Lebanese firm seeks Sh1.5 billion more for oil pipeline delays

A Lebanese contractor Zakhem International is seeking an additional Sh1.5 billion for operational delays in the building of the Mombasa-Nairobi pipeline after reaching a deal with Kenya Pipeline Company (KPC) management to be paid Sh4.4 billion.

Zakhem has sent the State-agency an extra claim of $15.2 million, terming it the fifth and the final bill, according to documents seen by the Business Daily.

The construction of the Sh48 billion pipeline has suffered five interruptions. The 450-kilometre infrastructure was expected to be completed in 2016.

KPC management struck a deal with Zakhem on April 9 for payment of $44 million (Sh4.4 billion), putting the management on the spot for a contract whose large cost variation has been subject of parliamentary investigation.

“By a letter dated 13th March, 2018 the contractor sent his claim for associated costs under extension of time (EOT) 5 in the sum of $15, 221, 095,” KPC managing director, Joe Sang, said in an April 19th letter to John Munyes, the Petroleum cabinet secretary.

“The claim shall be scrutinized, evaluated and assessed in the same manner as EOT 1–4 in accordance with the governing the contract,” added Mr Sang.

That target was not achieved and Zakhem instead demanded additional $189.2 million (Sh18.9 billion) for the four interruptions, triggering a parliamentary investigation that froze the Zakhem claim.

The management struck a deal with Zakhem that lowered the claim to Sh4.4 billion.

KPC is pushing for a speedy settlement of the claim, arguing that it has enough cash to pay on the strength of the Sh9.2 billion in its budget for the year ending June 2018.

Kenya Pipeline also warns that Zakhem could block the commissioning of the pipeline, whose completion is set for next month and engage KPC in a costly legal battle to recover the amount.

The proposed payment has divided the KPC board with some directors agreeing with the management that a speedy settlement is necessary and others asking for a wider approval, including from Treasury Secretary Henry Rotich, Mr Munyes and State House ahead of the payment.

John Ngumi, who chairs the KPC board, said the directors had passed a resolution requiring additional approvals before payment of the claim and that it’s now immaterial whether the directors were split over the payment.

The resolution to seek addition approval came after a board meeting held on April 11th but the management had already paid $10.5 million (Sh1 billion) to the contractor.

Mr Sang on April 19th sought Mr Munyes’ approval in a notice that was copied to Mr Rotich, Andrew Kamau (Petroleum principal secretary) and the Attorney-General.

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