A complex web of international financing, opaque legal instruments, and years of litigation has exposed what could rank among Kenya’s most costly public infrastructure scandals, with potential losses linked to the Kenya Pipeline Company (KPC) now exceeding Ksh78 billion.
At the centre of the storm is a $300 million credit facility issued by Ecobank Nigeria to Zakhem International, backed by a sweeping debenture and reinforced through controversial domiciliation letters that effectively redirected proceeds from a major Kenyan government contract.
A Deal Rooted in Nigeria
The origins of the dispute trace back to 2006, when Zakhem Construction Nigeria Limited executed a far-reaching debenture in Lagos in favour of Ecobank Nigeria. The agreement pledged all of Zakhem’s present and future assets globally—including receivables—as security for financial facilities.
For years, the instrument remained dormant.
That changed in July 2014, when Kenya Pipeline Company awarded Zakhem a contract worth approximately $484.5 million (about Ksh62.9 billion) to construct the 450-kilometre Mombasa–Nairobi Line 5 pipeline, a flagship Vision 2030 project.
Within months, Zakhem secured a $300 million facility from Ecobank Nigeria, using the KPC contract proceeds as collateral.
The Domiciliation Letters That Changed Everything
In October 2014, Zakhem issued “irrevocable” domiciliation instructions directing KPC to channel 70 percent of all contract payments to Ecobank Nigeria accounts and the remaining 30 percent to Ecobank Kenya.
KPC acknowledged and stamped the letters.
That move effectively inserted Ecobank into the transaction as a primary beneficiary—despite the bank not being part of the officially mandated financing consortium for the project.
The consortium, as previously reported, included institutions such as CFC Stanbic, Citibank, Co-operative Bank, and Standard Chartered—but not Ecobank.
Legal experts now argue that by accepting the domiciliation terms, KPC may have exposed itself to a binding financial obligation to a foreign bank without parliamentary approval or Treasury oversight.
From Infrastructure Project to Financial Dispute
Ecobank is documented as having financed the project up to $206 million. However, it only recovered about $26.8 million, leaving a disputed balance of over $52 million.
In 2018, Ecobank Nigeria and its Kenyan subsidiary sued Zakhem and KPC in the High Court, effectively dragging the state corporation into a foreign debt recovery dispute.
KPC, which had not borrowed directly from Ecobank, found itself defending a claim arising purely from the domiciliation letters it had endorsed.
The corporation reportedly spent at least Ksh90 million in legal fees in a single year defending the suit.
The Costly DCI Intervention
In July 2019, the Directorate of Criminal Investigations ordered KPC to suspend payments to Zakhem pending investigations.
At the time, both parties had reportedly agreed on a settlement figure of $44 million for contract variations and delays.
The directive derailed the agreement.
A court later awarded Zakhem the same amount, but with accrued interest and penalties due to delayed payment. According to audit reports, the delay cost Kenyan taxpayers over Ksh3 billion in avoidable penalties.
No criminal charges were ultimately filed in connection with the halted payments.
Settlements, Then More Claims
In September 2023, KPC and Zakhem recorded a consent judgment of $69.6 million (approximately Ksh9 billion), which was presented as a “full and final” settlement.
However, within months, Zakhem returned to court seeking additional payments.
In 2025, a garnishee order led to Ksh485 million being withdrawn directly from KPC accounts at Equity Bank and paid into a law firm’s client account.
The cycle of litigation—featuring multiple applications, injunctions, and appeals—has continued, raising concerns about abuse of court processes.
Tax, Payments, and Double Exposure
Complicating matters further, the Kenya Revenue Authority demanded tax payments linked to the Zakhem settlement.
KPC remitted over Ksh4 billion to KRA.
However, later court rulings indicated that these payments did not absolve KPC of its obligations to Zakhem, effectively leaving the corporation exposed on both fronts.
Subcontractors Left Unpaid
While billions moved through international accounts and legal channels, local subcontractors were left stranded.
Azicon Kenya Limited is among firms owed over Ksh460 million despite completing contracted works. Efforts to recover the funds through court orders have so far failed.
Other firms have reported similar challenges, with some alleging deliberate asset shielding by Zakhem-linked entities.
A Familiar Pattern at KPC
The scandal adds to a long history of financial controversies at KPC, including:
- The 2009 Triton oil scandal (Ksh7.6 billion loss)
- The inflated hydrant pit valves procurement case
- The Kisumu Oil Jetty project controversy
The recurrence of large-scale financial disputes has raised questions about governance and oversight within the corporation.
Key Figures Under Scrutiny
Former KPC Managing Director Joe Sang, who served during critical phases of the contract and subsequent disputes, has recently resigned following a separate fuel procurement scandal.
Authorities have also turned attention to senior government and regulatory officials, with calls for a comprehensive forensic investigation into the entire Zakhem-Ecobank arrangement.
Calls for Accountability
Legal and financial experts are now urging:
- A full forensic audit of the debenture and domiciliation structure
- Investigations into potential fraud and money laundering
- Parliamentary inquiry into KPC’s financial exposure
- Professional review of legal practitioners involved in the settlements
The Director of Public Prosecutions and investigative agencies are under pressure to act.
The Bottom Line
What began as a strategic infrastructure project has evolved into a decade-long financial and legal quagmire.
With documented exposure exceeding Ksh78 billion, and additional claims still pending, the Zakhem-Ecobank saga underscores deep systemic vulnerabilities in public contracting, financial oversight, and legal enforcement.
For Kenyan taxpayers, the cost continues to mount.
