The World Bank was the first major player in the deal to sound the alarm on the multibillion shillings deal. But Energy Ministry officials remained adamant – the contract had to continue at all costs, despite the red flags.

Kenya Power board minutes dated May 2013 and a Cabinet memorandum on the project reveal that the World Bank, which was to provide a guarantee, or what is called a partial risk guarantee (PRG) , was forced to withdraw from the project entirely. after his pleas fell on deaf ears.

The documents show that the lender listed four main reasons for quitting smoking.

The first was the size of the plant, which she said could impact the reliability of systems supply. The World Bank had advised that instead of building the mega project in one go, Kenya should consider gradually developing wind power in smaller batches of 50 to 100 MW.

Like all the other projects in which it is involved, the lender has also insisted that the country must procure on a competitive basis to ensure profitability. But this wish, too, was not granted.

The firm purchase obligation in the Power Purchase Agreement (PPA) was another red flag for the lender. He argued that this dangerously exposed Kenya Power to an unacceptable financial risk of paying for the reduced power, which the utility would not be able to distribute due to system constraints.

“The 26-month deadline for the construction of the Loiyangalani transmission line was very short. This delay was insufficient and KPLC would end up paying for the electricity that was not used, â€predicted the World Bank. And it happened.

Breach of contract

The final nail in the coffin for the World Bank was that Kenya Power lacked experience in managing the allocation of a large wind power plant in the power system and the project would cause system instability.

After the World Bank withdrew from the project, the government reached an agreement with the lenders of the wind company providing a letter of support to help it obtain the risk guarantee from the African Development Bank. To firm it up, then Attorney General Githu Muigai wrote a letter to legal advisers on the project, noting that Kenya’s letter of support was legal.

According to the PPA, a security support facility of 4.7 billion shillings was to be remitted by Kenya Power to an escrow account. But Kenya Power did not open that account, further violating the contract.

There were eight key players in the wind power project: the Department of Energy to make things work; Kenya Power as the ultimate beneficiary of the plant; Energy Regulatory Commission (ERC), now Energy and Petroleum Regulatory Authority (Epra); Lake Turkana Wind Power (LTWP); KPMG, a private consulting firm; the now bankrupt South African company Isolux Ingenieria SA and KEMA; DEWI, who carried out the wind tests; and NARI Group Corporation & Powerchina Guizhou Engineering Co. Ltd (under contract to build the transmission line).

The Kenya Electricity Transmission Company (Ketraco) was created on December 2, 2008, so it did not exist at the time of the conceptualization of the power project and its formation stages. She took charge of the transmission line completion process and thus supervised the process that retained Isolux Ingenieria SA, for the construction of the 400Kv line with KEMA as a consultant in 2013.

But the line to evacuate the electricity produced was not fully completed until September 24, 2018, while the plant was completed on January 27, 2017, resulting in a delay of 21 months.

The Auditor General’s special audit “noted that there were challenges in the completion of the transmission line which affected the commissioning of the project transmission line. The challenges related to technical weaknesses and financial statements of the entrepreneur, M / s Isolux Ingenieria SA “.

Raised a red flag

The original completion date was December 31, 2013. The date was first extended to June 30, 2014 and then extended by 2.5 years to December 30, 2016. The line would eventually be completed by another contractor.

“This raised a red flag on the capacity and competence of the contractor initially hired and whether due diligence was carried out prior to his selection,” the report said.

The company Isolux was declared bankrupt during the execution of the contract, which saw Ketraco terminate the contract. Delays in completion have resulted in claims by LTWP.

The contract between Kenya Power and LTWP signed on January 29, 2010 required the former to pay net power generation from 50 MW from the start date. Put simply, Kenya Power had to pay monthly penalties to LTWP for each month of delay in the event that the transmission line was not completed and the power plant was.

Within the 21-month period, these charges had accumulated to Sh18.5 billion.

Unable to pay the full amount, the Energy Ministry paid 10.2 billion shillings and agreed with the company that it could collect the remainder directly from consumers by increasing its tariff by 0.00845 euro (approximately 1 shilling) per Kwh for nearly six years between June 2018 and May 2024.

It has now become a bitter pill to swallow as the company waits for Epra’s approval to collect the money.

Kenya Power payment defaults

The PPA contract between Kenya Power and LTWP had all the features of protecting the wind power company while exposing the consumer to bear the negative financial consequences of any event affecting the project.

The company was to sell 300 MW of power to Kenya Power at a cost of 7.65 shillings per Kwh. All the electricity produced had to be purchased at a fixed price over a period of 20 years.

It also had a guaranteed take or payment basis of up to 55 percent of the load factor of 1.4 million kWh and Kenya Power was to compensate the company for the loss of production.

Despite all this, the government had to provide a sovereign guarantee to cover the political risks and defaults of Kenya Power. The icing on the cake was that the transmission line was to be developed either by a subsidiary of LTWP or by the government.

The Auditor General thus concludes with regard to the contract: “There was no counterpart because the penalty did not apply to LTWP Ltd in the event that the transmission line was completed and the production plant was not ready. .

After several variations in the contract, Ketraco eventually terminated the contract and secured a consortium of Naro Group and Powerchina to complete the job. At that time, Isolux had received 10.8 billion shillings.

“Further investigation should be carried out to determine any act of anomaly on the individuals involved in the entire project process and the action taken on those found guilty,” the Auditor General said in his report.

Contractual implication

In its defense, LTWP maintains that it has lived up to its end of the bargain and has bills to pay. He notes that the PPA had a firm contractual implication for both LTWP and Ketraco in the event that either entity failed to deliver the wind farm or transmission line on time. He adds that he has loans with repayments of around 8.5 billion shillings per year.

“LTWP had to repay its loans and remain operational pending completion of the IT (transmission line),” the company said in its official response to the complaints. He says he only received 5.7 billion shillings of the 14.6 billion shillings owed to him by Kenya Power for the delay and does not charge interest on the balance which has been deferred. over six years.

The wind company also says that it has no contribution in passing the costs on to the end consumer.

Although the company has an installed capacity of 310 MW, it has yet to fully meet this target. There are several reasons for this.

“Wind farms around the world operate at different capacity factors depending on the wind speed. As wind is an intermittent energy source, the capacity factors of most wind farms around the world average between 30% and 40% of the total installed capacity of the wind farms. “says the company on its website.

He adds that since it started injecting electricity into the national grid on September 24, 2018, the wind farm has average capacity factors above 70%, peaking at 99% (307 MW).

Additionally, LTWP reports that between September 2018 and March 2019, it injected 737,683,544 kWh of clean, reliable and renewable energy into the national grid. This, he says, has increased Kenya’s spinning reserve capacity and reduced over-reliance on diesel-powered sources of electricity during the drier months.