Sh6.3 billion scam erupts at power transmission firm

 

KETRACO officers view new port machinery as they arrive in Mombasa

Auditors have unearthed yet another scandal in a key Government agency that has seen taxpayers lose billions of shillings through fictitious claims, illegal price escalations and in essence paying hundreds of millions of shillings to companies and individuals for no work.

The Kenya Electricity Transmission Company (Ketraco) is now the latest in what is turning out to be a long list of Government agencies where runaway plunder and loot override public good, common sense and morality.

The scam unearthed by internal auditors now makes the electricity transmission company the fourth State body to be rocked by a scandal after the National Youth Service (NYS), Kenya Power and the Kenya Pipeline Company (KPC).

One of the contractors at Ketraco claimed idling fees for 21 months for his workforce and equipment at a rate of Sh108 million per month for doing nothing. Some expatriates were being paid Sh200,000 per day. These led to a Sh3.8 billion bill slapped on the taxpayer.

Skeleton staff

The firm allowed a contractor to keep 100 per cent of its staff, even when the project had been stopped for 54 months after landowners blocked it, instead of just keeping a skeleton staff until matters had been resolved. There were also additional claims due to the contractor’s overheads during the delay.

Auditors also flagged variations of contracts whose prices had been set beyond the 20 per cent variation limit stipulated by procurement law. One of the projects was varied by up to 86 per cent, resulting in additional charges of Sh430 million.

The report also found outstanding way-leave compensation amounting to Sh726 million, with another unclear payment of Sh35.6 million made to a landowner in Kajiado.

There was also an inflated land compensation payment of Sh72 million to a software firm and the entity had taken a hit from a presidential directive on 20 per cent top up to compensate landowners.

Disruptions to work were traced back to Ketraco for its application of different compensation rates for the limited use of land. For instance, land for projects along Mombasa-Nairobi transmission line had been valued at different rates for the limited use of land.

“This was the root cause of construction stoppages in Maasai region, claiming that they were undervalued/ underpaid hence owners claimed a top up of the compensation rate to at least 50 per cent,” the auditors said.  

The National Treasury also was taking its sweet time to release funds for compensation of landowners, giving speculators a field day in inflating costs. There was an instance where the land price was inflated seven times from the amount agreed upon at the first valuation.

Ketraco says it has forwarded these cases to the Ethics and Anti-Corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI).

Auditors also found that the electricity transmission company owes various suppliers Sh247.4 million as a result of project delays.

They said despite the European Investment Bank (EIB), which funded the project, having transferred Sh850 million for payment of outstanding invoices to Ketraco, the invoices remained unpaid as at November 27, 2017, thereby attracting more interest.

The auditors say the firm should have first compensated landowners and secured the way-leave -- a right of way granted by a landowner -- to prevent exorbitant idling claims.

A contractor also claimed more money for idling than the amount he would have earned had he been working.

“The total claim per month for idling and overhead is much higher than what the contractor would be paid in a month working at full potential,” the auditor says.

“The rate is therefore punitive to the employer and encourages the contractors to delay works as they would benefit more from the delays.”

Indian firm, Kalpataru Power Transmission Ltd, has been paid Sh730.6 million for idling and is waiting for Sh2.8 billion more, which has been approved.

Reached for comment, Ketraco said some of the matters may end up in court and it may not be appropriate to comment. Some of the management’s responses on the findings are captured in the audit report.

On the matter of the interest, managers of Ketraco said after the general stoppage of the project within Kajiado County, EIB stopped disbursements until recently when the No Objection was obtained after completion of the section.

Completion timeline

“Of key concern to them was the timeline for completion which was unknown. The contract stipulates payment of interest beyond the contractually acceptable time,” Ketraco managers said.

The other matter was that each firm quoted different rates for similar professionals.

For instance, an expatriate site manager for Kalpataru earned about Sh100,000 per week, while KEC and L&T were charging Sh200,000 per day to do a similar job.

The auditor has also found that there was a contractor who funded disruptions on the line, causing delays to make a kill off idling fees.

In the recommendations, the auditors want the management to provide justifications for retaining the full workforce and equipment idle for 21 months at a cost of Sh108 million per month. In its defence, Ketraco said it decided to keep the contractor on site and accrue the idling charges given that it would take 45 days for the contractor to mobilise and be back on site if they were demobilised.

The most-affected project is the Mombasa-Nairobi transmission line and associated substations – which involved the construction of a 484.5km 400/220 kV double-circuit transmission line between Rabai (Mombasa) and Embakasi Substation in Nairobi.

Internal auditors say although the three lots of the project have been completed, they are not operating at full potential due to cases of vandalism and demand of electric power at the Coast Region.

The transfer capacity is 330MW initially and up to 950MW following upgrades as national demand for power increases.

“This objective has since been changed with power being evacuated from Nairobi/Suswa to Mombasa. An average of 20MW of the 950MW capacity is being evacuated against an average demand of 207MW in the Coast Region,” the audit says. This means that despite consuming billions of shillings, the lines are still not being used to their full capacity, as Kenya Power prefers to keep the expensive diesel generators instead of sending cheaper power from Olkaria to the Coast region.

There is also an audit on land compensation payments against fraudulent titles within a section of Kiambu County, which was traversed by the Isinya-Suswa transmission line. A cumulative loss of up to Sh26.8 million is reported in the audit.

The third audit was on the Kenya Electricity Expansion Projects (KEEP) covering the period from June 2014 to December 2017.

During the initial stages of the projects implementation, Ketraco surveyed and obtained full cadastral data listing all the available land parcels and the owners for the respective lines.

Land subdivisions

However, as the implementation progressed, there were several mischievous incidences of land subdivisions with the intention of maximising on the compensation payment.

On the Kisii-Awendo line for instance, the original valuation cost was Sh128 million for the 551 parcels.

However, when the company came to pay, the land had been subdivided into smaller parcels to create 699 additional parcels that resulted in an additional cost of Sh218.4 million.

The report adds that if left unchecked, the rapidly growing incidences of land subdivision along the way-leave corridor will occasion huge financial losses to the company through avoidable project compensation costs.

“Such cases of subdivision on the way-leave corridor equally signals integrity lapses on company staff,” the report adds.

The other internal audit is on human resources establishment which flagged out how the firm went on a hiring spree at a time when the Government had frozen recruitment.

The HR audit found that planned staff numbers had been exceeded by 115 employees, doubling staff costs from Sh668 million in 2015/16 to Sh1.25 billion in 2017/18.  

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