BREACH OF CONTRACT

CS Keter denies Sh7b lost in power project contract

Government however paid Sh1.16b a month for delayed transmission line

In Summary

•Spanish company–ISOLUX  which was bulding the Loyangalani–Suswa high voltage transmission line went bankrupt,  forcing the government to seek another contractor.

•The move placed the government at risk of paying extra for the projects’ completion.

Energy Cabinet Secretary Charles Keter/FILE
Energy Cabinet Secretary Charles Keter/FILE

Kenya did not paid any extra fees on the Sh26.5 billion Lake Turkana– Suswa electricity transmission line, CS Charlse Keter told a dSenate committee on on Wednesday.

He however admitted that there was a penalty of Sh1,16 billion per month for three months for the delay in connecting the power generated at the Lake Turkana Wind Power project to the national grid.

The CS was responding to inquiries by the Senate Committee on Energy on why the ministry allegedly paid an extra Sh7 billion for completion of the 436 kilometre–400kV double circuit, Loyangalani–Suswa transmission line.

 

This is after Spanish company–ISOLUX went bankrupt, halting its operations in the country, a move that saw the government procure services of a second contractor to finish the job.                         

According to the CS, all costs fell within the contract amount, even after the Chinese stepped in to work on the line, which was completed on September 10, 2018.

The move is said to have cost taxpayers more money, with delayed on connecting the line to the national grid pushing further the cost of the project.

“With the bankruptcy of the contractor ISOLUX, KETRACO terminated its contract and procured another contractor to complete the line as a matter of urgency. The new contract was executed and completed as per the terms of the EPC Contract,” Keter said.

EPC, in full, Engineering, Procurement, and Construction are the most common form of contracts used to undertake construction works by the private sector on large-scale and complex infrastructure projects.

KETRACO did not cede to punitive clauses on the construction of the transmission line, Keter told the committee chaired by Nyeri Senator Ephraim Maina, hence no money has been lost.

“The EPC construction contract and the transmission line construction was above board and was based on good industry practices,” Keter told the Senators on Wednesday.

 

The committee was following up on questions raised by Nandi Senator Samson Cherargei, who had sought answers to the alleged loss of Sh7 billion on construction of the transmission line and payment of Sh1.6 billion in monthly penalties to the power producer.

On penalties, the ministry has acknowledged the government compensated the power producer at the Lake Turkana Wind Power Project for delaying to connect them to the grid, despite having started generating power.

This is based on the Power Purchasing Agreement (PPA) between the independent Power Producer and Kenya Power, where incase of delays of uptake, the utility firm would pay Sh1.6 billion.

Kenya Power however ended paying Sh1.16 billion after the government re-negotiated the PPA.

“When the government realised the line would delay, it negotiated to pay only what the investor was to pay its lender as monthly instalments for its credit facility,” Energy PS Joseph Njoroge said.

The National Assembly however later recommended that no payment should be made until a special audit was done, a process that was delayed by lack of an Auditor General in office.

The caveat by parliament however came after at least three monthly instalments had been made.

The printed estimates for financial year 2019/20 had no budget provisions to make the payments. The Energy ministry therefore submitted a request to the National Treasury for authority to spend, which was granted on July 30, 2019, the committee heard.

“The transfer of funds was then done to KPLC (Kenya Power) for onward payment,” CS Keter said,” the payment was done with intervention of various stakeholders which included parliament.”

The ministry later wrote to the Auditor General’s office to request an audit, which was conducted, with its release pending the signature of the office bearer.

It is expected out anytime soon as new Auditor General Nancy Gathungu settles in office, after taking charge in July.

The contract for the construction of the line was awarded in 2014 to Grupo Isolux Corsan and had been set to be completed in 2016.

Its completion and connection to the grid however dragged until July 2019, when President Uhuru Kenyatta commissioned the power line.

The wind farm, the largest in Africa, has a capacity of 310 megawatts, enough to power up to one million homes.

The double circuit power line evacuates the electricity generated at the plant to Suswa where it is injected into the national grid.