Geothermal tender war taken to court

KenGen Managing Director Albert Mugo during the Half Year Investor Briefing at the Laico Regency on March 6, 2015. Claims have been made that the winning company of a multi-billion shilling geothermal power tender could have had its way into the Kenya Electricity Generating Company (KenGen) tender despite losing the bid. PHOTO | DIANA NGILA | NATION MEDIA GROUP  

In Summary

• Saturday Nation has established that RentCo East Africa Limited, which tendered jointly with Lantech and Toshiba, was awarded the Sh20 billion contract to build a 50MW geothermal power plant at Olkaria in Nakuru County, much to the surprise of other bidders.
• In dismissing RentCo, the technical committee pointed out that its resume' shows no background in engineering, usually a primary qualification in such a tender.
• Mr Nyachoti said KenGen and the procurement agency appeals board have refused to furnish his client with the scores of the tender proceedings.

By JUSTUS WANGA
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A fierce battle for a multi-billion shilling geothermal power tender has moved to the courts after a losing bidder claimed the award was unfair.

Claims have been made that the winning company, said to be associated with individuals with close links to the corridors of power, could have had its way in the Kenya Electricity Generating Company (KenGen) tender despite losing the bid.

Saturday Nation has established that RentCo East Africa Limited, which tendered jointly with Lantech and Toshiba, was awarded the Sh20 billion contract to build a 50MW geothermal power plant at Olkaria in Nakuru County, much to the surprise of other bidders.

The company, which claims it had the best bid, OJSC Power Machines of Russia, appealed to the Public Procurement Oversight Board.

However, the board dismissed the appeal and the firm is now suing KenGen.

In dismissing RentCo, the technical committee pointed out that its resume' shows no background in engineering, usually a primary qualification in such a tender.

“RentCo is registered in Kenya to carry out the business of leasing and financing, not engineering consultancy. The key professional staff are individual consultants working for different firms in the US and Kenya,” KenGen’s supply chain director, Mr Phillip Yego, said in a letter to RentCo informing it that its bid had been unsuccessful.

MORE DISCREPANCIES
There are also discrepancies on when the company was registered.

“Audited financial accounts are for years 2011/12, 2012/13 and 2013/14 as at March of each year yet the firm was incorporated on June 6, 2012,” Mr Yego observes in the letter dated June 12.

Information Saturday Nation obtained from multiple sources in the technical committee and KenGen points to the involvement of a higher power that trashed the recommendations of the committee.

Compared to other companies that bidded for the tender, RentCo quoted the highest monthly charges of Sh294 million, with GDA and TLC quoting Sh278 million and Sh255 million, respectively.

The tender was opened on May 25 this year.

Throughout Mr Yego’s letter, the tender committee says it doubts RentCo’s ability to handle the enormous task.

“(We) wish to advise that your company was not successful due to the following reasons: your firm did not provide evidence of a track record of relevant experience in consulting services on geothermal power plants,” the letter, addressed to Mr Innocent Muganda of RentCo, points out.

Mr Yego further indicates that the firm did not meet the 10-year experience clause on design and engineering in geothermal technology as stipulated in the advertisement for the tender.

APPLICATION DISMISSED
From the letter, it is clear that the work demands steam gathering ability, high voltage substation transmission systems and supervision of implementation and that a bidder with no capacity would certainly need to subcontract the tender.

“Your firm did not provide at least one reference on which the firm successfully implemented refurbishment/re-development and upgrading of a geothermal power plant of a similar capacity, nature and scope in the last 10 years,” the committee says.

This can only serve to dent the government’s commitment to ensuring probity in the tender business. There have been reports of officials in government who have become overnight millionaires through “tenderpreneuers”.

In most cases, they lock out those who qualify for tenders because they do not have connections in high places.

A geothermal power generation plant in Okaria, Nakuru County. FILE PHOTO | NATION MEDIA GROUP

Despite the misgivings by the KenGen tender committee, the company awarded the contract to RentCo, triggering what is set to be a vicious court battle with the Russian firm.

Before resorting to the courts, the aggrieved parties on July 22 told the procurement authority they want a review.

However, the State agency dismissed the application and affirmed the award, saying RentCo had guaranteed a monthly revenue of $822,038 (about Sh86 million), while the other companies had guaranteed $784,039 (or Sh82 million).

KENGEN WAS INFORMED
OJSC, which presented a combined bid with TransCentury and Civicon Limited, says in court filings that it only discovered the irregularities on RentCo’s registration and limited experience in geothermal work after its appeal to the procurement agency.

The firm says KenGen knew about the irregularities when it knocked out RentCo from another tender earlier this year.

“KenGen was well aware of this fact, having previously, by a letter dated 12th June 2015, disqualified RentCo with regard to Expression of Interest for Consultancy Services for Rehabilitation of Ol Karia 1,” OJSC lawyer Philip Nyachoti says.

On September 17, Justice George Odunga stopped KenGen from signing a contract with RentCo until the suit is determined.

The judge will hear the suit on October 19 and has ordered KenGen and the procurement agency’s appeals board to respond by then.

KenGen expects to earn at least Sh823 million annually from the station once the new generators at the Ol Karia plants are running.

A GLOBAL LEADER
Mr Nyachoti said KenGen and the procurement agency appeals board have refused to furnish his client with the scores of the tender proceedings.

He said this was aimed at rubberstamping RentCo’s win.

With 579MW of steam power, Kenya is a global leader in geothermal power energy, producing more than giant economies such as Japan, Russia, China and Germany.

Kenya has the capacity to produce about 10,000 megawatts of geothermal power from the Rift Valley basin, a potential which if exploited, will halve the cost of electricity to Sh9.54 per kilowatt hour from the current average of Sh18.07 for households.

The shift to geothermal energy will also help cut reliance on hydropower, which is susceptible to the vagaries of the weather.