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Tough options for energy agency as multi-billion shilling contract for power project stalls

By Nzau Musau and Julius Chepkwony | Mar 31st 2019 | 3 min read
The Geothermal Development Company rig at Menengai Crater in Nakuru County. [File, Standard]

On the month they confirmed receipt of Sh1.4 billion advance payment, Chinese contractors visited the Baringo site where they were to drill 15 to 20 geothermal wells for production of electricity.

They found a well-laid site only awaiting their touch and magic before hundreds of megawatts of energy start churning from beneath.

An article posted on the website of Hong Kong offshore Drilling Services (HOOSL) says they held a meeting with GDC top officials among them the CEO, general manager and business manager where they agreed that drilling would start “at the end of September.”

“The opening ceremony will be held on the day of the drilling, and the leaders of both sides will be present,” the piece states.

By that time, and to the appreciation of the Chinese, GDC had already completed the construction of the well site, done all necessary pre-drilling work, organised well site water supply and constructed roads leading to the site.

Essentially, everything was ready for the arrival of the rigs, their mounting and drilling operations to start.

HOOSL had during this meeting claimed that its rigs and staff were ready to come and that they too responsibility for “timely delivery of equipment to Kenya.”

“Despite all the efforts made in good faith by GDC, HOOSL has been unable to mobilise to date thus putting the implementation of the Baringo-Silali project in jeopardy. Key to note is that the loan agreement is lapsing in August 2019,” a February 13, 2019 GDC report moans.

The failures cited by GDC are sharp contrast to the prowess of the contractor as depicted in their website where it describes itself as China’s “leading integrated oilfield services and petroleum equipment provider.”

It also says it is a “comprehensive oilfield service company which integrates design, field operations such as drilling, completion service, drilling technique, equipment supply and rentals, logistics and warehouse.” It says has nine drilling rigs, two work over rigs, thirteen logging units, two cementing units, five oil/gas testing units and over 1000 multinational staff.

“Till the end of 2014, HOOSL has succeeded in drilling more than 300 wells of gas and oil,” it says.

But now faced with inability to start operations and a bank that has failed to honor a validly issued Advance Payment Guarantee, GDC is stuck between a rock and a hard place.

At the heart of the dilemma is whether GDC should terminate the contract altogether with the risk that comes with it and dependent on the actual provisions of the contract. Besides consulting the Attorney General, the financier of the project, the German financiers of the project have to be consulted.

In late January 2019, GDC wrote to the AG seeking advice on whether to proceed and institute legal proceedings against the bank for non-payment of the guarantee.

“Subsequently on February 8, GDC received concurrence from the Office of the Attorney General to appoint an advocate from our panel to institute the legal proceedings against the bank procurement for such advocate is done in accordance with the procurement law,” a report to the board says.

As to the actual performance of contract which has never taken off, GDC can fall back to the performance bond of around Sh585 million HOOSL had provided from the Industrial and Commercial Bank of China (ICBC) which remains valid until June 30th this year.

“As a way forward, other than procuring afresh another contractor, GDC tom present a work’s proposal to KfW requesting to be financed as the drilling contractor,” says one of the recommendations before the board.

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