When Lebanese engineering firm Zakhem won the tender in 2014 to build a 20-inch pipeline in Kenya, it promised to complete the work in 18 months at a cost of Sh48 billion. It hasn’t.
They later demanded an additional Sh11 billion for the contract.
Kenya Pipeline Company chairman John Ngumi commented to the Nation: “I can only say that we are disappointed.”
Though legally a company can vary its tender by 25 per cent, an avenue used by many firms to get more money from State corporations, Zakhem’s demand has raised eyebrows in Parliament.
The financing of the pipeline was a major undertaking and a $350 million loan facility was arranged by KPC with a banking consortium that included CFC Stanbic Bank, Citibank Kenya (Citi), Co-operative Bank of Kenya, Rand Merchant Bank and Standard Chartered Bank.
The deal was brokered by London’s East End lawyer Sanjeev Dhuna, a partner with London’s Allen & Overy, who is regarded as a fabulous dealmaker in the law firm. (He was the man who advised StanChart on the financing of Bharti Airtel’s $10.7 billion purchase of Zain Africa).
Dhuna raised the $350 million for the project and KPC was to fund the other costs through its reserves.
Zakhem has been one of the politically correct engineering firms in Kenya ever since they arrived in the 1970s. A well-known family enterprise still led by its founders George Zakhem — author of Men Who Dream Can Do — and his brother Abdallah, the Kenyan business was started by the latter, managing director of Zakhem International Construction Group in Kenya from 1970 to 1982.
From the onset, Abdallah built solid political networks and won big tenders. Doubling as his country’s Honorary Consul in Kenya since 1978, he penetrated the corridors of power and still packs a punch.
With the outbreak of civil war in Lebanon in 1975, Nairobi gave Zakhem a new life and home. It had won its first major tender in Kenya in 1975, to build the premier 14-inch 450-kilometre oil pipeline from Mombasa to Nairobi at $100 million.
FAVOURED BY GOVERNMENT
Soon, Zakhem became one of the companies favoured by government functionaries and was, at times, single-sourced. Others were Yugoslavia’s Put Sarajevo, Soleh Bonneh (Israel) and Jewish billionaire Gad Zeevi’s HZ Construction. Zeevi would later become a business partner with insiders in the Moi regime and his company, too, won lucrative tenders.
Zakhem had been out of the picture — and out of controversy in Kenya — until it won the latest KPC tender. It had shifted some of its business to Nigeria, where Abdallah became a known figure as the chairman of Lebanese Nigerian Friendship Association (Lenifra), which organises high-profile banquets for local and Lebanese businessmen.
They got lucrative tenders in the National Petroleum Corporation (NNPC), thanks to President Olusegun Obasanjo, but in Liberia, they left in 2009 under a cloud of controversy after President Ellen Johnson-Sirleaf dismissed her confidant Harry Greaves — then head of the State-owned Liberia Petroleum Refining Corporation (LPRC) — following a Ministry of Justice probe into alleged bribery in a $24.8 million concession.
In the scandal, LPRC had issued an international competitive bid that produced two finalists: Zakhem estimated the cost of the project at $24.8 million while another construction company, Mechanical Engineering Group (MEG), submitted a $12 million bid. Despite the wide price discrepancy, Greaves unilaterally signed a contract with Zakhem.
In Kenya, Parliament had as far back as 1995 been told that Zakhem was getting contracts even when it was not the lowest bidder.
KPC insiders say that management knew the company had been blacklisted in West Africa when they gave it the pipeline deal and that the tender committee did not get enough time to scrutinise it.
COMPANIES CRIED FOUL
Although the other shortlisted companies cried foul, the Public Procurement Administrative Review Board (PPARB) gave the project a clean bill of health. Zakhem’s competitors had accused the firm of submitting two figures: $591 million and a discounted $485 million. PPARB said this was not the case and gave the company a chance to do yet another pipeline.
“Zakhem was to do new civil works, new stations, install new pumps and instrumentations. It also has to drill the tanks to accommodate the new pipes,” an engineer knowledgeable with the goings-on told the Nation. “We have learnt that two of the members of the PPARB have direct interests in KPC.
“A daughter of one of the board members is employed as a senior manager while another PPARB board member was a past KPC lawyer.”
Shortly after they clinched the tender, Zakhem began holding planning meetings with KPC officials.
“What we realised from the start is that they wanted to make as much money as possible,” said a source who attended the meetings.
At a project meeting in Mombasa, Ibrahim appeared in person to say that he wanted to import some electric mortars from Toshiba Mitsubishi, the Japanese electrical company.
He claimed that the 3 megawatt motors required for the main line pump were not available in Kenya.
“He wanted us to downgrade to Zone 2, which means he would save up to Sh10 million per motor if we went for that,” said a source.
In oil industry lingo, “Zone 0” is a place where likeliness of fire is very high and requires special explosion-proof motors. But an engineer said: “He brought mortars for Zone 2 to be used for Zone 0 for approval.”
When some KPC engineers told him that motors of up to 8MW were available in the local market, “they walked out in protest,” an official who attended the meeting recalled.
Once outside, Ibrahim was heard loudly complaining that they had spent a lot of money on that project.
The new pipeline will have a throughput of a million litres per hour, up from 730,000 litres per hour on the current pipeline. Zakhem was also to build a fibreoptic cable along the route besides installing four pumping stations and firefighting systems.
With all these, the country is set to lose Sh40 billion for replacing an infrastructure that was working. It is also set to lose billions of shillings more if it accepts a demand for additional funding to cover delays.