Kenyan Taxpayers Lose Sh1.4 Billion as Chinese Firm Abandons Project After Receiving Down Payment

It has now emerged that Kenyan taxpayers have lost Sh1.4 billion to a Chinese company after it abandoned a project despite receiving an advance payment.

The firm, Hong Kong Offshore Oil Services Limited (HOOSL), won the contract for drilling 15 to 20 geothermal wells in Bogoria-Silali in Baringo in April 2016.

The company received a down payment of Sh1.4 billion from the Geothermal Development Company (GDC) before the project started.

The Sunday Standard reports that the bank, however, recalled the down payment guarantee just after payment was done and affirmed by the bank.

HOOSL failed to start the multi-billion-shilling project until the contract expired.

The Standard reports that the Chinese firm requested to be allowed to offer a guarantee from an insurance company rather than a bank.

However, GDC turned down the request and instead asked HOOSL to submit the payment guarantee within 30 days.
This was on October 6th, 2016, five months after the contract was signed.

“HOOSL responded to this letter on October 8, 2016, by informing GDC that they are working on the issuance of the guarantee with a local bank. Subsequently, on October 20, 2016, HOOSL sought an extension of the timeline for submission of the guarantee by additional 60 days,” says a report prepared for GDC board by George Muya, General Manager, Strategy.

The extension request was approved but a few days to its lapse, HOOSL wrote to GDC asking for another extension. 

GDC granted it as the final extension but it expired without the contractor getting a guarantee, hence sought a further extension, which the GDC rejected.

On June 2nd, 2017 HOOSL submitted the down payment guarantee of $14,629,952 (Sh1.5 billion) from the bank and which was to expire on December 1st, 2018.

The transaction was processed through the Ministry of Energy and the National Treasury.

“The advance payment was paid out to HOOSL in September 2017 which HOOSL confirmed receipt on September 25, 2017,” adds the report.

What followed was a mouse and cat game between HOOSL and GDC until the guarantee expired.

Attempts by GDC to get a refund from the bank that had guaranteed the payment failed, meaning Sh1.4 billion was lost without a single well being drilled.