Sparks fly after awarding of Sh170bn tender for coal plant

The country could be up for another round of tender wars after the government’s decision to award the Sh170 billion coal power project in Lamu to a consortium led by a local firm.

Gulf Energy’s consortium was the only one of the three bidders that was evaluated after two other groups, Chinese companies — a consortium led by Shanghai Electric Company and another by HCIG Investments — were dropped. The coal plant will generate 960 megawatts

Gulf Energy led a group of companies including Centum Investment, Sichuan Electric Power Design and Consulting Company Ltd, Sichuan No.3 Electric Power Construction Company Ltd, and CHD Power Plant Operation Company Ltd.

HCIG Energy Investment Co Ltd had partnered with Liketh Investments Kenya Ltd to form the second consortium while Shanghai Electric Power Company Ltd placed its bid in partnership with Avic International and Cistenique.

International companies such as Japan-based Toyota Tsusho, a subsidiary of the Toyota Group, and Mitsui & Company lost the tender in the early stages.

Officials on Monday held a status meeting to “share information on the bidding and drop hints about, or announce, the winner.”

The fight for the control of Kenya’s first coal-fired plant, characterised by vicious behind-the-scenes lobbying for the lucrative deal, is likely headed for protracted litigation, which could delay the critical project.

At the centre of the dispute is whether the bids by the three consortiums were evaluated on the same parameters as stipulated in the bid documents.

Notification of award to the successful firm for the development of the coal plant was meant to be done on 2 June and ground-breaking slated for September 1.

The Gulf Energy-led consortium was evaluated on a price of $100 per tonne of coal against the $50 per tonne stipulated in the bid documents — the benchmark for evaluating the other bidders — according to a member of the evaluation committee.

However, an official who declined to be named because he is not authorised to speak for the ministry, defended the decision, saying that an addendum to the Request For Proposal (RFP) revising the initial figure had been issued to all the bidders following the evaluating team’s visit to South Africa, “where the $50 per tonne requirement was unattainable.”

He said Gulf Energy had insisted that it had not been served with the addendum, an argument that the evaluating team chaired by Ministry of Energy consultant Richard Muiru accepted. The team’s members are drawn from the ministry’s parastatals.

The two Chinese consortiums were locked out for using an international coal standard of 29,000 kilojoules/kilowatt as the amount of coal required to be burned to produce one unit of power against tender stipulations to use the South African benchmark of 21,000 kj/kw.

The tender committee also accused the Chinese bidders of altering their quoted prices on the offers that were read out during the opening of the tenders.

“There was no need to evaluate them. Their bids were considered unresponsive,” said a top ministry of energy official.

“This is why the two companies were dropped. Should we have allowed their bids in contravention of procurement regulations?” he asked Smart Company last week.

However, documents seen by Smart Company showed that when the evaluation results were presented to a committee of the Public-Private Partnership (PPP), which also has the last word on the project, several questions were raised.

“The financial reasons for disqualifying the two bidders are not readily identifiable,” the PPP committee of principal secretaries concluded.

However, the ministry officials maintain that the Energy principal secretary, Mr Joseph Njoroge, “had written to the PPP with all clarifications sought.”

The winning consortium is a product of a controversy. Initially, Tata Power, India’s largest integrated power company, was pre-qualified to submit a proposal for the project as an individual bidder.

It was also approved under another consortium in which the Indian company had teamed up with Kenya’s Gulf Energy and South Africa’s Exxaro Energy Resources Limited and Cennergi Pty Limited. Therefore, this amounted to double bidding.

Section 46(4) of the PPP Act 2013 prohibits a person who is a member of a consortium from submitting a bid, whether directly or indirectly, through another consortium or a company if that person owns majority shares or has control over the bidding company’s management.

The public procurement law empowers the contracting authority to disqualify a consortium from participating in the bidding.

However, Gulf Energy, keen to meet the requirements for continued participation in the tender, in February requested for change of membership of the consortium to enable the group to participate.

The consortium on 25 February reconstituted itself to include Gulf Energy, Centum Investment Company Ltd, Chinese firms Sichuan No.3 Electric Power Construction Company Ltd, Sichuan Electric Power Design and Consultancy Company Ltd, and CHD Power Plant Operation Company Ltd.

The consortium faced off with five other firms and consortiums. Following approval by the PPP unit of the Treasury and the Attorney General, the reconstituted consortium was evaluated on 12 April.

It was found suitable to submit the RFP for the tender and notified of that three days later, on 15 April.

“A team drawn from the Energy and Petroleum Ministry, the office of the Attorney General, and the Public-Private Partnership unit at the Treasury reviewed Gulf Energy’s concerns and ruled that the composition of the Tata Power-led consortium was not in breach of the law,” Energy Cabinet secretary Davis Chirchir said during an interview in April.

The Lamu project is critical to the success of the Jubilee government’s plan to increase electricity generation capacity to 5,000MW by next year. The Jubilee administration is counting on the facility to bring down electricity cost by 40 per cent by mid next year.

It is also critical in powering the Lamu port, currently under construction, and also heating the crude oil pipeline. The pipeline, which has also been tendered, is to connect the oil fields in Turkana and Hoima, Uganda, to Lamu port. The pipeline’s completion date has been set for 2018.

The contractor is required to set up a coal-fired power plant in Lamu County with the capacity to generate between 900 and 1,000 megawatts once the ongoing procurement concludes.

The investor will be required to finance, design, construct, own, maintain, and operate a coal handling facility for the plant, including a jetty and related infrastructure. The plant is scheduled for completion by 2016.

The contractor is to import coal for the plant under an agreed arrangement with the government and construct 440KV bays, where the two lines from Mariakani will be terminated.

Ten of the 26 firms that had shown an interest in the multi-billion shilling contract were prequalified. The plant will initially use imported coal and later source its raw materials from Kitui’s Mui coal basin once production starts.

Power generated from the coal plant will be sold to Kenya Power under a 25-year long-term power purchase agreement framework.

In March, the ministry invited bids for the construction of another coal-fired power plant of similar capacity under the independent power producer model, where the investor will be expected to sign a 25-year power purchase deal with Kenya Power for the off-take of electricity. The request for proposal for the tender closed in April, with five submissions received.

The two unsuccessful bidders for the plant were Japanese firms Marubeni Corporation and Toyota Tsusho Corporation.