Why Sh15 billion Kinangop power mill burned out like a candle in the wind

On Monday this week, the government won — for the first time — an international arbitration case in which foreign investors who had abandoned a Sh15 billion wind farm power project wanted Kenyan taxpayers to pay for it.

That must have been a sweet song to former Attorney-General Prof Githu Muigai who had defended the government’s side before he left office. The story of Kinangop wind power scheme is windy — such that many Kenyans have never known why a project that was to generate 60.8 megawatts (MW) was abandoned and its turbines auctioned.

It is also a story of deceit, half-truths, and a case study of bureaucracy, incompetence and unskilfulness.

POLITICAL COMMOTION

When it was mooted, the power project was to be the first independent large scale wind farm in East Africa and it was to cost $154 million. It was a sweet project and the power generated was to be sold to Kenya Power as per agreement dated March 26, 2013.

While walking away, the British Virgin Island-registered Kinangop Wind Park Limited, which was a special purpose vehicle, cited “political events” as the ground and wanted to pin the taxpayer to pay for the damages since the government had issued a “letter of support”.

That meant that it would be compensated against riots and political commotion. When the arbitration case opened in London, Kinangop Wind Park Limited further asked the tribunal to order the government to insure it against any “adverse financial impact” and to “reimburse” all of its fees and expenses connected to the suit.

UNDER RECEIVERSHIP

In a nutshell, the Kenyan taxpayer was being asked to pay for the fiasco — the way we did during the Anglo-Leasing cases where the government lost two litigation cases in London and Geneva without a fight and had to part with billions of shillings.

In one of their claims, the clean energy shareholders said they had incurred a Sh6 billion loss. The consortium had also purchased equipment for the project, including 38 wind turbines. Having taken a Sh5.5 billion loan from South Africa’s Standard Bank to purchase the turbines, the lender placed Kinangop Wind Park under receivership.

But in the Kinangop case, the government stood its ground and said protests by land owners in Nyandarua, while seeking better compensation, could not be used to invoke the “political event” clause. It further argued the parent company, fraudulently received the letter of support after lying it had all the relevant licenses and had secured the relevant land rights and permissions to undertake the project.

RENEW CONTRACT

The story of the project started in 2004 when Ecogen proposed to develop a 30MW wind farm in two phases and with nine turbines each and build a 33KV transmission line to the Suswa substation. In January 2005, it submitted an Environmental Impact Assessment (EIA) report to National Environment Management Authority (Nema) in order to get an EIA license.

It is in this initial report that the first mistake happened. The 2005 report indicated the wind farm would be located in Karati sub-location in Nyandarua “on no more than 2km of land”, while the transmission lines were to pass through Kinungi and then down to Suswa.

The 2005 report said the “project site owner”, a Ms Esther Mburu, had leased her Nene Farm for one year “for testing the wind farm and is willing to lease/renew the contract (but not sell the land). As it would later turn out, Ecogen Wind Farms Limited only had a lease of a small plot where they wanted to put some of the wind turbines.

LAND OWNER

Even though Nema officials were shown the map of the area before issuing the EIA license they failed to notice the wind turbines would run for more than 2km while the portion of the land identified as “Nene Farm” was just 0.6 km. A NEMA official would later testify that had she seen the reference to the 2km, she would have understood that the project would be located outside Nene Farm.

“We did not consider her explanation to be credible,” the arbiters ruled this week.

That notwithstanding, Nema asked Ecogen to enter “proper lease agreement” with “the land owner.” From the onset, it now seems, and by error of omission or commission, it looked like Ecogen was only dealing with a single land owner.

Armed with an EIA licence, Ecogen decided to sell the project to Aeolus Kenya whose founder was Richard Herbert, a third-generation Kenyan-born who had initially managed infrastructure projects in the US, Kenya and South Sudan.

DECEIT PERPETRATED

It was Aeolus Kenya, which decided to upscale the project from the initial 30MW to 60 MW and they brought in a consultant to develop a strategy for its implementation and select the most suitable turbine type.

To coordinate the project, Aeolus also hired Ms Jenny Fletcher who was to coordinate the acquisition of all EIA licenses. Ms Fletcher would feature a lot in the arbitration with the office of the Attorney General arguing Ms Fletcher was dishonest in her dealings with Nema. But the arbiters would later say they found her oral testimony to be honest and credible. In order to upscale the project, Aeolus decided to carry out another Environmental Impact Assesment and Ms Fletcher wrote to Nema informing them on the change in ownership, new transmission line and increased size of the project.

While this 2008 report was being prepared, Aeolus created Kinangop Wind Park Limited, and it was through this special purpose vehicle that the report was sent to Nema in March 2009.

But when this new report was taken to Nema, they said they did not need it — and the government insisted this was due to “deceit perpetrated on Nema” because it still identified the Nene Farm as the site of the project.

SEPARATE REVIEW

Later the company would admit during the arbitration that the 2008 report was “a little muddled in its expression of the project site.” By this time, Ecogen had notified Nema that it had transferred its licence to Kinangop Wind Park which also received the upgraded license dated May 12, 2010.

With all the licenses in place, Kinangop Wind Park decided to engage the community — and things went awry wrong.

Nema and Kinangop Wind officials knew from the onset this project was not confined to Nene Farm and that explains why they held three meetings in separate locations. This is because the proposed 36 turbines were to stretch in a 16km line from Heni to Magumu.

Even after the Standard Bank of South Africa commissioned a separate review of the 2008 EIA report to assess its compliance with International Finance Corporation (IFC) standards, which are more stringent than Kenya’s, this report was not sent to Nema.

A Nakuru court would later declare that EIA report invalid, throwing the entire project into a spin.

COMPLEX ISSUES

Thus, when Kinangop Wind Park started to negotiate with the farmers on land leases, it was clear from the onset the impact of the project on their land was not captured on the EIA documents which had only concentrated on the Nene Farm.

But a team from Nema which went to the ground they only visited Nene Farm. But when challenged during the arbitration how it was possible to put 38 to 40 wind turbines that would be 300 to 400m apart on the Nene plot of 0.6 square kilometres, the Nema officials are said to have “evaded the question” with one saying she was not a wind turbine expert! Actually, the arbitrators say Nema officials understood the full extent of the project site from the 2008 report — but why they decided not to revoke the license is not clear; although your guess is as good as mine.

Even though 36 landowners had been approached, leasing the land became a poser — and soon it turned into a much more complex issue.

When Wakaba was appointed the CEO of Kinangop Wind Park in January 2014, he visited the site and realised the number of those affected was much higher than existed on the paper. This is because the project had only considered stone structures as the only permanent houses. Everything else was disregarded. There was no provision for their compensation and this was a new fact.

$108 MILLION

At the meeting of November 2, 2010, Ms Fletcher was asked whether other community members who do not have turbines on their land would receive any payment. She was economical with the truth and said the location of turbines was not known (it was known) and that the rest of the community would benefit through community projects.

“It is apparent from this answer that Aeolus did not plan to pay compensation to the people in the setback area,” said the ruling.

“Put simply, if there had been no issues with the leases... there would have been no issue to be exploited by the politicians.”

The arbitration court was also told the company or their financiers “took unfair advantage …and practiced deception on the farmers who signed leases by taking leases over premises defined as measuring 40 metres by 40 metres and then registering legal charges securing repayment of bank loans amounting to $108 million over the whole title of the property owned by the farmers over and above the demised premises.”

BRIBERY ALLEGATIONS

Although the arbitration court did not make a finding on that allegation, there were allegations of bribery and corruption made against the land owner’s representative.

When all these was happening — and perhaps aware of the dangers ahead — Aeolus decided to sell its stake in Kinangop Wind Park to Norfund, a Norwegian equity fund, and the the African Infrastructure Investment Fund 2 (AIIF2) which were to finance the project. The project was to be built by Spanish construction company, Iberdrola Ingenieria y Construccion, which was to install the 38 General Electric 1.6MW wind turbines.

It was the government’s case that Kinangop Wind Park did not have a valid power purchase agreement since it had not secured land rights not had it acquired all the licenses.

On June 23, 2014, a meteorological mast valued at Sh20 million that had been standing on the sight since 2004 was destroyed and the government insinuated that the Company “knew something about the fate of the mast” an allegation “based on hearsay” — according to the London court.

SENSITISE COMMUNITY

The arbitration court found Kinangop Wind Power failed to engage with the community and sensitise them on the project before acquiring the licenses.

The arbitrators found the meetings held in Nyandarua to oppose the project could not be categorised as riots or civil commotions — and as such they were not political events.

And with that, Kinangop Wind Park appears to have burned out like a candle in the wind.

[email protected] @johnkamau1