How Kenya loses out on contract loophole

Wednesday November 22 2017

Kenya Power workers instal a transformer in Nyeri town. Despite this regulatory push, Kenya has been unable to enforce the directive of sourcing locally. PHOTO FILE | NATION


Kenya is losing millions of dollars in foreign exchange due to a failure to ensure that contractors of major infrastructure projects procure most of their materials locally.

Despite passing laws aimed at boosting local industries, and in the process create jobs and economic growth, the contractors still prefer to import most of the materials and even workers.

Procurement laws in Kenya provide that contractors should source at least 40 per cent of their inputs from the local market as part of the “Buy Kenya, Build Kenya Policy.”

The country is also in the process of enacting the Local Content Bill that introduces rules and guidelines for the oil and gas industry, requiring that a minimum percentage, by value, of goods and services, be provided from Kenyan sources.

Despite this regulatory push, Kenya has been unable to enforce the directive of sourcing locally.

This is the reality utility firm Kenya Power is grappling with after it was forced to plead with companies awarded contracts to implement the $300 million second phase of the last mile connectivity project to procure materials locally.


Ironically, 80 per cent of the 23 firms that signed contracts with Kenya Power for the project are Kenyan-owned.

“The need for contractors to procure materials locally has not been captured in the contract agreement but we are telling them that as much as $250 million should remain in the country,” said Dr Ken Tarus, Kenya Power managing director.

While most of the materials to be used in the project, including wooden and concrete poles, cables, conductors and transformers, can be sourced from Kenyan firms, the company cannot force the contractors to buy these locally.

This was evident during phase I of the project which cost $128 million, when contractors sourced materials from foreign suppliers, mainly from China and India, due to the price differential and quality.

READ: Kenya Power to review supplier list

Kenya is banking on the last mile project to increase electricity access in rural areas. The country is targeting universal access by 2020.

The second phase of the project, which is financed by the African Development Bank and the World Bank, will result in over 600,000 households being connected to the national grid.

The project will involve extension of low voltage networks on existing transformers and installation of 1,000 new distribution transformers across the country.

Various connectivity strategies such as the last mile project and others targeting informal settlements and low-income areas have seen the number of Kenyans with access to electricity increase significantly from 27 per cent in 2013 to 70 per cent this year.