The National Treasury has snubbed a State agency facing a Sh9.2 billion compensation claim for cancelling a power project, exposing it to a huge fiscal burden with a stalled project in its hands.
The compensation award stems from a dispute with a Spanish contractor, Inabensa, over termination of a contract for a 132-kilometre 400 kV double circuit transmission line from Lessos (Kenya) to Tororo (Uganda) in April 2016.
The Kenya Electricity Transmission Company (Ketraco) ended a contract to connect 1.5 million Kenyans to electricity, triggering battles that have seen courts slap it with hefty fines. Ketraco cancelled the deal, accusing the firm of non-performance, but the company sued it and was initially awarded Sh4.5 billion in July 2020. The amount has since risen to Sh9.2 billion.
New details have emerged showing that Treasury last year brushed off Ketraco’s request to finance the completion of the project that had stalled since the legal battles started in April 2016.
“Management has engaged the National Treasury through the Ministry of Energy to finance completion of the project. This will allow for completion of the project, hence realisation of value for money from the project,” Auditor–General Nancy Gathungu said in a new report.
Auditor-General Nancy Gathungu.
Photo credit: Dennis Onsongo | Nation Media Group
“However, in the response, there is a letter from the Principal Secretary, National Treasury to the accounting officer dated 14 March, 2024 indicating that upon advice from the Attorney General, the State Department was to work out a feasible phased-out payment plan for the arbitral award and prioritse funding for the same and any other relevant project completion costs within the financial year 2024/2025 and the Medium-Term Budget,” the report further said.
The project stalled since Ketraco cannot proceed with it until it settles the arbitral award in full, the agency told Gathungu in a report released this month.
Ketraco has lost court battles before a tribunal and the High Court, after both upheld the award to the contractor. The matter is now before the Court of Appeal.
By the time Ketraco terminated the contract in 2016, 61 per cent of the works had been done.
The project was originally meant to cost Sh17.4 billion, meaning that works valued at about Sh6.8 billion remain unimplemented.
Ketraco declined to respond to questions regarding its strategy to fund the remaining part of the project and pay the award.
An official from the agency indicated that “MD has said the issue is with the courts/arbitration. Cannot comment.”
The African Development Bank, which was funding the project, pulled out before it could release all the funding following the termination of the contract.
AfDB documents on the project show that the government planned to connect 300,000 low-income households to electricity through the project, which was expected to be concluded in 2017.
Through the project, households located within a 600-meter radius of electricity transformers would be connected first and would be left paying for connections slowly.
The AfDB was to fund 87.7 percent of the project, as the government would cater for the remaining 12.3 percent, largely compensating people affected by the construction.
“The project will cover the entire country with selected transformers in 47 counties, with the potential of connecting 300,000 customers. The direct beneficiaries of the project are households, mainly low-income groups, and small businesses located near these distribution transformers, in counties with the lowest penetration rate,” AfDB documents state.
In the year to June 2024, the public auditor warned that the arbitration award on termination of the project was Sh9.2 billion, even as the agency faced an insolvency petition from an undisclosed creditor.
“The award, if unsettled, may further adversely affect the liquidity of the company and is likely to negatively impact service delivery. In addition, on 15 May 2024, a creditor filed an insolvency petition against the company at the commercial and admiralty division of the High Court of Kenya in Nairobi. The matter was awaiting the Court's determination,” Ms Gathungu said.
She reckons that the AfDB has not released funds to the project since 2016, yet Ketraco has not renewed the loan agreement with AfDB or identified other sources of funding.
“Further, the loan already disbursed to the project continues to attract an unquantified amount of interest even though the asset that was to be acquired out of the loan and possibly enable repayments remains incomplete and unused,” Ms Gathungu said in an audit for the year to June 2021.
In a report adopted by the National Assembly in February 2024, MPs asked Ketraco to report on the status of the project by May 2024, though Ms Gathungu noted that the agency did not honour the directive.
“The Management submitted that the project is currently stalled and Ketraco cannot access the site until the arbitral award is settled in full,” the public auditor said.
