Rural electricity firm bought substandard poles for Sh800m

A state firm awarded tenders for electricity poles to companies that were controlled by the same directors, leading to the supply of substandard wooden poles for Sh800 million.

When procurement irregularities were cited, the Rural Electrification and Renewable Energy Corporation (Rerec) rushed to return 51,238 substandard wooden poles to the suppliers for re-treatment and they were speedily used in electricity projects.

The suppliers then pocketed Sh800 million, and those investigated and found guilty received a slap on the wrist.

This was revealed by the Competition Authority of Kenya (CAK), which said that of the 18 companies Rerec awarded the tenders in 2019, five that were investigated were controlled by the same directors and submitted similar bids, raising the cost of the supplied products.

“The authority conducted investigations to determine if the players in the supply of electric poles could have been engaging in bid rigging practices prohibited under Section 21 of the Act,” the CAK report says.

“The authority secured and analysed tender documents from Rerec and made a finding that the firms had indeed engaged in collusive tendering. Specifically, the companies presented tender documents bearing identical price schedules and similar prices. 

CAK also cited “cross directorship and information sharing as evidenced by their identical cover pages, handwriting and similar addresses”.

Tender irregularities

Contained in Auditor-General Nancy Gathungu’s report for the authority in 2020/21, the CAK report also reveals that the five companies that were fully investigated - Mashebrum Ltd, Sonara Ventures Ltd, Sums Decorators, Top Range Ventures Ltd and Tradewinds International Ltd - were found guilty.

The firms reached a settlement deal and were fined Sh1,305,355. CAK added that investigations on a sixth company - Naweza Investment Ltd - were still going on.

CAK started investigating following a complaint from Inter Tropical Timber Ltd (ITTL) in September 2019, with the company accusing Rerec of tender irregularities.

ITTL told CAK that Rerec had been unlawfully terminating contracts and awarding tenders automatically to some companies and that there were cases of cross directorship in different companies participating in the same tender.

From the CAK report, it is not clear how much money the government lost through irregular procurement by Rerec, but price fixing had an impact on the overall cost of the electricity poles supplied.

“It is expected that the remedies imposed by the authority will serve as a deterrence to the affected companies from engaging in similar conduct as well as others who may be attracted to undertake such practices,” CAK said. 

“Finally, it is anticipated that this intervention will result in reducing the cost of electric poles to the benefit of the government and welfare gains to the citizens.”

CAK’s investigation has shone light on the matter that first came to light in May 2019, when ITTL sued Rerec and the 18 companies over corruption and unfair trade practices.

Defrauding the public

The company accused Rerec in court of having colluded with the suppliers to supply substandard products and defrauding the public. The particular tender was No. REA/2017–2018/NT/021.

The companies were Wood Treatment Technologies, Silver Wood Treatment Plant, Trucks City, Samfort, Tropical Sawmills Ltd, Abao International Ltd, Lakewood Treatment Ltd, Timber Treatment International, Global Wood Treatment Ltd, Saga E.A. Ltd, Wood World International Ltd, Electrogas Engineering & Construction Ltd, Meru Wood Industries, Janwill Enterprises Ltd, Marula Power Poles Plant Ltd, Line Enterprises Ltd, Tri-tip and Poles & Posts.

Disputes over the tenders ensued in court in 2019, with several court orders issued and some blocking Rerec from releasing the substandard poles, while another allowed it to return them to suppliers for retreatments.

In May this year, the High Court sounded doom for the Sh1 billion project that was to benefit thousands of rural households when it upheld Rerec’s argument that the court had no jurisdiction to decide on the matter.

“I find the proper forum where Petitioners should have proceeded to ventilate any alleged contravention of the provisions of the Act arising from the procurement process, award and performance of contracts thereto vests with the Authority and or the Review Board, as the Petitioners may elect but not before this Honourable Court, as at the time of filing the Petition,” Justice James Makau ruled on May 27.

It is not the first time Rerec’s procurement processes have come under scrutiny since 2018/19. The Auditor-General also questioned the authority’s decision to buy transformers for Sh54 million from a Tanzanian firm through direct procurement.

The Auditor-General said the procurement was not “an emergency in nature but arose from inadequate planning on the part of management”. 

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