Contractor now rains on KenGen bond party

The Kenya Electricity Generating Company (KenGen) infrastructure bond set to be listed on Monday has been hit by bad headwinds after a Germany-based firm moved to stop the State power producer from kicking off a key project.

The revenue generated from sale of power from the 120 megawatt (MW) thermal project is critical in KenGen’s payment of interest and principal repayment of its Sh25 billion public bond. But an appeal filed by Man Diesel to the Public Procurement Administrative Review Board requesting the award of the tender to be stopped is threatening to delay it.

Besides, it will take a step back Kenya’s rush to avert a future power crunch as national electricity demand spirals out of control. KenGen is to start paying the 12.5 per cent interest on April 30, 2010 and repaying the loan on April 30, 2012 after it secured a grace period of two years.

Man Diesel is amongst five companies that tendered to build the Kipevu III Thermal 120 MW Power Plant in Mombasa but lost. The tender was awarded to Wartsila Bv, a Finnish firm. The construction contract was to be signed next month but that has now to be delayed until the review board makes its decision.

“Please note that according to the Public Procurement and Disposal Act 2005, the procurement process should be stopped and no contract subject to the regulations can be signed … until the appeal has been finalised,” a letter dated October 30, dispatched to KenGen by the Review Board explains.

The projects, (categorised as Horizon 1) are forecast to end in June 2013 stacking up at least 500 MW to the national grid and helping Kenya match surging power demand, currently growing at a rate of 8 per cent per annually. According to documents filed with the Review Board and seen by Sunday Nation, Man Diesel says the prices quoted by the winner, Wartsila “are not sustainable as they are too low in relation to the scope of supply and services specified in the tender.”

Wartsila had quoted the lowest price at 77.7 million euros while Man Diesel was second lowest at 89.7 million euros. The highest bidder Unatrac International quoted 95.6 million euros. According to the Public Procurement rules, government tenders must be awarded to the qualifying and the lowest priced bid.

Man Diesel, however, did not qualify in the first round of evaluation which saw its tender document rejected and thus did not move to the final stage. “Their bid did not meet the eligibility and qualification requirements set out in the tendering documents,” a report filed by KenGen’s independent evaluator, Sinclair Knight Merz, says of Man Diesel.

Its documents are also said to have failed to give vital details on construction of sub-station and whom they would be subcontracting to carry out other technical projects and details of the qualifications of personnel to work on the project. But challenging the criteria used to lock them out, Man Diesel says the tender rules and conditions gave KenGen a wide latitude in evaluation making the process ambiguous and subject to abuse.

Declared winner

“The procuring entity considered exterior matters contrary to the law,” an affidavit sworn by their local subsidiary Man Kenya’s managing director Ms Susanne Scharlett Bech, claims.

In their plaint for review, Man Diesel also argues that the declared winner, Wartsila Bv, did not submit all the required documents besides not meeting the technical requirements set out under the procurement regulations.

A report filed by Sinclair Knight Merz points to some of these claims but discounts the contention saying the documents were generally compliant.

None of these

“There are technical and commercial issues to resolve during the pre-contract award negotiations and during the detailed design stage of the contract implementation. None of these though are considered significant enough to result in any change in the recommendation to award to Wartsila.”