Gulf Energy gets the go-ahead on Sh170bn Lamu coal power project

Energy principal secretary Joseph Njoroge. The Government Tuesday moved to award the Sh170 billion Lamu coal plant tender, even as other bidders say the public stand to lose Sh19 billion in extra costs. FILE PHOTO | NATION MEDIA GROUP 

In Summary

• Gulf Energy, however, says they are ready to start, with a finish date of 2017. “We hope, with facilitation by the Government, to reach financial closure within six months. Construction of the plant will last 21 months,” said a top Gulf Energy official.
• A tender evaluation official Tuesday accused both the Chinese firms of attempts to change the Specific Fuel component, a key element which determines the cost of the plant, saying this amounted to change in substance of the original bids and prices.
• The two Chinese companies also claim that the consortium led by Gulf Energy was favoured during the process, first being allowed to change their partners, replacing Tata group with Centum Investment, which is against the rules.

By ZEDDY SAMBU
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The Government Tuesday moved to award the Sh170 billion Lamu coal plant tender, even as other bidders say the public stand to lose Sh19 billion in extra costs.
In a letter sent on Tuesday to the best evaluated bidder, Gulf Energy, Energy Principal Secretary Joseph Njoroge informed the consortium that they can go ahead and negotiate with Kenya Power on pricing.

Successful negotiations over the cost of buying the power will be followed by contract signing, paving the way for implementation of the flagship project for the 5000 MW+, the Jubilee Government’s power masterplan.
“Your bid was successful and accepted on 10 parameters. The Ministry will invite your team to negotiate for time and cost of the project,” Mr Njoroge notes in the correspondence seen by the Nation.

“These parameters will form the basis of negotiations for the Power Purchase Agreement (PPA) and must be verified,” the letter says. The issue of pricing, however, is raising heat... with one of the losers saying Gulf’s bid amounts to Sh19 billion each year as extra costs to consumers.

In total, it is said the public will pay Sh475 billion in additional cost in electricity bills if the award goes to Gulf Energy, given that the project is expected to run for 25 years.

Two Chinese firms — HCIG Energy which teamed up with a Kenyan registered firm, Liketh Investments, and a Shanghai-led consortium — were the losers, although they were initially considered as being responsive.

On Monday, at a status meeting, the losing bidders criticised the ministry’s tender committee for what they termed as awarding of the tender to the highest bidder. While the tender award was slated for June and commissioning on September 1, the process has been delayed.

CONSTRUCTION WILL LAST 21 MONTHS

Gulf Energy, however, says they are ready to start, with a finish date of 2017. “We hope, with facilitation by the Government, to reach financial closure within six months. Construction of the plant will last 21 months,” said a top Gulf Energy official.

The winning consortium has said it would sell power at US cents 7.56 per kilowatt hour (kwh), subject to prevailing international coal prices.

The two Chinese companies also claim that the consortium led by Gulf Energy was favoured during the process, first being allowed to change their partners, replacing Tata group with Centum Investment, which is against the rules.

The Gulf-led consortium was also evaluated on a price of $100 per tonne of coal against the $50/mt stipulated in the bid documents, the benchmark for evaluating the other bidders.

A tender evaluation official Tuesday accused both the Chinese firms of attempts to change the Specific Fuel component, a key element which determines the cost of the plant, saying this amounted to change in substance of the original bids and prices.

“The numbers provided by these two were not adding up when tested against the applicable formula,” the official said