Lamu coal project faces fresh hurdles as Chinese firm moves to court

The battle to control the energy sector has moved to court as a Kenyan consortium, Gulf-Centum Investments, linked to local tycoons Suleiman Shahbal and Chris Kirubi fights to retain the multi-billion contract to establish the Lamu coal power project.

Battle lines have been drawn as the stake to implement the Sh180 billion project moves to court, a development that could delay the project that was expected to be ready in 2016, months before the next General Election.

If successfully implemented, the consortium would generate up to 35 per cent of Kenya’s installed electricity capacity by adding an additional 960MW to the national grid.

A Chinese firm, Hebei Construction Investment Group (HCIG), a company that was enjoying the sole mandate of investing and constructing power projects, and Liketh Investments, a Kenya-based investment company, have moved to court to block the power generation project.

The HCIG consortium has also filed a challenge at the Public Private Partnership Petition Committee appointed by Henry Rotich, the National Treasury Cabinet Secretary. The consortium has subsequently filed an application for conservatory injunctive orders in the High Court pending the hearing and determination of the application before the petition committee.

Binding nature

But the Gulf-Centum consortium and the Attorney General’s office lodged preliminary objections, stating that the High Court did not have jurisdiction over a matter that was already before the petition committee. A ruling on the case is set for November 21, 2014.

Justice Mumbi Ngugi directed that pending the ruling, no power purchase agreement or any other commitment of a binding nature shall be entered into between the Government of Kenya and Gulf-Centum consortium.

In the petition filed by HCIG through attorneys Ogeto, Otachi and Company Advocates, the company argues that it was among the applicants who showed interest in the design, financing, procurement, supply, construction, testing, commissioning, operation and maintenance of a 900-1000MW coal power plant in Lamu.

HCIG claims that the Ministry of Energy and Petroleum’s evaluation process, which eventually awarded the tender to a consortium consisting of Gulf Energy, Centum Investments Company Limited, Sichuan No3 Electric Power Design and Consultancy Company Limited, and CHD Power Plant Operation Company Limited was biased, unprocedural, unfair, unjust and even illegal.

The HCIG petition argues that the Gulf-Centum consortium, as presently constituted, was not among the original 26 bidders who expressed interest. Consequently, the tender award to the Gulf-Centum consortium, the applicants argue, is in violation of the Public Private Partnerships Act and Article 227 of the Constitution of Kenya, which requires State organs to procure goods and services in a manner that is transparent, competitive and cost effective.

Documents seen by The Standard on Sunday show that the Treasury had raised issues with the tendering process through the Secretary to the Public Private Partnership Committee, Engineer Stanley Kamau.

One of the issues raised by Treasury was a request for explanation as to why the reasons for disqualification of the other bidders were not well explained. The Gulf-Centum consortium was awarded the tender after all other bidders were disqualified.

Upon completion, the proposed power plant is expected to import coal from South Africa in its initial stages of operation before turning to Kitui County’s Mui Coal Basin. Power generated from the coal plant would be sold to Kenya Power under a long-term power purchase agreement lasting 25 years.

According to Davis Chirchir, the Energy Cabinet Secretary, the objective of this tender is part of the government’s priority 5,000+MW project to raise generating capacity from the current 1,664.1 MW to slightly over 6,700 MW by 2016.

Mr Chirchir, in a ministerial strategy paper, says the Lamu Coal Power project is among the flagship projects of the Jubilee Administration in line with Vision 2030 goals of increasing generation capacity to 5,000 MW by 2017.

The overall aim and intention of the Lamu Coal Power project proposed by the Ministry of Energy was to attract private investment to a proposed coal generation power plant in Lamu under a PPP arrangement. The tender was to have been awarded to the bidder offering the lowest cost of electricity to Kenyans.

Kenya’s procurement laws require that all projects provided for under the Public Private Partnership (PPP) Act be procured through a competitive bidding process.

The Act further provides that in procuring and awarding a contract to a private party, the contracting party concerned shall be guided by the principles of transparency, free and fair competition and equal opportunity in accordance with the guidelines made under the PPP Act.

Competitive bidding

The Ministry of Energy and Petroleum’s compliance with and adherence to these legal requirements and principles in the evaluation and award of this tender is the subject of the dispute.

The ministry has maintained that its activities in the tendering process were above board and would not cost an extra Sh19 billion as has been alleged. However, the Ministry, in a paid up advertisement clarifying the process and award, appeared to indicate that the winning bid was at least Sh5 billion higher in annual costs to Kenyans.

In the same paid advertisement, Chirchir and Principal Secretary Eng Joseph Njoroge defended the award, arguing that the other bidders, while possibly cheaper, were disqualified. Additionally, they stated that the ministry consulted the AG’s office and the National Treasury and the deal was cleared.

“It is in the interest of Kenyans that they access competitively priced electricity at the earliest opportunity and the Lamu Power Project will contribute significantly to lowering the average cost of power,” Njoroge and Chirchir said in a media statement.

In a replying affidavit in the battle over the multi-billion shillings power project, Gulf Energy Limited, through its Chief Executive Officer Francis Njogu, says it is a significant player in the energy sector in Kenya. It engages in the supply of crude oil and refined products as well as power generation.

Gulf Energy Limited is the first indigenous power development company in Kenya and owner of Athi River II Power Plant, that supplies 80.32MW to the national grid. It aims to provide energy solutions in an ecological and sustainable manner. Gulf Energy is associated with Mombasa tycoon Shahbal who contested the Mombasa gubernatorial race but lost to Hassan Joho.

Gulf’s partner Centum Investment Company Limited, a company associated with businessman Kirubi, is described as a leading East African investment company which provides investors with access to a portfolio of quality and diversified investments in the fields of energy, financial services, real estate, agriculture, healthcare, education and ICT.

Court documents say Centum Investments has assets under management of Sh29 billion of its own funds and an additional Sh116 billion of third party funds.

Another player in the Gulf-Centum consortium, the Sichuan Electric Power Design and Consulting Company Limited and Sichuan No 3 Electric Power Construction Company Limited, are wholly owned subsidiaries of Powerchina, a Fortune 500 company with vast experience in power project development.

On September 1, 2014 Gulf-Centum Consortium received a letter from the Ministry of Energy and Petroleum informing it that it was the successful bidder and had been awarded the tender for the construction of the project.