Auditor-General Nancy Gathungu has sounded the alarm that Kenya Electricity Transmission Company (Ketraco) may be exposed to unforeseen project cost overruns due to ongoing court cases, wayleave acquisition and contractors claims.
The report on Ketraco’s financial statements for the year ending June 30, 2019, says claims go beyond original contract period amounting to Sh12.97 billion.
The audit warns that in the event that these contingent liabilities come to pass, Ketraco, a public company, may be exposed to unforeseen project costs resulting in inability to meet its obligations when they fall due.
“This may affect service delivery capacity of the company,” says the report signed by Ms Gathungu and currently before the National Assembly.
It will be considered by the House committee on Public Accounts (PAC) chaired by Ugunja MP Opiyo Wandayi.
This comes as it emerges that the electricity transmission company has Sh3.40 billion in outstanding compensation to land owners for wayleave.
Budgetary allocation
The delays in clearing the amount have been attributed to lack of budgetary allocation from the National Treasury and long talks between land owners, the company and various county governments.
Delays in compensating project affected persons may expose the government to legal suits, cost escalations and project delays.
Completion of the Sh1.8 billion 220 KV Turkwel-Ortum-Kitale substations also hangs in the balance after the contractor was liquidated.
The project financed by the Exim Bank of India, was entered into in April 2013 with an expected completion date of June 30, 2018.
However, in July 2018, the courts in India ordered liquidation of the contractor, which resulted in financial challenges that made the firm unable to complete the project.
The audit notes that by the time of liquidation, the contractor had achieved an overall completion status of 78 percent.
The audit notes, another contractor is in the process of being identified as a replacement to take over the remaining works.
“The project may experience delays in completion as well as associated cost overruns,” the audit says.
Ms Gathungu has also flagged the construction of the 132 kilometre of the 400KV double circuit transmission line from Lessos substation in Nandi, Kenya to Tororo substation in Uganda.
The report notes that the project awarded to Instalaciones Inabensa S. was a joint venture between Ketraco and African Development Bank effective from September 20, 2010 but in April 2016, the contract was terminated for nonperformance and on December 31, 2017, the loan agreement expired.
At the time, the project, which is already behind schedule, was at 61 percent completion level.
By the time the loan agreement was expiring, the loan account had an undrawn balance of Sh2.72 billion with no evidence whether the loan agreement had been renewed.
Sh101.8m legal fees
This means that delivery of services to the intended beneficiaries may not be achieved.
However, on July 30, 2019, the tribunal hearing the matter awarded Instalaciones Inabensa S. Sh4.5 billion in breach of contract although Ketraco has sought the assistance of Attorney-General Kihara Kariuki to have the award set aside on account that it is against the public interest.
The delay in resolving the matter for the past three years has seen Ketraco spend a staggering Sh101.8 million on legal fees.
“In the circumstances, it is not certain whether the project will be completed in the near future. It is likely to incur additional costs and losses which the Government of Kenya may suffer in the event it is not completed,” the report warns.
The audit also notes significant delays by Ketraco in completing four of the projects under its implementation as enumerated several times in previous audit reports.
Initiatives facing significant delays are the 220KV and 132KV transmission lines and substations projects, power transmission system improvement project, multinational Kenya- Tanzania power interconnection project and Kenyan section of the interconnection project of electric grids of Nile Equatorial lakes countries project.