State to pay extra Sh4.7bn for botched JKIA terminal

The government will pay an additional Sh4.7 billion to two Chinese contractors as a part of an out-of-court settlement for the cancellation of a tender to build the second terminal at the Jomo Kenyatta International Airport (JKIA) eight years ago.

A new document from the National Treasury has disclosed that the Kenya Airports Authority (KAA) and a joint venture of two Chinese firms — Anhui Civil Engineering Group (ACEG) and China Aero Technology Engineering International Corporation (Catic) — reached a final agreement early this year.

“The mediation process was concluded and a final settlement agreement was executed by the parties on May 26, 2023. (Cabinet) memo seeking approval to pay,” reads part of the document that put the outstanding amount at Sh4.7 billion.

Read: KAA in a spot over lack of instant power at JKIA

The award, which pushes the final payment to the contractor of the new terminal to Sh8.9 billion is a significant reduction from the Sh17.6 billion that the joint venture demanded.

Kenya had paid Sh4.2 billion for the construction of the terminal, known as Green Field Terminal, which was to be located within the JKIA grounds between 0.75–1.5km east of Terminal 1.

Another Sh75 million was spent on a groundbreaking ceremony presided over by retired President Uhuru Kenyatta on May 23, 2014.

The terminal, which was to come with a second runway and other facilities, was to cost Sh56 billion. However, the Kenya Airports Authority (KAA) cancelled the tender in March 2016, citing material differences between the terms of the request for proposal (RFP) and the construction contract.

“Through a letter dated November 10, 2017, the contractor submitted a claim of Sh17.6 billion to the Authority,” the then KAA managing director Johnny Andersen told Parliament in 2019.

Documents tabled before the Public Investments Committee of the National Assembly showed the two firms wanted the KAA to pay them Sh2 billion for the preparation of the bill of quantities (BQ), Sh2.4 billion in extra costs and Sh708.2 million being 16 percent value-added tax (VAT).

The Chinese contractor also slapped the KAA with a Sh500 million claim in interest and penalties for delayed payment of VAT. They also sought Sh5.6 billion comprising the balance of the contract for BQ, extra cost claim, VAT, and interest and penalties, bringing the total claim to Sh17.6 billion.

Failure to get the payout the two Chinese contractors — who had a letter of intent and letter of interest from the China Development Bank and Exim Bank respectively — moved to the International Court of Arbitration seeking the money.

President William Ruto’s government made it clear soon after taking over that they intended to revive the project, with the Transport Cabinet secretary Kipchumba Murkomen promising to get the case out of court, renegotiate the contract and possibly rebuild the greenfield terminal.

In June, Mr Murkomen announced that Kenya had struck an out-of-court deal with the two Chinese firms for the contract cancelled in 2016.

“There is good news that we have agreed and we are moving through the last stages of confirming that agreement to settle the amount owed to the firms for cancelling their tender mid-way,” said Mr Murkomen.

Read: Why a single runway at JKIA over 40 years later?

“I can assure you that in two months, a tender for the construction of a new terminal at JKIA will be floated,” said the CS, adding the new tender would be awarded in January.

The payments for no work delivered bring into sharp focus the country’s procurement processes that have seen taxpayers not get value for the money.

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