Delayed payments cost taxpayers Sh4.3bn in avoidable interest, says Auditor-General

Delayed payments on government projects have cost taxpayers Sh4.3 billion in interest charges, largely due to late settlements on Covid-19, water, and road infrastructure projects, Auditor-General Nancy Gathungu has revealed.

According to Gathungu, the interest could have been avoided if the payments had been done on time, highlighting the critical need for timely financial management in government-funded initiatives.

In her latest audit report, Gathungu detailed how 15 projects across various ministries and departments were affected by interest penalties stemming from delayed payments, costs that have significantly strained public finances.

Among the most affected was the Covid-19 Health Emergency Response under the State Department for Medical Services, which accrued Sh930.59 million in interest due to delays in settling accounts related to the supply of Covid-19 vaccines.

In the water sector, the Kenya Water Security and Climate Resilience Project (IDA) under the State Department for Irrigation faced interest charges of Sh70 million on late payments.

The Coastal Regional Water Security and Climate Resilience Project, also under the same department, incurred Sh178.6 million in interest due to delays in payments to contractors for certified works.

The road infrastructure sector recorded multiple penalties.

The Sh21 billion Kibwezi-Mtomo-Kitui-Migwani road project, which is being implemented by the Kenya National Highways Authority (KeNHA) and financed by Exim Bank, attracted Sh614.2 million in interest after the government failed to pay the contractor on time.

The road, constructed by Sinohydro Corporation of China, traverses Makueni and Kitui counties.

The Kapchorwa-Suam-Kitale and Eldoret bypass project, also overseen by Kenha, has a pending contractor claim of Sh318.6 million in interest due to delays in implementation by the employer.

Meanwhile, the Kenya Nairobi Western Bypass Project recorded an interest charge of Sh4.6 million, arising from delayed payments related to road construction and land acquisition.

In the coastal region, the Water Sector and Sanitation Development Project under the State Department for Water and Sanitation incurred Sh22.4 million in interest charges on delayed payments for water distribution works in Malindi, Gongoni, Mambrui, and the second Baricho-Kakuyuni water supply project, as well as the Watamu water distribution project.

The Mwea Irrigation Development Project under the National Irrigation Authority (NIA) registered Sh43.1 million in interest paid as a penalty for the late settlement of payments related to the construction of the Thiba Dam.

In Central Kenya, the Roads 2000 Phase Two project under the Rural Roads Improvement and Maintenance Project, managed by the Kenya Rural Roads Authority (Kerra), attracted interest claims of Sh3.6 million. It also incurred an additional arbitration fee of Sh1.2 million, which represents 50 per cent of the cost awarded by an Arbitral Tribunal following the delayed settlement of a Sh30.9 million principal amount.

Meanwhile, the Sirari Corridor Accessibility and Road Safety Improvement Project, which covers the Isebania-Kisii-Ahero route, has racked up Sh657 million in interest charges. Two construction companies involved in the project charged the government Sh331.1 million and Sh325.89 million, respectively, due to delayed payments.

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• Delayed payments cost taxpayers Sh4.3bn in avoidable interest
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Gathungu reiterated that these costs were entirely avoidable.

“The interest could have been avoided if the payments were done on time,” she said.

Her findings raise concerns about inefficiencies in the government’s project financing and settlement processes and highlight the urgent need for improved accountability and timely disbursement of funds to prevent similar financial losses in the future.