (Sh6 billion) for delays and $2.6 million (Sh267 million) as interest for delayed payment, pushing the total claim to $128.8 million (Sh13.26 billion).

The fightback comes after State House allegedly blocked KPC from making further payments to Zakhem amid claims that the cost of building the pipeline had been inflated way above the agreed Sh48 billion.

“The plaintiff prays for judgment against the defendant for a declaration that the plaintiff is entitled to prompt payment of the sum of $126,255. 812 due and outstanding under the agreement,” Zakhem said in court documents.

“The defendant’s wilful refusal to pay the sum owing and due to it is high-handed and capricious. No reason was given for the refusal and none exists in law.”

Petroleum Cabinet Secretary John Munyes had in July told the Public Investments Committee (PIC) that the Presidency stopped payment to Zakhem pending an independent review of the pipeline construction costs.

The order from State House came as KPC was preparing to pay Zakhem Sh4.4 billion to cover the four years’ delay of the project.

When the firm won the tender in 2014 to build the 20-inch pipeline, it promised to complete the work in 18 months, or on February 9, at a cost of Sh48 billion.

That target was not achieved and Zakhem instead demanded additional billions for the contract delays, triggering a parliamentary investigation and intervention by State House.

If Zakhem succeeds in pushing for extra payment, the pipeline construction costs will jump to Sh61.9 billion given that KPC has already paid the Lebanese firm Sh48.7 billion.

In its court documents, Zakhem seeks to justify the jump in costs and blames KPC for events that led to it, including expenses linked to delays in completion of the project.

The Lebanese firm says the delays were caused by amendments to the design, a dispute over who was to pay Sh240 million regulatory fees to the National Construction Authority and a suit opposing the award of the contract to the company.

“Despite demand and notice to sue being issued, the defendant has failed, neglected or refused to make good the plaintiff’s claim,” Zakhem says in the court papers.

“The plaintiff has had to pay out of its pocket the expenses arising from and incidental to the works undertaken.”

Zakhem says that KPC engineers and executives as well as the Attorney-General’s office had approved the payments.

A push by then KPC managing director, Joe Sang, to settle the Zakhem dues divided the firm’s board. Some directors agreed with the management that a speedy settlement was necessary and another asked for a wider approval, including from State House.

Ibrahim Zakhem, the head of Zakhem’s Africa business, declined a parliamentary summons to shed light on the claims, prompting MPs to threaten arrest warrants.

The National Assembly’s Public Investment Committee (PIC) noted that Mr Zakhem had snubbed Parliament for four years after his company was awarded the pipeline contract.

Zakhem won the tender to replace the 43-year-old pipeline under a cloud of controversy and amid allegations that it had been backlisted in several countries.

Although the other shortlisted companies cried foul, the Public Procurement Administrative Review Board (PPARB) gave Zakhem’s bid a clean bill of health. Zakhem has been one of the politically connected engineering firms in Kenya since the 1970s.

It is a well-known family enterprise still led by its founders, George Zakhem and his brother Abdallah. The Kenyan business was started by Abdallah, who served as managing director of Zakhem International Construction Group in Kenya from 1970 to 1982.

Abdallah, now head of Zakhem International, built solid political networks and won major tenders, including constructing the 14-inch 450-kilometre oil pipeline from Mombasa to Nairobi at $100 million in the late 1970s.

He has been the Honorary Consul of Lebanon to Kenya for the past four decades. As a diplomat, the 81-year-old could enjoy immunity from investigations.