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An alleged informal commitment by the government that it would settle a Sh640 million debt owed to a French investor has triggered a major financial crisis in Meru county.

The controversy emerged after National Treasury Cabinet Secretary John Mbadi moved to withhold disbursement of funds to the county, citing failure to clear the debt owed to Leopard Rock Mico Limited, a French-linked investor.

The decision has plunged the Meru county government into a severe cash crunch, disrupting salary payments, halting operations, and deepening tensions over responsibility for historical contractual obligations.

The dispute traces back to a lease agreement first entered in 1997 between Leopard Rock Mico Limited and the then Nyambene county council, the predecessor of the current Meru county government.

The lease was later revised in 2008, adjusting rent to Sh60,000 monthly, with a 10 per cent increment every two years and additional revenue-sharing arrangements tied to hotel bed occupancy.

However, in July 2018, the county government terminated the lease, citing a lack of approval for building plans.

The investor disputed the termination and escalated the matter to arbitration.

A tribunal later ruled in favour of the investor, awarding Sh339.07 million in December 2019.

Meru Governor Isaac Mutuma said the amount has since ballooned to more than Sh800 million due to accrued interest of 14 per cent annually.

The situation escalated further after President William Ruto reportedly made a public declaration in May 2025 at Meru National Park, stating that the national government would assume responsibility for the debt.

The pledge, however, was never formalised in the national budget or implemented through actual disbursement.

The county had paid Sh200 million when the President said his administration would take up the debt.

Although the Ministry of Trade and Industry later took up the matter, no payment has been made, leaving the obligation unresolved while legal and financial pressures mount on the county government.

In a dramatic move, the National Treasury has now halted up to 50 per cent of Meru’s equitable share, citing failure to settle the debt.

The freeze has severely disrupted county operations, with officials warning of a looming shutdown of essential services.

Treasury has also accused the county of accumulating Sh1.3 billion in unpaid bills owed to suppliers and contractors, failing to remit employee deductions for more than five months, and struggling to maintain medical supply chains due to debts with the Kenya Medical Supplies Authority (KEMSA).

Appearing before the Senate Finance and Budget Committee, Governor Mutuma acknowledged the crisis but argued that the national government had previously committed to taking over the liability.

He told senators that the public assurance in May 2025 created an expectation that the debt would be absorbed by the national government.

“The Ministry of Trade and Industry took up the matter but the settlement has not been effected, despite the presidential announcement being framed as a waiver or takeover,” Mutuma said.

He added that the directive was never backed by formal budgetary allocation, leaving the county exposed to enforcement actions by the creditor.

The governor has now urged the National Treasury to suspend the fund stoppage, warning that continued withholding of funds will cripple service delivery and derail development plans for the 2025/2026 financial year.

“We humbly request your office to suspend the proposed stoppage as it will greatly affect the county government of Meru’s operations and ability to offer essential service delivery,” Mutuma said.

He said the financial burden stems from decisions made by previous county leadership between 2013 and 2017, when the investor was evicted, and that the current administration is being punished for past administrative actions.

Meanwhile, the investor’s legal representatives have intensified pressure on the county, issuing notices under the Public Finance Management Act demanding immediate settlement of the decretal amount, now estimated at more than Sh470 million in recoverable sums after adjustments.

Law firm Manyonge Wanyama & Associates LLP warned that continued non-payment constitutes a serious breach warranting enforcement measures, including attachment of county funds.

The Controller of Budget has also weighed in, cautioning that suspension of funds poses a major risk to service delivery, particularly in health, agriculture extension, education support, and public works.

Deputy Controller of Budget Stephen Masha urged both levels of government to ensure that remaining funds are protected and directed strictly towards essential services during the freeze period.

“The stoppage of funds transfers carries inherent risks to service delivery. Measures must be taken to safeguard critical services for residents,” he said.

Treasury CS John Mbadi has defended the decision, invoking Article 225 of the Constitution, arguing that the county’s failure to honour its financial obligations constitutes a “persistent material breach” justifying intervention.