China Eximbank provides $200.5 million loan — via EPCF arrangement — for Karimenu II Dam Water Supply Project

China Eximbank provides $200.5 million loan — via EPCF arrangement — for Karimenu II Dam Water Supply Project On April 24, 2017, Kenya's Ministry of Water and Sanitation -- through Athi Water Services Board (AWSB) -- signed an Engineering, Construction, Procurement, and Financing (EPCF) contract worth $235,918,461 with M/S Avic International Holding Corporation and Shanghai Municipal Engineering Design Institute (Group) Co., LTD Joint Venture (AVIC & SMEDI JV) for the Karimenu II Dam Water Supply Project.

AVIC & SMEDI JV, in turn, secured a $200,530,600 loan on February 14, 2017 from China Eximbank to finance 85% of the cost of the $235,918,461 EPCF contract. The loan’s final maturity date is July 21, 2042 and it is repayable in 20 equal, semi-annual installments. Therefore, its implied maturity length and grace period are 25.5-years and 15.5-years, respectively.

The Government of Kenya appears to have issued a sovereign guarantee in support of the loan. Loan disbursements worth $13,364,912.29 took place between July 1, 2020 and June 30, 2021 (Fiscal Year 2020-2021). Loan disbursements worth $133,093,268.26 took place between July 1, 2021 and June 30, 2022 (Fiscal Year 2021-2022).

The loan’s amount outstanding was $11,795,831.20 as of June 30, 2020, $25,160,743.49 as of June 30, 2021, and $158,254,011.75 as of June 30, 2022.

The Karimenu II Dam Water Supply Project involves the construction of a 59-meter-high dam with a capacity of 26.5 million cubic meters of water, a water treatment plant (with 70,000 m3 per day of capacity), and a water distribution system (involving 67 km of raw and treated water pipelines and two terminal tanks in Ruiru and Juja).

It will be constructed across Kariminu River at Kiriko in Gatundu North Sub-County, Kiambu County in order to supply an additional 850,000 people with 70 million liters/day of water to Juja Town (11.75 million liters/day), Ruiru Town (35.25 million liters/day) and Nairobi City (23 million liters/day).

It is just upstream of the main bridge linking Buchana to Kariko and Gituamba Markets about 6km from Kanyoni market on the Thika – Gituamba road.

The dam will be constructed across Kariminu River downstream of its confluence with its tributaries including Gathanje, Kagundu and Githanga.

The project requires the acquisition of 600 acres of land: 171 acres during phase 1 for the dam’s embankment and water draw-off structures and 429 acres during phase 2 for the reservoir area. AVIC & SMEDI JV is the EPC contract responsible for implementation. The project was originally scheduled to commence in January 2018 and reach completion by December 2022.

However, it has encountered various delays and implementation challenges.

After mobilization of the environmental and social impact assessment (ESIA) study team, a commencement meeting with Athi Water Services Board (AWSB) took place on March 16, 2016, followed by a combined reconnaissance site visit on April 6, 2016.

Then, in mid-2017, an advance payment worth 20% of the EPCF contract ($47,183,692) was made to AVIC & SMEDI JV against a bank guarantee.

On March 28, 2019, a Kenyan parliamentary committee conducted an on-site project inspection and found that no works had commenced 24 months after agreements were signed and an advance payment of KES 4 billion ($47,183,692) was made to the contractor (AAVIC & SMEDI JV).

The committee also found that Athi Water Services Board had not yet issued a commencement to proceed letter to the EPCF contractor because of land acquisition challenges.

The parliamentary committee also called upon Kenya's Auditor General to conduct a special audit to "investigate the circumstance under which agreements were signed between the Athi Water Works Develoment Agency and the contractor (AVIC International) and advance payments were made before the acquisition of the requisite land for implementation of the Karimenu II Dam leading to loss of public funds through idle time." It further recommended that "[i]f any culpability is found, the perpetrators should be prosecuted." A resettlement action plan (RAP) was implemented for priority areas, and a compensation process for 246 project affected persons was undertaken in order to acquire 171 acres of land (as part of phase 1).

However, in early 2021, Gatundu North residents who had surrendered 383 acres of land for construction (phase 2) had still not received compensation and they vowed to block excavation works at the project site.

One local resident said “[w]e gave the land to the government for the construction of the dam and we were promised to wait for compensation several months ago.

We are, however, shocked that the land is being excavated even before we get our pay,.” Jane Wanjiru, another resident, said that the surrendered land was their only source of livelihood and they had not cultivated this season to allow for the construction of the dam: “[w]e can’t fight the government; we hope that this matter is resolved.

These frustrations are making us hopeless and we need to have our lives back.

We are calling on the National Land Commission (NLC), which has been executing the compensation exercise and the Athi Water Services that is implementing the project to intervene and solve the prevailing tussle to allow smooth construction works to go on.” Construction ultimately began on or near August 1, 2019.

As of September 2019, the project had achieved a 5% completion rate. June 2021, a pipe laying works ceremony took place.

At that point in time, the project had achieved a 45% completion rate and the other key project milestones that had not yet been met were groundbreaking, tunnel breakthrough, completion of tunnel secondary lining, river diversion, and substantial completion of dam foundation treatment works. The dam was ultimately completed and officially completed on August 1, 2022.