Kenyans shoulder a heavy burden in the largest Public-Private Partnership project

June 10, 2022 - 5 minutes read

The Public Investments Committee of the National Assembly has called upon the Ethics and Anti-Corruption Commission (EACC) to investigate the Kenya Electricity Transmission Company Limited (KETRACO) management over delays in the construction of a transmission line to connect the Lake Turkana Wind Power plant to the national grid. In the Special Audit report tabled in Parliament this week, the Committee noted that the delays exposed the Kenyan taxpayers to delay payments amounting to Kshs 18.5 billion and higher energy bills.

Lake Turkana Wind Power (LTWP) Limited project is an energy-generating plant in Marsabit County. The wind farm provides 310MW of renewable energy to Kenya’s national grid.

The Project was identified as a key flagship project of the Kenya Vision 2030 under the Energy Sector in 2008. The wind plant was identified to address the over-reliance on hydro-generated power and power supply capacity deficit as energy supply could not meet the growing demand and lack of adequate reserve capacity to take care of emergencies.

The Ministry of Energy (MoE) and Kenya Power engaged in a public-private partnership with LTWP Ltd., which was involved in financing, designing, procuring, constructing, installing, testing, commissioning, operation, and maintenance of the LTWP Ltd. plant.

Challenges With the Project

Irregular allocation of land

The land on which the LTWP Ltd. plant sits is community land and was subject to a court case. The court held that the Constitution was not followed when 150,000 acres of community land was allocated to LTWP Ltd. and that the land in question belonged to the Marsabit Community. It, however, declined to cancel the title deeds but gave the Marsabit County government, the Attorney General, the Chief Land Registrar, and the National Land Commission one year to regularise the process.

Further, the power project only occupied 40,000 acres of land, thus denying the local community use of the rest of the land.

Construction of the transmission line

The initial intention was to have LTWP Ltd. construct the power plant and the transmission line. This, however, changed later, with KETRACO opting to contract a Spanish firm – M/s. Isolux SA. Consequently, a Deemed Generated Energy (DGE) clause was introduced in the Power Purchase Agreement (PPA) between LTWP Ltd. and KPLC to cushion it from any loss that could occur in case of a delay in the completion of a transmission line.

KETRACO entered into a contract with M/s. Isolux SA in December 2011 for two years, but the contract was extended several times, further delaying the completion of the transmission line.

Wayleave acquisition

The Project faced further delays due to wayleave acquisition challenges encountered by KETRACO along the 428-kilometre stretch.

KETRACO did not meet its contractual obligation in constructing the transmission line by failing to secure wayleave access within the agreed contractual timeline.

Financial challenges faced by Isolux

Isolux faced financial challenges in 2016 and filed for insolvency in March 2017. This timeline coincided with the period when the transmission line would have been completed. It also coincided with the period when KETRACO had challenges in wayleave acquisition. Failure of Isolux SA to complete the transmission line within the relevant timelines to avoid penalties to the Government can be attributed to the delay in wayleave acquisition and the financial challenges the company faced.

KETRACO subsequently terminated the contract with Isolux. Despite the transmission line not being completed, KETRACO had already paid Isolux about KES 10.8 billion out of the contract sum of KES 17.4 billion.

The Consortium of NARI Group Corporation and Powerchina Guizhou Engineering Co. Ltd (NARI Group) was later contracted by KETRACO to complete the transmission line.

Deemed Generated Energy penalties

LTWP Ltd completed the power generation plant on 27th January 2017. Still, the transmission line was completed on 24th September 2018, leading to a 21-month delay that led to the payment of DGE penalties amounting to about Kshs 18.5 billion by the Government of Kenya.

As part of the payment, LTWP Ltd. agreed to receive a tariff increase to be paid between June 2018 to May 2024. Power consumers are bearing this increase in tariff through increased power bills.

Recommendations

The special audit report recommends the following:

  • The Accounting Officer at the Ministry of Energy (MoE) and The National Treasury should be guided by Article 226 of the Constitution and ensure competition whenever contracting for goods and services. The same applies to Accounting Officers for both Kenya Power and KETRACO.
  • The then Accounting Officers at the MoE and KETRACO should be held accountable for not conducting an independent legal risk assessment before executing contracts for a capital project of this magnitude. The Project was the largest public-private partnership in Kenya, and no risk analysis was carried out to establish potential challenges to the Project, such as delayed transmission line construction. These infractions exposed the Government, taxpayers, and other partners to value for money and litigation risks for delayed payments to contractors.
  • The then Accounting Officers (between 2019 to 2022) for the MoE and The National Treasury should be reprimanded for their excessive procrastination (for more than 30 months) in providing correct bank details to the LTWP Ltd. in which a refund of € 6,173,296 was to be deposited.
  • The EACC should investigate the KETRACO management on the contract management and implementation for the transmission interconnector, including the failure to secure wayleaves that led to delay in the completion of the line and exposed Kenyan taxpayers to penalties amounting to Kshs 18.5 billion and higher energy bills. 
  • The Government of Kenya should build the technical and financial capacity of Public Finance Management Officers in implementing projects through Public-Private Partnerships. This will enhance efficiency and effectiveness in executing such tasks. 
  • The AG should be involved in drafting and reviewing provisions of PPAs before they are signed to ensure terms included in such agreements are competitive and do not disadvantage the Kenyan taxpayers.
  • The CS for the MoE should urgently convene a stakeholders’ meeting to reconcile all the outstanding payments due to the NARI Group and settle them.
  • The CS for the National Treasury should urgently avail funds for the settlement of claims due to the NARI Group. Part of the said funds should be drawn from the € 6,173,296 refunded by LTWP Ltd. to the Government in March 2022.
  • The management of the LTWP Ltd. land, the Governor of Marsabit County Government, the AG, the Chief Land Registrar, and the NLC should expedite orders issued in Mohamud IItarakwa kochale & 5 others v Lake Turkana Wind Power Ltd. & 9 Others (2021) eKLR. As the team regularises the title, it should be guided by the Community Land Act, 2016, on Marsabit Community Interests and exploitation of the 110,000 acres of idle land for their economic interests.
  • The CS for the Ministry of Lands and the Chairperson of the NLC should always adhere to the Land Community Act, 2016, whenever community land is converted to other categories of land tenure.
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