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How poor planning of State projects costs taxpayers billions

FINANCIAL STANDARD
By Otiato Guguyu | February 26th 2019
By Otiato Guguyu | February 26th 2019
FINANCIAL STANDARD
A section of the Thiba mega dam whose construction works are at 20 per cent, according to the Project Manager Stephen Mutinda. Delays have seen major projects cost nearly 40 per cent more. [Munene Kamau, Standard]

Anyone who has attempted to put up a building is familiar with the ‘black hole’ that gobbles up huge cash past the initial estimates or even foreseeable contingency.

Even for the most frugal, armed with the bill of quantities, accounting for every nail and supervising the construction, there is always a feeling that the contractor has given you a raw deal, having colluded with the hardware store or carted away a bag of cement.

However, for a government actively seeking to make a killing, collusion, overestimation and variation are done so brazenly that taxpayers have to foot an additional cost that runs up to half of the public investment.

This has cost the country billions of shillings in lost or delayed investment decisions. The Director-General for Budget, Fiscal and Economic Affairs Geoffrey Mwau said recently that part of the option that Treasury was looking at in terms of mobilising resources was to improve project administration

“Infrastructure governance is one of the areas we are looking at. According to the presentations for some countries, poor management of public investment leads to a lot of expenses sometimes up to 39 per cent,” Mr Mwau told the seventh African Fiscal Forum in Nairobi recently.

“There is a need to improve management efforts, proper project appraisal, ensuring they are completed in time,” he said.

Deepak Dave of Riverside Capital said Kenya is losing more to mega projects due to land purchase delays and community mismanagement. “Delayed project completion means slower payments through the system thus rendering the building up stable including getting local suppliers difficult. Poor management of land and wayleave issues means lack of community usage and support thus making the next project more difficult,” he said.

“This lead to loss of overall productivity gains thus less revenue and more difficult debt repayment.”

Already, a section of the Standard Gauge Railway (SGR) is headed for delay after the Government suspended payments for wayleave three years ago following claims of corruption.

The Ethics and Anti-Corruption Commission (EACC) said halting the payment was a response to a standoff at the National Land Commission overpayment of Sh17.8 billion to people whose property has been acquired to pave way for the project. Stopping the compensation has huge implications to 1,090 beneficiaries already displaced and strict timelines for completion of the project before scheduled the June 1, 2019, presidential launch. The delays may come at an additional cost.

This is not the first time that the project is making Kenyans dig deeper into their pockets.

Initially, land compensation for the section between Tuala and Embulbul in Ngong was estimated to cost Sh7.5 billion.

However, the owners were demanding Sh15 billion, which was rejected and fresh valuation done. The Government tried to bargain for Sh10 billion as compensation to landowners with buildings along the Ngong-Naivasha SGR route but have had to finally settle at Sh17.8 billion.

Compensation issues

Transport Cabinet Secretary James Maharia in a previous interview complained that land compensation issues were inflating the cost of projects disproportionately.

This is said to be one of the issues that saw Uganda and Rwanda ‘pull out’ of the SGR link rail. CS Macharia said the Kangemi-Rironi section of Nairobi-Naivasha highway was also stalled by a Sh6 billion claim even when some structures were on road reserves.

“Some have put up structures on road reserves because they know the World Bank is very strict on its project and will not allow us to remove them,” he said.

The Athi River Machakos turnoff also has a Sh6 billion land claim while the Mombasa Island-Jomvu Mariakani road is facing a Sh10 billion compensation claim.

Housing Principal Secretary Charles Hinga said the Government is trying to establish a land value index to help standardise pricing so that it is not overvalued whenever the State wants to compulsorily acquire it, but the law is still stuck in the legislative process.

Besides land compensation claims, project delays are perhaps the ‘biggest tick sucking out life’ out of investor money even as idle contractors reap big from such delays.

An internal audit on the Kenya Electricity Transmission Company (Ketraco) flagged variations of contracts whose prices had been set beyond the 20 per cent variation limit stipulated by procurement law. One of the projects was varied by up to 86 per cent, resulting in additional charges of Sh430 million.

One of the contractors at Ketraco claimed to idling fees for 21 months for his workforce and equipment at a rate of Sh108 million per month for doing nothing.

Some expatriates were being paid Sh200,000 per day. These led to a Sh3.8 billion bill slapped on the taxpayer. The firm allowed a contractor to keep 100 per cent of its staff, even when the project had been stopped for 54 months after landowners blocked it.

Kenya has also been losing huge cash to firms that lack capacity to deliver - with some even going bankrupt in the middle of the project causing delays and as a result costing double the amount when the project is re-tendered.

The cost of constructing 428km high voltage line to evacuate power from the Lake Turkana Wind Power Plant (LTWP) has nearly doubled to Sh28 billion from the initial Sh15 billion after the Spanish contractor Isolux Corsan went bankrupt.

The new cost was quoted by a consortium of two Chinese firms – NARI Group Corporation and Power China Guizhou Engineering Company after the tender had to be awarded a fresh.

In fact, while the project lagged as a result of financial distress at the Spanish contractor, Kenya was forced to fork out an additional Sh5.7 billion since the transmission line was linked to another contract with LTWP as a penalty for failure to deliver it on time.

The same script has recently been replayed to the public as CMC Di Ravenna that was contracted to build the Arror, Kimwarer and Itare Dam in the Rift Valley filed for bankruptcy last December.

The taxpayers may lose part of the value for the Sh38 billion loans, signed at State House in the presence of President Kenyatta and Italian Prime Minister Matteo Renzi, who had jetted in for an official visit in July 2015.

Court cases have also been blamed for slower implementation of State projects resulting in additional cost to the taxpayer.

Vision 2030 Chairman James Mwangi said corruption, legal bottlenecks, and State bureaucracy have become the biggest impediments to rolling out key projects under the blueprint goals.

“We have become a litigious society where everybody wants to go to court for the slightest contractual misunderstanding, which is delaying these projects,” he said.

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