Kenyans face higher bills over $54m fine in stalled wind power line project

Monday October 23 2017

Engineers prepare to install turbines for the

Engineers prepare to install turbines for the Lake Turkana Wind Power project in Marsabit County northern Kenya on January 26, 2106. PHOTO FILE | NMG 

By NJIRAINI MUCHIRA
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State-owned power utility Kenya Electricity Transmission Company (Ketraco) is in trouble over negligence in the award of a major contract, exposing taxpayers to a $54.2 million fine.

Ketraco awarded Spanish firm Isolux Ingeneria SA the contract to construct a high voltage transmission line to evacuate electricity from the Lake Turkana Wind Power (LTWP) plant in northern Kenya.

The firm has however gone bankrupt, leaving the $150 million Loiyangalani-Suswa power line hanging. Now, LTWP is lying idle, exposing taxpayers to penalties amounting to $6.6 million per month.

While the contract between the Kenyan government and LTWP imposed fines on the government if the transmission line were not ready when the wind plant was completed in January, Ketraco has negotiated a temporary reprieve from paying the penalties until end of April next year.

“We have had a discussion with LTWP and postponed the deem generated payments to next year,” said Ketraco managing director Fernandes Barasa.

He added that Ketraco has negotiated a one-year grace period with LTWP, putting on hold the payment of the $54.2 million lump sum fine in the hope that the 428-km transmission line will be completed by end of April next year.

Already, the company is in talks with another Spanish firm to complete the project within the scheduled time frame after it terminated the contract with Isolux Ingeneria SA in August. Isolux has however gone to court contesting the termination.

“The only thing that is making us bring on board the Spanish company is to fasttrack procurement of outstanding materials,” said Mr Barasa.

Curiously, the government has already factored in the penalty payment in the Supplementary Budget tabled in the National Assembly by National Treasury Cabinet Secretary Henry Rotich.

“Under an agreement to which we gave a letter of support, we said once the project is complete we have to evacuate power. This is take-off pay. The project borrowed money from financiers and has to repay the loan by selling electricity to Kenya Power,” Dr Rotich told a parliamentary committee early this month.

In the event of Kenyan taxpayers being forced to shoulder the burden of the fine through high consumer bills, questions have been asked how Isolux Ingeneria SA won the contract only for it to be declared bankrupt before completing the project.
The company was awarded the contract in 2011 and was supposed to complete the project in a span of 23 months. Construction began in 2013 but the firm soon started experiencing financial problems.
The EastAfrican has learnt that although several international firms had expressed interest in the project, the fact that it was largely funded by the Spanish government left Ketraco with no option but to award it to a Spanish company.

According to Ketraco’s 2011/12 annual report and financial statement, the total cost of the project, which also included four substations along the way, was $174 million.

The Spanish government agreed to fund the project to the tune of $115 million while the Kenyan government contributed the balance of $58.9 million.

In its heydays, Isolux Ingeneria SA used to boast of being a global benchmark in concessions, energy, construction and industrial services, with a track record spanning over 80 years of professional activity in more than 35 countries on four continents.

Indeed, by 2011 when it was awarded the Kenyan contract, the firm was focused on international markets, consolidating its “internationalisation strategy and strengthening its position on the global market.”

According to its 2011 financial statement, the company generated 63 per cent of its revenue from abroad while its portfolio outside Spain stood at 77 per cent of its total business.

In Isolux, Ketraco saw a company with the necessary experience and financial muscle to undertake the project.

Mr Barasa said Ketraco undertook a detailed financial scrutiny of Isolux Ingeneria SA’s financial statements and was convinced of its abilities to implement the Kenyan project. But Ketraco failed to notice what was already a red flag — Isolux Ingeneria SA was badly exposed due to massive investments abroad.

“The cost of their receivership is because of over investing in foreign markets and this is something that was happening after they came on board. This was not clear at the time of evaluation,” said Mr Barasa.

In its bankruptcy proceedings, Isolux Ingeneria SA cited massive debts totalling $1.4 billion as the cause of its problem. Of this, $665 million was associated with project financing. The company had also accumulated a $476.5 million debt with suppliers.