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Fears of losses as Sh5.9 billion geothermal project in Baringo stalls

By Geoffrey Mosoku | February 14th 2019
Engineers from Kengen work on one of the largest well in Olkaria which is 3km deep and has the capacity of producing 30mw. [Antony Gitonga/Standard]

A Chinese company awarded a Sh5.9 billion tender to drill 20 geothermal wells in Baringo County is yet to commence work three years later.

Worse, the taxpayer risks losing over Sh1.4 billion made as advancement payment by the Geothermal Development Company (GDC) to the contractor after bank guarantees expired.

Hongkong Offshore Oil Services Limited (HOOSL) entered into the contract with GDC for provision of drilling services for between 15 and 20 geothermal wells in Bogoria-Silali Geothermal Project on April 6, 2016.

Advance payment

The tender was advertised in 2014 and HOOSL got a notification of award on November 10, 2014. The project is situated at Silali Hills and located in East Kapedo on the border of Baringo and Turkana counties.

The project is being financed by German government-own development bank, Kreditanstalt Fur Wiederaufbau (KfW) based in Frankfurt at a cost of $58,519,807.96 (about Sh5.9 billion) signed by the Kenya government.

Following a delay in making payments, GDC finally made a Sh1.4 billion to HOOSL in September 2017, paving way for the Chinese firm to deliver two rigs and commence works.

The initial delay was attributed to challenges facing a separate Sh1.2 billion contract for connecting water from Lake Bogoria to the site.

However, three years after the contract was entered, and 17 months after the advance payment was made, HOOSL is yet to ship in the equipment, sparking fears that the public will lose the money.

Terminate tender

The contract required that within three months of receiving the advance money, HOOSL mobilises the two rigs and commences the work of drilling the wells. The drilling was to take 15 months.

On Tuesday evening, GDC Managing Director Johnson Ole Nchoe told The Standard that GDC was not exposed and the contract will be executed but promised to give more details by Wednesday morning. However by time of going to press, neither he nor GDC communications office had responded to our email inquiry. 

Already the performance bond given for the project has expired while Advance Payment Guarantee (APG) provided by Stanbic Bank expired in December last year.

“Without the APG and performance bond, it means GDC will not be able to recover the money even if the tender was canceled for non-performance,” a senior GDC official told The Standard.


GDC failed to cash in the performance bond, APG or initiate the liquidated damages clauses.  The GDC board has considered passing a resolution to terminate the tender but failed to after the managing director assured them that HOOSL was ready to deliver the rigs and start work.

Following pressure to explain why the drilling had delayed, GDC Managing Director Johnson ole Nchoe directed the transfer of one rig from Mengangai in Nakuru to Silali in Baringo on December 18, 2018.

Tax liability

Nchoe approved the transfer of the rig acquired early through AfDB loan and materials to drill one well in Paka (PW-01) and another in Korosi (KW-01) the same site that HOOSL is required to drill the well, raising concerns on duplication.

HOOSL last updated on its website about the project on September 28, 2017 that after meeting with GDC in Nairobi, they were expected to start drilling at the end of November that year with the two rigs.

“GDC has completed the construction of well site, pre-drilling work, well site water supplying and the road construction have been completed. Therefore, the two rigs can be delivered to the site,’ the update reads.

While appearing before the National Assembly Energy Committee on Tuesday, Nchoe was tasked to explain how the company will be managing the growing pending bills of Sh1.17 billion and Sh3.4billion corporation tax liability.

“GDC committed to ensure that accumulation of new pending bills does not exceed one per cent of the approved exchequer budget for the 2018-19 Financial Year,” said Nchoe.

He said the multi-million projects in Bogoria-Silali and Menengai geothermal once complete will inject another 465 Megawatts (MW) of power to the national grid.

According to Nchoe, the Bogoria-Silali geothermal projects are expected to generate 300MW in Korosi, Paka and Silali with each expected to generate 100MW.

“Detailed surface exploration estimates a resource of 1200MW within this prospect of 100MW to be developed under phase I. One of the biggest challenges is funding,” said Ole Nchoe.

Created enmity

But Turkana South MP James Lomenen took issue with the Bogoria-Silali project alleging that it has created enmity among communities living along the border of Turkana and Baringo counties.

He questioned what measures the corporation had taken to ensure that there is no rift between the two communities living within the border where the project is being undertaken.

“We have had problems in the area where the Turkana’s and those living in Baringo have lost their lives. As for me I want this project stopped because it will create more conflict,” said Lomenen.

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