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Method used to award energy contract open to abuse

By - | October 3rd 2013

The Energy Committee of Parliament is rightly concerned that the Government may be signing agreements with foreign partners without approval of the National Assembly as required under the Constitution.

Energy and Petroleum Cabinet Secretary Davis Chirchir told the committee the one billion-dollar Chinese loan would be used to finance geothermal power production and electricity projects in Nairobi.

Although he tried to assure the committee that the deal was properly scrutinised by the Department of External Trade, now under the Ministry of Foreign Affairs, at least one MP expressed doubt over the decision to single-source money and expertise for such huge projects, recalling that Kenya is still struggling to repay a Japanese loan for supply of outdated broadcasting equipment sourced under similar circumstances. Clearly, the hope is that Parliament, and not just the Energy Committee, will have a chance to go through the details of the loan agreement with a fine toothcomb before any monies are drawn from the Exim Bank.

Knowledge that the loan would attract a two per cent interest per year, though welcome, is not enough to reassure a country that is seeing increasing amounts of its scarce foreign reserves carted off to foreign banks to repay past loans, some for projects that left no mark on the ground.

To their credit, the Chinese are going about their business differently from other countries, as the Thika superhighway testifies. Even the emerging superpower’s most ardent critics have to admit that the Chinese have done one of the most outstanding jobs since they began winning mega infrastructural projects from local contractors, whose work had been so bad.

Indeed, locals came to be better known as “cowboy contractors.”  That explained why few mourned their being sidelined in the award of major public projects. Yes, there is renewed hope that increased involvement of Chinese loans and contractors into the energy sector will help deliver the ministry’s promised 5,000 megawatts within the next 42 months. This, according to Mr Chirchir, would bring down the cost of electric power from between 14 and 19 US cents to between six and seven US cents.

Were the government to achieve that goal, it would prove a game-changer that would pulverise many of the obstacles standing on the way to the achievement of Vision 2030.

The current installed capacity stands at 1,640 megawatts. The most immediate result would be the reduction of production costs for most of the country’s manufacturers, which stands at about 30 per cent.

The knock-on effect would be to make local goods more competitive to some of those imported from low energy cost countries such as Egypt, South Africa and China, among many others. By lowering the cost of production, the country’s export promotion efforts would get a much-needed boost.  

Now the Constitution empowers Parliament to scrutinise foreign loan agreements, perhaps the National Treasury should open its loan book to a respected third party for forensic audit to reveal the country’s level of indebtedness and the projects and programmes for which the loans were advanced.

At the very least, this would have the salutary effect of shedding some light on an opaque area that some well-connected Treasury officials could still be exploiting to fleece the country of its hard-earned income by pretending they are paying non-existent loans.

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