Why powerful cartels are resisting change of guard at geothermal firm

An attempt by President Uhuru Kenyatta to tackle the cartels blamed for holding back the development of geothermal power in the country has met powerful opposition.

The reaction highlights the challenges of reforming the country’s parastatals that control billions of shillings in annual budgets.

Alarmed by what were seen as runaway levels of corruption at the Geothermal Development Corporation, and the capture of the institution by powerful political forces, Mr Kenyatta appointed a new board in changes announced earlier this month.

Industry insiders say the shake-up in the board, which saw business figures with interests in key corporation decisions replaced in large part by professionals, has triggered alarm in energy circles.

The stakes are high for a number of reasons. As highlighted in heated discussions on blogs over the past week, Kenyans could enjoy much cheaper power if authorities went full steam ahead with development of the country’s geothermal capacity that offers a much cheaper alternative to other sources of power.

But tender-rigging, struggles for business opportunities and political interests have been blamed for frustrating this potential.

The changes brought in lawyer Gershom Otachi as chairman. Other board members are Mr Salaton Letaipan, Mr Michael Ogwapit, Dr Stephen Njiru and Ms Florence Chepngetich.

The powerful and long-serving MD of GDC, Mr Silas Simiyu, was shown the door after his name appeared on a list in a dossier compiled by the Ethics and Anti-Corruption Commission in relation to alleged corrupt practices involving multi-billion-shilling deals.

He was replaced in an acting capacity by Mr Godwin Mwawongo, a reservoir/mechanical engineer with a postgraduate qualification in geothermal energy technology from the Geothermal Institute in New Zealand.

The changes have triggered a blowback from various quarters, with some objections being raised to the clear-out at GDC being seen as bordering on the comical.

Some of the strongest resistance has been witnessed in Nakuru where one MP—who is said to have a strong interest in a 105-megawatt geothermal project at Menengai—is reported to have worked with members of the economic old guard to organise hundreds of placard-waving youth to demonstrate against the appointments.

They claimed the appointments to the national institution were unfair because nobody from Nakuru was chosen. The matter has since moved to court; a judge declined to issue interim orders barring the new board from taking office.

The demonstrations point to the high stakes involved in the attempted move by State House to accelerate development of geothermal power and tackle the major cartels said to have held GDC hostage.

An insider who declined to be named discussing company affairs said the new appointments had triggered alarm among those who had enjoyed the inside track to major tenders and among former members of the company’s executive.

“In the past, key positions such as the chair have gone either to a home boy from the president’s community, a well-connected businessman or a powerful political figure. The fact that the new board does not comprise these categories, but at the same time involves people who have the direct ear of the President, has sent shivers down the spines of cartels.”

Chairman Otachi served as one of the lawyers in President Kenyatta’s case at the International Criminal Court (ICC), which has been dropped.

 Many analysts point to the improvement of road and rail infrastructure and reduction of power costs as the key to expanding Kenya’s industrial base and hastening its transition from an economy heavily dependent on primary products such as agriculture.

While development of the railway, a key State House priority, has progressed reasonably fast, multiple analysts say given its huge potential, Kenya could do a better job of developing its geothermal capacity.

Injection of an additional 280 megawatts produced in Olkaria to the national grid in December lifted Kenya’s global ranking to become the eighth-largest producer of geothermal energy.

INSTALLED CAPACITY

Kenya’s installed steam power capacity stands at 579MW, ahead of giant economies such as Japan, Russia, China and Germany — according to a study presented to the World Bank by state-owned KenGen and first reported by the Business Daily.

The US remains the world’s top geothermal producer with an installed capacity of 3,389 MW — nearly six times Kenya’s output — followed by Philippines (1,894MW), Indonesia (1,333MW), Mexico (980MW) and Italy is fifth with 901MW of steam power. New Zealand is graded sixth, with 895MW, ahead of Iceland (664MW).

Installation of the Olkaria geothermal power pushed down the fuel cost charge in electricity bills to an all-time low of Sh2.51 per kWh in February, from a high of Sh7.22 per unit in August last year.

But consumers have complained that the promised sharp reduction in the cost of electricity has yet to materialise, and it is argued that faster generation and development of alternative power sources will speed up the process.

Kenya has the potential to produce about 10,000 megawatts of geothermal power from the Rift Valley basin, according to studies by the Ministry of Energy.

Although geothermal now accounts for 29 per cent of Kenya’s energy mix — up from the previous 13 per cent four years ago — critics say much more can be done.

Projects in the pipeline include deals commissioned by the GDC with three independent power producers: Ormat Technologies, Quantum Power and Sosian Energy, who are each expected to build a 35MW steam power plant under a build–own–operate (BOO) model.

THERMAL GENERATORS

OrPower 4, Kenya’s sole IPP generating geothermal energy, is currently increasing its output by 24MW, which will bring its total capacity to 134MW.

Kenya Power purchases the 280MW steam power at Sh6.39 per kWh, which is cheaper than the Sh17.35 per unit paid to thermal generators.

However, anti-graft detectives say much of the tendering for these deals has been riddled with irregularities.

Donors have pledged up to Sh200 billion towards this effort this financial year, including the AfDB, World Bank, United Kingdom, French Development Agency, China Exim Bank and the Germany government-owned KFW development bank.

Dr Simiyu is expected to answer queries relating to tenders worth Sh10 billion as part of investigations currently under way.

He has denied any wrongdoing. “Everything was done above board and if there were any questions, the process would have been stopped by the (African Development) bank. The bank even paid the suppliers directly because our finance department is not well developed,” he said.

A judge in Nairobi will announce this week whether the new board appointments will be halted, but insiders say the changes—and the resistance they have attracted—has left insiders close to President Kenyatta determined to push forward and steward a new start in the sector.