How Stanbic Bank Was Forced To Pay Sh1.4B Payment Guarantee For Hong Kong Offshore Oil Services Limited

Stanbic Bank was forced to pay back a Sh1.4 billion advance payment guarantee to a Chinese company contracted to drill geothermal wells in Bogoria-Silali in Baringo in April back in 2016, details now show.

“Stanbic bank had provided the Advance Payment Guarantee for Hong Kong Offshore Oil Services Limited (HOOSL) in favour of GDC,” read a statement from GDC. The Chinese firm was contracted to drill 15-20 geothermal wells but no wells had been drilled by 2019. Stanbic bank, the guarantor, was then compelled to refund the cash to the Geothermal Development Company (GDC)

Pressure from state agencies like the State Law office, Ministry of Energy, Central Bank of Kenya and GDC saw the bank return the amount, a move which GDC announced as a rare feat in Kenya since the money had already been considered lost to the the Chinese company that vanished despite being paid Sh1.5 billion, a 25 pc advance of the contract sum.

Stanbic had initially recalled the guarantee to HOOSL citing inappropriate conduct, misrepresentation and fraud in how it had been procured.

The move to cancel the guarantee was against the law governing Stanbic Bank’s licensing regulations since the bank did not make any reference to its beneficiary during the process.

With evidence that included all communication between GDC and Stanbic, the contract between GDC and HOOSL, evidence of the advance pay, evidence of the cancellation of advance pay, Solicitor General Kennedy Ogeto wrote to Central Bank Governor Patrick Njoroge.

“This office sought the intervention of CBK as regulator of commercial banks to invoke Section 33 of the Banking Act or any other provision of the law it may deem necessary and take appropriate enforcement action against Stanbic Bank,” Ogeto stated.

The CBK Governor then recommended that “an amicable resolution be pursued between the parties”, a recommendation Energy Cabinet Secretary Charles Keter did not like prompting him to pen Attorney General Paul Kihara in order to pile pressure on CBK.

GDC was now threatening to terminate the contract altogether on criminal culpability grounds.

The office of the AG then wrote to the CBK and to acting Treasury CS Ukur Yatani, demanding CBK intervention.

The office of the AG had also given the GDC the go ahead to appoint an advocate to sue the bank, leaving it with no option than to pay up. The project is now set to continue. “We will proceed with our own drilling operations. Already, there is one rig at the site and we have completed drilling of two wells.The recovery of the funds will boost our operations in the region,” GDC CEO Johnson says.