Columnists

How to solve Kenya Power cash puzzle

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Kenya Power workers at work along Nyerere Avenue in Mombasa. FILE PHOTO | KEVIN ODIT | NMG

The transaction reeks of a botched money laundering deal. I refer to the investigation by Parliament of a money transfer transaction between the power producer, Lake Turkana Wind Power (LTWP) and Kenya Power and Lighting Company that was flagged by a Standard Chartered Bank branch in Frankfurt as being suspicious.

So far, the information before Parliament is as follows. LTWP wired Sh 785 million into a Central Bank of Kenya account ostensibly to refund Kenya Power for excess payments and on account of the so-called deemed energy charges.

Standard Chartered declined to effect the payment on grounds of scanty details and on inadequate disclosure of the ultimate beneficiary of the millions.

On December 23, 2021,LTWP wrote to Kenya Power informing the company that the wire transfer had been rejected. LTWP also asked Kenya Power to provide it with the name of the appropriate contact person at Central Bank of Kenya.

It also wanted to be provided with the additional banking information that had been demanded by the German Bank. These inquiries were met with procrastination and dithering by government.

Parliament should demand answers to the following questions. If a company wants to pay Kenya Power, why would it wire money to the Central Bank of Kenya? I say so because it is not normal for the Central Bank of Kenya to open accounts for private entities and companies like Kenya Power.

The banker to the government mainly keeps accounts for the national government, the county governments and commercial banks.

As an individual, you can only have a CDS account that allows you to pay for Treasury bills and bonds or receive proceeds from government securities when they have matured.

In any international transaction involving payments between private parties, you are unlikely to see a central bank appearing as a counterparty.

Which begs the question: Why was the money not wired directly to Kenya Power’s bankers? At the end of the day, this episode has taken us through a poignant lesson on the state of cooperation by international financial institutions on the reporting and monitoring of suspicious transactions.

Enough of speculation. What are the issues? In my view, the parliamentary investigation must go beyond this individual transaction and put the searchlight on the bigger picture. The investigation needs to determine why the repayments became necessary in the first place.

There is a very strong case for Kenya Power to jack up capacity on risk management. The company needs to introduce strongly dedicated units to manage and oversee large IPP contracts.

The LTWP contract especially needs stiffer scrutiny because as revealed by a special audit conducted by the Office of the Auditor-General in April last year, this was a very poorly negotiated deal.

As pointed out by the Auditor-General, the contract was amended and varied just too many times, making tracking of compliance difficult and complex.

At one stage, the agreement stipulated that Kenya Power would pay something called ‘a security support charge’ to be levied on customers and payable by KPLC into an Escrow account. Although no such Escrow account was established, LTWP kept submitting invoices.

The Auditor-General’s report also found that long after the plant had been completed and commissioned, it emerged that LTWP had not installed meters to measure the power it was producing and determine charges due.

A system known as SCADA was to be installed to confirm quantity of power generated by the turbines at any one particular time. Yet as at the commercial operation date on January 27, 2017, this system was not producing the data required for computing deemed generation charges.

The most poignant lesson here: contracts that are complex and opaque make a perfect environment for money laundering and suspicious transactions.