Kenya risks souring ties with partners over projects

Japan Ambassador to Kenya Tatsushi Terada and Treasury Cabinet Secretary Henry Rotich after signing a Sh2.9bn sector policy loan for the attainment of universal health coverage. The money will finance expansion of essential health services countrywide. FILE PHOTO |  NATION MEDIA GROUP

In Summary

• Government has been awarding different facets of mega infrastructure projects to companies from different countries.
• Kenya signed deals with US that might see China, Japan and Americans work alongside each other in some projects.

By OTIATO GUGUYU
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Disquiet is brewing among development partners as the Kenyan Government attempts to distribute mega projects among competing global powers.

The Jubilee Government seems to be attempting a delicate balancing, and potentially risky, strategy of awarding different facets of mega projects to companies from different countries. And, in some instances, development partners have questioned the changing of procurement rules midway through the process.

Kenya apparently entered into a deal with American company General Electric (GE) to deliver trains for the Standard Gauge Railway (SGR), which the Chinese are largely funding and building. GE already has another deal to deliver 20 passenger trains to Kenya Railways to the tune of Sh7.2 billion.

Principal Secretary in the Ministry of Foreign Affairs Karanja Kibicho also denied there was a deal with GE and that the SGR locomotives will be publicly tendered for.

The Japanese have also expressed disquiet in a letter to the National Treasury after the Kenya Ports Authority (KPA) was ordered to introduce new conditions in bidding documents for the Mombasa port tender, which appeared to undermine the interests of the Asian giant.

Foreign Affairs Cabinet Secretary Amina Mohamed, however, downplayed the simmering tension saying all differences had been resolved during the just-concluded Kenya-Japan Investment Forum.

“Any issue and any challenges that were there were addressed and I believe that they are being solved, there was no major issue that was raised, I’m sorry to tell you. You have been reading the papers as I have and expected there are big issues, (but) there were only small issues,” she said at a press conference at the Ministry of Foreign Affairs on Friday.

Ms Mohamed said the major issues about the Mombasa port was timing and the contractor promised the Kenyan Government that the terminal will be completed on schedule.

Kenya risks rattling relations with China whose growing trade ties with Africa have dwarfed Western powers like the US.

President Uhuru Kenyatta, in his address during the opening of the Global Entrepreneurship Summit (GES) alongside visiting US President Barack Obama last month, said Kenya could not afford “the luxury” of aligning itself to either the East or West.

Kenya signed deals with the US that might force the Chinese and Americans to work alongside each other in some projects.

MEGA DEALS

After the historic Obama visit, the Sunday Nation revealed that agreements worth up to Sh1.2 trillion struck between National Treasury Cabinet Secretary Henry Rotich and US Secretary of Commerce Penny Pritzker could see American investors have a stake in the Lamu port, an oil pipeline, power plants, urban commuter rail and highways, and various projects in the health and tourism sectors.

The commercial arrangements signed between US and Kenya include an investment of Sh950 billion ($9.5 billion) in the Lamu Port South Sudan and Ethiopia Transport Corridor (Lapsset) and an additional Sh755 billion ($7.55 billion) in the projected value of exports to flow through the same corridor.

The project that includes construction of railway lines, a pipeline, roads and an airport to connect Kenya to South Sudan and Ethiopia will include resort cities in Isiolo, Lamu and Lokichoggio to open up northern Kenya.

The key projects of the Lapsset corridor programme require substantial amounts of funds with a budget estimate of Sh2 trillion in construction costs.

The 200m-wide Lapsset corridor will link Lamu to Juba, South Sudan, 1,700km away, and is expected to generate at least three per cent of Kenya’s Gross Domestic Product.

The deal is likely to unsettle the Chinese, whose consortium, led by the China Communications Construction Company, won a Sh48.5 billion ($488.7 million) tender for the construction of the first three berths of Lamu Port.

Last month, the Chinese were quick to reassert themselves days before President Obama’s visit with a gift of Sh1.8 billion ($17 million) to refurbish Kasarani Stadium, the venue that the US President used to address Kenyans.

Meanwhile, China, whose companies have constructed major roads such as Thika Highway, Forest Road, Mombasa Road and facilities at Jomo Kenyatta International Airport, has now come under scrutiny over visa applications for Kenyans in Nairobi.

There have been complaints on the slow issuance of visas after the embassy migrated to an online system. A source at the embassy said the number of applicants was overwhelming. 

The Japanese, on the other hand, have taken their row to the National Assembly through a petition over interference by the Treasury in the Mombasa Port tender.

Representatives of Oriental Consulting group, Overseas Coastal Area Development Institute appeared before the National Assembly Public Investments Committee on Thursday over the issue.

The Japanese are protesting at last minute conditions added to Request for Tender (RFT) documents which have served to undermine their interests.

ADDITIONAL PROVISIONS

Ten days before opening of tender documents, Treasury wrote to KPA asking them to include additional provisions requiring the winner to offer 15 per cent carrying shares to the government.

The new conditions also say that the company selected for a concession will be given the powers to determine the financing mechanism for the next phases of the project and will also be given the “first right of refusal” in the planning and arrangement for the remaining phases of the project.

KPA Managing Director Gichiri Ndua on Wednesday said the process of retaining a concessionaire has gone up the technical evaluation of the bid.

He said there were seven major terminal operators including all the global big boys who are in the race proceeding to the financial evaluation stage.

According to the transactional advisory contract between Oriental Consult, Overseas Coastal Area Development Institute, and the KPA, for the first phase, Phase I operator will preferably clinch the offer for the second phase.

President Kenyatta, who was on a visit to Tokyo, agreed with the Prime Minister of Japan, Mr Shinzo Abe, to accelerate cooperation in infrastructure development in Mombasa and even did an exchange of notes that would grant the Japanese the next phase.

The chief representative of the Japan International Corporation (Jica), Mr Hideo Uguchi, has since protested against the manner in which the National Treasury had meddled in the process and warned that the meddling could affect Tokyo’s aid to Kenya.

“Any changes at this stage will affect future assistance to Kenya,” said Mr Uguchi.

The Japanese have been the biggest financiers of port development projects with most of the money lent to Kenya on concessionary terms. In fact, the new container terminal facility for which the government is procuring an international operator has itself been built with Japanese financing.

Another mega deal has seen Japanese company Toyota Tsusho clinch a contract to design an oil export pipeline from Uganda to Kenya’s coast after doing the feasibility study and preliminary engineering design.

Landlocked Uganda is planning to start crude production in 2018, while in neighbouring Kenya, Tullow Oil and Africa Oil are expected to submit development plans in late 2015.

Kenya estimates its crude oil reserves to be about 1 billion barrels, which experts say is enough to make a pipeline viable even without Uganda, which estimates its reserves at 6.5 billion barrels.