How broke firms got Sh25 billion Ketraco contracts

The Kenya Electricity Transmission Company is on the spot for awarding lucrative contracts to firms that collapsed before completing multibillion- shilling projects.

The company was forced to terminate contracts worth Sh25.6 billion awarded to Spanish firms Isolux Corsan, Instalaciones Inabensa, as well as India’s Jyoti Structures.

This was after they were declared insolvent in their own countries, raising concerns whether due diligence had been carried out by Ketraco.

Their cash woes drastically affected works on transmission lines and substations that were to boost electricity supply in the country.

Auditor General Nancy Gathungu, in her review of Ketraco accounts as of June 2020, flagged the multi-billion projects — now under new contractors.

Over time, Ketraco has terminated such contracts, which were later assigned to new firms with fresh terms that subject taxpayers to extra costs.

Instalaciones Inabensa was awarded a Sh3.6 billion contract for construction of the  Lessos-Tororo transmission line. The project cost has risen to Sh8.2 billion.

The contract, which included the extension of a substation at Lessos, was terminated in April 2016 on grounds of non-performance.

The firm challenged the termination and on February 12 was awarded more than  Sh4 billion for wrongful termination.

Justice Maureen Odero dismissed prayers by Ketraco to set aside the award, which it challenged on grounds of breach of public policy.

Unless Ketraco successfully appeals the ruling, taxpayers would thus be forced to part with Sh4.6 billion, attracting 12 per cent interest annually until paid in full.

The electricity transmission company has spent more than Sh220 million on the case. A new completion date for the project is yet to be agreed on.

The works on the transmission line and substation are 50 per cent and 61 per cent complete, respectively, with Sh4.9 billion already spent.

To compound the problems, the funding agreement with the African Development Fund of the African Development Bank expired in December 2017 and had not been renewed as of June 2020.

Ketraco is yet to agree with the donor on the engagement of a new contractor though the funding arrangement with African Development Fund expired.

The project is part of the electricity network to link Kenya to Uganda, Rwanda, Burundi, and DR Congo under the Nile Equatorial Lakes Programme.

“It is not possible to confirm when the matter will be resolved and how the cost in terms of legal fees that the company will incur will be reflected in the financial statements,” Gathungu said.

Jyoti Structures Ltd was contracted to build the Olkaria-Narok, Lessos-Kabarnet, Nanyuki-Rumuruti, Sultan Hamud-Mwingi high voltage transmission lines.

The Sh9.8 billion contract was terminated after the firm was declared insolvent by Indian authorities.

China CAMCE Company was handed over the ‘significant’ works left by Jyoti and the completion date rescheduled to April 2020.

The project funding from the African Development Bank was terminated when the main contractor was declared insolvent in its home country.

“Consequently, this project may not be completed within schedule, resulting in delayed provision of expected services to the stakeholders,” Gathungu said, shining the spotlight on the cost of the missteps by the Fernandes Barasa-led team.

About Sh8.4 billion had been spent on the project as of June 2020, some additional costs arising from changes in its design.

Financing for the project was cancelled, hence, the balance is being funded by the government of Kenya, staging slow payment of project affected persons.

It was to enable reliable power supplies to Rumuruti, Kabarnet, Narok, Sotik, Bomet, Mwingi, Kitui, Wote, Sultan Hamud, Ishiara, and Kieni.

Jyoti Structures was also the contractor for the Sh7.6 billion 220kV Turkwel-Ortum-Kitale substations and the Machakos-Konza-Kajiado-Namanga transmission lines.

The projects stalled for lack of finances after the firm was put into liquidation in July 2018 by an Indian court.

At the time of the audit, the contractor had completed 78 per cent of the works and Ketraco moved to source another contractor to complete the remaining works.

The project was suspended and works have stalled. The Auditor General said it may not be completed on time and may also experience cost overruns.

The Machakos-Konza-Kajiado-Namanga transmission line reported a 60 per cent completion in June 2020.

The project was already behind schedule since it was to be completed by December 2019, a situation the auditor says may delay services to the intended beneficiaries.

“Consequently, the project may also experience cost overruns and possible withdrawal of funding by the project financier,” Gathungu warned.

Ketraco said the Isinya-Namanga line has faced challenges of wayleaves acquisition and saaid negotiations with landowners are still underway.

Works on the Sh4.8 billion Isinya-Namanga line were 48 per cent complete ass of June 2020, eliciting the audit queries.

The project executed under the Kenya-Tanzania Interconnection programme was found to be behind schedule; it was to have been completed by the end of April 2020.

“Failure to complete the works in due time has hindered the project from realising its objectives and amplified the risk of an increase in cost due to economic and other factors,” Gathungu said.

Management later told the Auditor General  the contractor has been given an extension to May 14, 2021, to complete the remaining works – said to be significant.

Kenyans also paid a Sh5.7 billion fine after Isolux Corsan failed to build the Loiyangalani-Suswa power transmission line to evacuate power from the Lake Turkana Wind Power.

The contract was handed over to a consortium of Chinese firms - Nari Group Corporation and Power China Guizhou Engineering Company.

Isolux was to build the line by August 2018 but Ketraco terminated the contract after the Spanish firm went into receivership.

The project was later completed in mid-2017 for Sh28 billion, but the line went live in September 2018.  

Spain’s Iberdrola Ingenieria also had its Sh10.5 billion contract — Sh4.9 billion at award— terminated for non-performance.

Iberdrola, which challenged the termination at the London Court of International Arbitration, was to build four substations at Athi River, Isinya, Ngong, and Komarock.

Ketraco is currently looking for a new contractor for the Meru-Isiolo-Nanyuki line after the collapse of the firm trading as CG Holdings that it contracted to build the line.

A court in Belgium declared the transformer manufacturer (CG Holdings) bankrupt in February last year, sending Ketraco back to the drawing board.

Gathungu, in the review of Ketraco’s accounts for the year ending June 2020, said that failure to complete the works in due time has hindered projects.

Lengthy negotiations on land valuation, absentee landlords and legal disputes have  been blamed for slowing the pace of projects as they pose delays in wayleaves compensation.

Also flagged is the Sh2.6 billion the company failed to absorb in the Eastern Electricity Highway project, monies that could be used to deliver other services.

Management attributed the underutilisation to late disbursement by the National Treasury and reduced proceeds from borrowing due to termination of contractual works.

Nakuru Town East MP David Gikaria, chairman of the National Assembly Energy Committee, said the issues are among those they want to iron out with Energy CS Charles Keter.

He said the CS has been snubbing their calls for meetings to discuss the issues arising from the projects.

“The projects have massive budgets allocated to them every financial year and it would be prudent for the ministry to come clean on how the funds have been utilised,” he told the Star.

The events have raised serious questions on not only the viability of the projects but also the capacity of Ketraco to handle such projects.

(Edited by V. Graham)