Ghosts of past tenders return to haunt KenGen

Engineers from Green Energy Group work on one of the wellhead generators in Olkaria. (Photo: File/Standard)

A new Sh14.4 billion wellhead tender awarded by the Kenya Electricity Generating Company (KenGen) to lease 50MW units at Olkaria has been hit by procurement controversies, making it the second such project to face allegations of impropriety.

KenGen awarded the tender in July this year for the leasing of 50MW wellheads, which are geothermal power generation units, to RentCo East Africa Ltd, in a consortium with Lantech (Kenya) and Toshiba, a Japanese company.

RentCo and its partners were given the tender to supply the new units at KenGen’s Olkaria geothermal fields on a build, lease, operate and maintain basis.

But now, a fallout following the tender award is not just threatening to delay the project, but has also awakened the ghosts of a previous wellhead tender, when the winning company came under similar scrutiny after being awarded contracts worth Sh7.2 billion in under two years of its formation.

Financial capacity

KenGen awarded Norwegian company, Green Energy Group (GEG), two contracts to supply wellhead generators for power supply in Olkaria. The electricity generator was soon under pressure to explain how GEG, a company incorporated in Norway in 2008, won a million-dollar tender in December 2009 without competitive bidding.

This latest fallout, which erupted two months ago, has seen the fight move from the Procurement Oversight Authority to the courts and now to Parliament’s Public Accounts Committee (PAC), in an all-too-familiar process for KenGen.

One of the main points of contention is that the lead company in the consortium has not been in operation for three years, which is required to enable it submit financial statements going back three years as proof of its financial capacity to deliver on the project.

The tender was opened on June 24, 2014, when RentCo had been in operation for two years, given that it was incorporated on June 6, 2012.

TransCentury had put in a bid for the project, jointly with OJSC Power Machines Ltd and Civicon Ltd. This consortium has argued that KenGen did not assign scores for both the technical and financial proposal.

The TransCentury consortium is counting on an earlier letter used by KenGen in dismissing RentCo’s application for a different tender on the grounds of date of registration. RentCo had applied to provide consultancy services for the redeployment of the Olkaria I Geothermal Power Plant project.

In the regret letter to RentCo seen by Business Beat, one of KenGen’s reasons for disqualifying the company was that RentCo had presented audited results for three years, yet it had only been in existence for two.

“We wish to advise that your companies were not successful due to the following reasons ... audited financial accounts are for years 2011/12, 2012/13 and 2013/14 as at March of each year, yet the firm was incorporated on 6th June, 2012,” the letter reads.

But RentCo did not give up on KenGen’s tenders; it reorganised itself for this latest bid and assembled in its corner some of the biggest names to boost its chances.

Clean up

It has also emerged that there could be two different dates for RentCo’s incorporation. There is another Certificate of Registration that suggests that RentCo was registered on January 5, 2007.

The revelation is set to turn the focus back to the Registrar of Companies for answers on how there can be two different dates of incorporation for the same company, especially at a time when the Government is spending significant resources to clean up the company registry.

The country was thrown aback at the height of the Standard Gauge Railway (SGR) tender controversy when it turned out that a group of Kenyans had registered a company with a similar name to the Chinese firm that was later awarded the multi-billion-shilling contract.

TransCentury’s consortium took the issue of RentCo’s registration to the tender watchdog, but it was dismissed on technical grounds, which has seen the controversy spill over to the courts.

In its ruling dismissing the case in August, the Public Procurement Administrative Review Board (PPARB) said that the issue was not raised in the Request for Review and the board could, therefore, not consider and determine the same.

The tender oversight body said it considered the results of the tender and evaluation committee, and found the evaluation was as per the terms of the Request for Proposal, and that there was no breach of these terms.

In their defence, RentCo East Africa and PPARB, in separate responses before Justice George Odunga, said the case filed by OJSC, which had a combined bid with TransCentury and Civicon, was wanting in law and had raised new issues that were not before the review board.

PPARB added that the RentCo consortium had met all the requirements sought in the tendering document, and were confirmed by the tender review committee.

“It should be noted that the applicant [OJSC] is hell-bent on raising non-issues and matters not raised before the respondent during the review process. On the allegations by the applicant that the second party [RentCo] should not have been pre-qualified due to age, we wish to state that the expression of interest was a consortium of partners, which met all parameters set,” the response by PPARB reads in part.

KenGen would not comment on the matter as the case is in court. However, the company argues that the two RentCo contracts cannot be compared because they are independent.

It is counting on PPARB’s ruling — which found that there was nothing wrong with the contract — to support its case in court.

The TransCentury consortium, however, argues that KenGen changed the evaluation criteria at the last minute, saying the Request for Proposals (RFP) was clear that the determining factor would be the lowest cost.

“The employer is looking for a leasing firm (individual or consortium) to lease a minimum of 50MW wellheads units and operate and maintain the equipment for a period of 15 years in Olkaria at the lowest rental fee,” part of the tender documents read in part.

Court documents say that the assertion that the winners offered the lowest cost were not true.

“This assertion by KenGen is entirely untrue as OJSC Power Machines/TransCentury/Civicon consortium quoted the lowest cost tariff on total cost per KWH that was at $0.06863 [Sh7.028]compared to RentCo East Africa’s tariff of $0.06885 [Sh7.050],” the papers argue.

Tender wars

This is one of the fiercest tender wars that TransCentury has put up in recent years. The company, which is majority owned by Kenyan businessmen, started as an investment club.

As at September this year, records at the company registry show that the directors of RentCo are Cynthia Njambi Okwany, Innocent Odhiambo Muganda, Rutio Kipngeno and Robert Kanda Nyasmi. Only two of these directors hold shares in the firm — Mr Muganda, with 30 shares, and Mr Nyasmi, with 70 shares.

The tender has opened a new battlefront just as the controversy on the Sh7.2 billion wellhead tenders awarded to Green Energy was dying down.

One of the contracts GEG was awarded in 2009 was a Sh780 million one to supply a wellhead in Olkaria for pilot purposes. The unit was expected to generate 5MW of electricity, with its success determined after 18 months.

Despite the pilot running into headwinds, GEG was allowed to supply an additional 14 units of wellhead generators during the same year, with 11 bidders purchasing the tender documents but only three submitting them.

In the pilot project, KenGen paid $3.5 million (Sh358.3 million at current exchange rates) for the prototype, which was equivalent to 50 per cent of the total cost, as GEG was to ship in the equipment for the project.

The terms of the contract provided that KenGen would pay 50 per cent of the total price in four instalments. The balance was to be paid after a second acceptance test, once the unit runs for 18 months. The pilot project did not work.

To save the situation, GEG kicked out engineers from Hindustan Turbo, a subsidiary company in India, for failing to start the machines, and their contract was given to Maxx Watt Ltd, another Indian firm. This led it to its current successes in wellhead technology, which has placed Kenya on the global map.

KenGen has been aggressively seeking alternative sources of energy, and has invested significant resources in geothermal development to support the country’s quest to generate an additional 5,000MW in 40 months.

This has seen the power generator mark wellhead technology as one of the fastest means to achieving this goal, given the speed at which it can be installed and operated.

KenGen is also counting on generating additional profits from the difference in the cost of leasing the wellheads and revenue from the electricity they generate.

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