Sh4.5 billion at stake in Nile lakes power contract termination

Economy

Sh4.5 billion at stake in Nile lakes power contract termination


A Kenya Electricity Transmission Company Limited (KETRACO) Substation. PHOTO | AYUB MUIYURO | NMG

Taxpayers risk losing Sh4.5 billion following the termination of the main contractor who was hired to construct a section of the electricity grid linking Kenya to the Nile Equatorial Lakes countries.

The Kenya Electricity Transmission Company (Ketraco) terminated the services of the main contractor for non-performance in April 2016.

At the time Ketraco terminated the services of the main contractor, the project had stalled at 61 percent of completion.

An arbitrator and the High Court have since awarded the contractor euros 37,365,690 (Sh4.5 billion) for the termination of the lucrative deal.

The project, funded by a loan from the African Development Bank (AfDB), has since 2016 accumulated legal costs amounting to Sh293,840,788 on a court case in which Ketraco lost at the arbitration and High Court level with the two courts granting compensation to the contractor.

Auditor-General Nancy Gathungu says an arbitration case was filed on April 1, 2016, between the contractor and Ketraco concerning the termination of the contract for works which had not been finalised.

She said on July 20, 2020, the tribunal, which was the arbitrator on the matter, issued an award in favour of the contractor for euro 37,365,690 equivalent to Sh4.5 billion.

“However, management is of the opinion that the decision made by the arbitrator is against public policy and made an appeal to have the award set aside in the High Court. The High court upheld the tribunal award,” she said.

Ms Gathungu said Ketraco has since appealed to the Court of Appeal.

“Under the circumstances, there is a potential loss in excess of Sh4.5 billion if the judgment

is upheld at the next level and it is not possible to confirm that there is value for money obtained from the project,” Ms Gathungu said in an of the ministry of Energy books of accounts for the year to June 2021.

Ms Gathungu said it is not possible to confirm when the matter will be resolved and how the cost in terms of legal fees of Sh293,840,788 that Ketraco will incur will be reflected in the financial statements.

She said the AfDB 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 remain incomplete and unused.

Ms Gathungu said the AfDB loan agreement with the government expired on December 31, 2017.

“Further, no funds have been received from the bank since 2016. Analysis of the project cash and pending bills records as at June 30, 2021, revealed a funding shortfall of Sh423,530,240,” Ms Gathungu said.

She said there was no evidence that the loan agreement had been renewed or other sources of funds had been identified.

“Therefore, it has not been possible to confirm whether or when the project will be completed,” she said.

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