KAA faces Sh37 billion worth of lawsuits

KAA faces Sh37 billion worth of lawsuits

The Kenya Airports Authority (KAA)  headquarters at the Jomo Kenyatta International Airport/ Courtesy.

NAIROBI Kenya, Nov 12- The Kenya Airports Authority is facing mounting debt and is at risk of asset seizures and auction as contractors pursue Sh37 billion in debt claims against it in court.

The claims are at different stages of adjudication at the arbitration tribunals, the High Court and the Court of Appeal.

The agency owes local and foreign contractors billions of shillings in claims arising from cancellation of contracts, variation of contracts, interests on delayed payments and accrued penalties.

Data submitted to the Public Investments Committee (PIC) shows that the KAA had a contingent liability of more than Sh36.9 billion as at end of June 2017.

A contingent liability is the cost incurred depending on an uncertain event such as the outcome of a pending lawsuit.

Sinohydro Corporation Limited, a Chinese contractor hired to expand a runway at the Jomo Kenyatta International Airport (JKIA) is one among these firms, seeking Sh1.5 billion compensation from the Kenyan Government.

The Kenya Airports Authority (KAA) told Parliament that the Chinese firm was seeking compensation after plans to put up the second runway stalled.

Since 2017, Sinohydro has been on the project site at JKIA with equipment lying idle for the past five years. 

The runway plan stalled after the Kenyan Government chose to expand existing terminals to increase the number of passengers using the facility instead of expanding the runway. 

The Chinese firm is now seeking compensation for the idle equipment and penalties for the stalled project despite the firm having completed the first phase of the upgrade, earning Sh2.6 billion from the KAA.

KAA managing director Alex Gitari told the PIC that the works were to be undertaken in phases subject to the availability of funds.

“The contractor is claiming Sh1.5 billion from us for outstanding certificates, interests accrued on delayed payment, tax refunds, retention money, and idle resources and claims by its subcontractors,” he stated.

There have been claims that plans to expand the second runway were put on hold to focus on other projects within the facility despite the African Development Bank, which was financing the project, having already approved the funds.

KAA entered into a Sh6.2 billion contract with Sinohydro in October 2014 for runway capacity upgrade and rehabilitation of aircraft pavements at JKIA.

The contract was to be executed in three phases but the KAA ran out of money after completing the first phase.

The contract was signed in October 2014 for 30 months and the contractor was scheduled to complete works in August 2017.

The KAA made an advance payment of Sh625 million to the contractor, being 10 percent of the entire contract sum.

Auditor-General Nancy Gathungu flagged the anomaly and cast doubt on the KAA’s ability to recover excess payments to the Chinese firm since the advance payment guarantee expired in 2017.

“We completed the first phase but the contractor could not proceed to the second and third phases due to lack of budget. The contract had a condition that the next phases will only be carried out subject to availability of funds,” the KAA told PIC.

PIC chairman Abdulswamad Nassir with vice Ahmed Abdisalan and member Mohamed Garane during the committee’s meeting with Kemsa officials early this year. Photo/PD/Samuel Kariuki.

Gitari told the committee chaired by Mvita MP Abdulswamad Nassir that the KAA could not proceed with the project due to lack of funds.

“We are engaging the contractor to find an amicable settlement to pave the way for us to disengage,” he said.

Gitari was hard-pressed to explain why the KAA awarded Sh6.2 billion to the contractor without an adequate budget and went ahead to pay Sh625 million down payment on the full amount when the contract was to be executed in three phases.

“Why did you decide to pay the contractor Sh625 million instead of Sh200 million per the three phases? You should have awarded the contracts in three lots of Sh2 billion each and pay Sh200 million as a down payment for each lot,” Nassir said.

Gitari said the KAA had only managed to recover Sh79 million from the Sh625 million that was paid to the contractor as 10 percent of the entire contract sum.

He said the agency was yet to engage the contractor in negotiations to terminate the contract for the remaining two phases to save taxpayer funds.

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Nasra Nanda

Nasra Nanda

Nasra Nanda is a Senior Associate in Dentons Hamilton Harrison and Matthews, a leading law firm in Kenya.

Gregor Pannike

Gregor Pannike

Gregor Pannike is the founder and managing director of Agema Analysts.

Liz Lenjo

Liz Lenjo

Liz Lenjo is the Founder and Managing Consultant of MyIP Legal Studio.

Angela Kioi

Angela Kioi

Angela Kioi is a legal compliance expert, negotiator and ADR practitioner.



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