Loser moves to stop award of emergency power tender

Construction of a new thermal power plant in Athi River meant to boost the national electricity supply has suffered a major setback after it was hit by a tendering dispute pitting power distributor, KPLC, against one of the unsuccessful bidders.

Energy Trading Group FZC wants the Kenya Power and Lighting Company stopped from executing the tender for the establishment of one of the three 60-80 MW power plants it awarded a fortnight ago. It wants the Public Procurement Review Board to scrutinise the award of the contract to Triumph.

The Dubai-based firm claims that the evaluation of bids was flawed causing it to lose the lucrative contract despite being the lowest bidder.

“The procuring entity in carrying out its evaluation appear to have considered bids from tenderers who did not submit bids that were in accordance with the specific requirements of the request for proposals,” FZC says in its submission to the board through Daly & Figgis – a Nairobi -based law firm.

The plants, expected to be operational before the end of this year, are part of the long-term least cost national power plan, meant to meet rising electricity demand that now threatens to outrun supply.

Delay in resolving the dispute could undermine efforts to add new supplies to the national grid and deepen Kenya’s energy crisis that last year saw KPLC put the country on a four-month load shedding or power rationing mode.

The three new power plants, expected to come on board through the tender, should raise thermal power’s contribution to the national grid to more than 30 per cent. That amount of thermal power should also keep electricity bills on the rise through the fuel cost adjustment charge that comes with it.

Electricity bills are expected to continue rising in the coming months as KPLC responds to the steady surge in crude oil prices that have dashed hopes for affordable power despite improvements hydro-electric power output that is the cheapest source in Kenya.

KPLC has indicated that from next month consumers will pay a fuel cost surcharge of Sh7.83 per unit of power up from Sh7.22 on this month’s power bill.

Mr Joseph Njoroge, the KPLC managing director , says the diesel plants - which have a short implementation lead time - have the capacity to meet the immediate shortfall gap as development of other sources like coal, geothermal and wind continues.

The tender row threatens to scuttle such plans, at least for now, meaning Kenya might continue relying on the expensive emergency power. In mid August, KenGen, on behalf of the Government, contracted Aggreko to provide an additional 140 megawatts of emergency power to cushion the country against the effects of the power shortfall––that had forced a rollout of a two month power rationing in August. Currently, Kenya has an installed power capacity 1, 480 mega watts, including temporary emergency power of 290, but is currently supplying about 1050 megawatts at peak time.

“The implication of a further delay in bringing up these plant are dire in that we will continue to use costly power,” said Mr Njoroge. In the application for review, Energy Trading says it estimated the cost of the plant would be at least Sh38 billion over the 20-year period. The procurement board has already ordered KPLC to halt the procurement process pending the hearing of the application, in a letter dated January 18.

The application by the Dubai firm rekindles memories of similar tussles between bidders in the energy sector, keen to bag the lucrative contracts as the country seeks to fix its power problem.

In November, electricity producer KenGen successfully faced a similar appeal filed against its award of a power plant construction contract for the building of the 120MW Kipevu III plant. The plant was being financed by proceeds from the Sh25 billion shilling KenGen infrastructure bond issue the previous month.

Man Diesel had protested against the decision to award the contract to the Wartsilla Finland despite not submitting a valid bid bond for the tender themselves. KenGen said the Review Board dismissed all the grounds of appeal relied on by Man Diesel noting that Man Diesel did not even submit a valid bid bond for the tender and omitted to tender for a substantial part of the works and as such they had rightfully been found non-responsive by the evaluation team.

Though thermal power is cheaper to develop, energy economists say it ultimately gets expensive in the long run when its impact on power bills inflation and environmental damage it causes are factored in.

Thermal power mainly ramps up consumer prices through fuel cost charges -- a varying item on the power bills --that is linked to the amount of power it contributes to the national grid.

The Request for Proposals, says Energy Trading, was clear that the bids were for development of the power plants operated with Heavy Fuel Oil, but instead the Procuring Entity has proceeded to award the tender to a bidder whose submission would appear to be based on Gas Oil, rather than Heavy Fuel Oil.

“As such, the Procuring Entity has acted in breach of Sections 31 and 34 of the Public Procurement and Disposal Act, “ it said.

The firm is seeking orders before the board to have the decision by KPLC set aside and nullified and instead re-evaluate the bids.

In an affidavit, Varinder Puri, the Director in charge of Finance, Mergers and Acquisitions, at Energy Trading says evaluation of the price proposals has been undertaken on the basis of an unequal and skewed formula that makes it impossible to evaluate the bids objectively.

Mr Puri says the successful bidder, Triumph, quoted its Specific Fuel Consumption figures for its proposed plant at 0.191 kg/kWh, whilst his firm’s figures was 0.211 kg/kWh.

“Our estimation is that the fuel oil being proposed by Triumph would have been of a calorific value of approximately 42,700 kJ/kg as opposed to the Applicant’s bid which was based on a minimum calorific value of 40,585 kj/kg” .

As a result, says he says, based on a price differential of $200/MT between the gas oil offered by Triumph and the HFO by Energy Trading shows the plant by the former would cost the Kenyan taxpayers about Sh14 billion over and above the latter’s fee in absolute terms, or Sh8 billion if a discount factor of 12 per cent is applied over the period of 20 year span of the project.