Kenyans have never ever paid for the try cost of energy production...we always pay exagerated costs to make up for what is corruptly gained. Remember Gichuru and his millions in foreign accounts. _
On Saturday, January 7, 2012, JME Simekha <
simek...@gmail.com> wrote:
> Case below sounds worthy of attention if the facts are correct........ Indeed assuming the facts are correct, I can only imagine how many such scams are ongoing because of the transition process we are undergoing and the proximity of the general elections....
>
>
> Power Play Ii:behind Kengen’s Great Wall Of Corruption
> By Michael Rigby
> 03 Jan 2012
>
> When the Kenya Electricity Generating Company (KenGen) Limited placed an advertisement in the local dailies on April 13 and April 18, 2006, no one suspected that this straightforward announcement could one day metamorphose into one of the biggest corporate scandals in Kenya.
>
> Much less, no one could foresee the chain reaction of thievery, corruption and outright stealing of public funds running into tens of billions of shillings that followed what, on face value, looked like a simple advertisement to generate power for the country.
>
> In a typical horror story, KenGen, its Managing Director Eddy Njoroge, and the ultimate winner of the tender put into process a well oiled, skillfully-designed scheme that is astonishing in terms of audaciousness and bravery. The breathtaking acts of impunity on the part of the conspirators and the magnitude of the loss have been kept secret from the Kenyan taxpayer.
>
> An important consideration for the conspirators in this daring theft must have been their calculation that the scheme had a low risk factor. They must have calculated that in terms of their influence and power, the protection they enjoy and the general level of impunity in the country, the plot was a low-risk, high-gain one worthy of execution. It shows, if any testimony is needed, that in present day Kenya certain individuals are immune to the law and enjoy absolute immunity and protection from powerful offices.
>
> This is a tale that shows how the rich and powerful “servants of the people” make billions through the outright manipulation of contracts. Five years since this contract was signed, The Nairobi Law Monthly brings you this exclusive story. It is a sad story of how our country is habitually pilfered by the very people we entrust with a solemn public duty.
>
> Following the advertisement, 12 companies expressed interest, but only three submitted bids for drilling the six appraisal wells. The three companies were: Century Resources International of Australia, Great Wall Drilling Company of China and PNOC Energy Development Corporation of the Philippines.
>
> The tender evaluation of these companies raised an early red flag on the eventual winner. All the three companies satisfied the minimum technical score of 75 per cent required for a firm to have its financial proposals evaluated.
>
> PNOC-EDC scored 80.7 per cent and quoted US$70.2 million. Great Wall Drilling Company on the other hand scored 80.1 per cent and quoted US$20.9 million. Century Resources International scored 77.3 per cent with US$40.2 million as its financials. On the basis of this evaluation, the contract was awarded to Great Wall Drilling Company.
>
> It is after the contract was awarded that one sees the depth and breadth of a scheme that was all along in gestation and came into immediate fruition. Suddenly and literally out of the blue KenGen came up with the idea that Great Wall Drilling Company should be given a further 15 wells to drill. This is over 300 per cent variation of the contract.
>
> The decision by KenGen and Mr Njoroge to award such a lucrative contract to Great Wall Drilling Company without a competitive tendering process in a way explains why the Chinese company offered a very low financial proposal to the initial contract for six wells.
>
> To provide a rationale for this variation of contract, a Mr David N Ngari, who is a Geothermal Equipment Officer with KenGen, was assigned the trying task of writing a concept paper for the tender committee that would mask the real intentions of the conspirators. He made a number of recommendations that show the length at which KenGen would go to ensure that the Chinese company was given the lucrative contract.
>
> One of the startling recommendations was that the price for the additional 15 wells to be drilled by the Chinese company be increased by 11.2 per cent of the original contract. In a strange and illogical thinking, KenGen did not insist on a lower figure from the original contract despite the Chinese company enjoying economies of scale in light of the variation of the contract to its advantage. Mr Ngari, in conclusion, recommends to the tender board that the Chinese company be awarded a new contract to drill 15 additional wells at a cost of US $82 million. All this without a competitive process.
>
> KenGen justified the increment of the contract price by 11.2 per cent on the basis of two reasons that border on the absurd.
>
> First, while appreciating it was a dollar contract, KenGen went out of its way to state that since the initial contract, the dollar has depreciated against the Chinese yuan and thus the escalation of the price in favour of the Chinese company was justified.
>
> Second, it stated that even if KenGen paid 11.2 per cent for the job, that increase was still lower than the price quoted by the two unsuccessful bidders. Consciously, KenGen was determined to pay the Chinese firm as much money as quoted by the two unsuccessful bidders.
>
> The biggest obstacle facing KenGen and Mr Njoroge in awarding this sweet-heart contract to the Chinese was that Parliament had enacted the Public Procurement and Disposal Act 2005 and the Minister for Finance gazetted the Public Procurement and Disposal Regulation 2006. This Act and its regulations brought into force a very rigid and transparent procurement system.
>
> In fact, in a letter dated January 18, 2007, the Permanent Secretary in the Ministry of Finance, Mr Joseph Kinyua, addressed all CEOs of State corporations and ordered them to operationalise the Act and inaugurate new tender boards as stipulated by the Act.
>
> In line with the Treasury’s directive, KenGen and Mr Njoroge constituted tender boards for the period January 23, 2007 to July 31, 2008. It must be appreciated that the procurement and disposal Act expressly prohibits directors of State corporations and their chief executive officers to sit in tender boards.
>
> KenGen thus appointed a seven-member tender committee comprising Mr Joseph Ng’ang’a, deputy managing director, Mr Wycliffe Temesi, chief manager, finance, Mr Richard Nderitu, chief manager operations, Mr George Muga, chief manager technical assurance, Mr Joseph Ombongi, information technology manager, Ms Rebecca Miano, company secretary and Mr Daniel Mutunga, chief manager procurement.
>
> This tender board consisted of individuals who were well regarded in the company and who had previously refused to rubber-stamp the wishes of Mr Njoroge. The composition of the board provided the biggest obstacle to the scheme of awarding the Chinese company the lucrative contract variation. It appears Mr Njoroge quickly came up with the idea that a special tender board could look into the issue. He thus sidestepped the only legally recognised and lawfully constituted tender board of the company. In the process, he showed all concerned that nobody could stop the Chinese deal.
>
> On February 5, 2008, Mr Njoroge convened what he called “the 54th meeting of KenGen tender committee” which now comprised of his supposed henchmen. Among them Mr Titus Mbathi, chairman of the KenGen board of directors; Mr Musa Ndeto, a director; Ms Sarah Wainaina, a director; and Mr Njoroge himself.
>
> As expected, this special tender board authorised the variation of the contract. In minute No. KTC/345/10-2006, it adopted the resolution that: “the committee therefore authorised the management to hold discussions with M/S Great Wall Drilling company and negotiate terms for a contract extension to drill 15 additional wells”.
>
> It is clear that the tender committee that awarded the generous variation of the contract to the Chinese company was not the bona fide tender board of KenGen. It thus had no legal capacity and was a fraud on the taxpayer.
>
> This tender committee was not constituted in accordance with the mandatory provisions of the Second Schedule of the Public Procurement and Disposal Act, 2005. Contrary to provisions of the law, it was chaired by a board member and attended by three others. Members of the board of directors are ineligible to sit on a State corporation’s tender board.
>
> In all tender variations there is a statutory upper limit on what can be varied on the existing contract. Contracts awarded through tender can in law be varied upwards to a maximum of 15 per cent of the value of the original contract.
>
> Here the contract was almost tripled. It is certain that the parties entered into a new contract that is distinct from the initial agreement and was favourable to the Chinese company.
>
> Sections 59(3) and 70 of the PPDA Act prohibit any entity from changing the substance of the tender once it has been awarded. KenGen, by tripling the original contract of six wells and adding 15 more, illegally changed the substance of the tender.
>
> Since this variation was not requested for in the original tender document, much less priced, the mechanisation by the parties stifled fair play as the two losing bidders were not given a similar chance to revise their prices in light of the extra 15 wells on offer.
>
> A number of sweeteners were added for the benefit of the Chinese company. For instance, advance payment was not included in the second contract, so was the issue of withholding tax and even direct procurement of cementing services.
>
> This illegal contract extension was a hush-hush affair and the Kenyan media either elected to remain silent or were silenced by the powerful guns of KenGen.
>
> Out of the blue but clearly in line with the modus operandi of Mr Njoroge, KenGen took to the airwaves and newspapers and started defending the variation of the contract.
>
> This was done when the public was not aware of the magnitude of the scam. Mr Njoroge challenged allegations of impropriety through a Press advertisement indicating “an important notice to the public” on August 20, 2008. The advertisement stated that it was responding to a “document in circulation”. It neither stated the author nor area of circulation of the document. The advertisement also made the following false and misleading statements.
>
> First, it stated that the deal that awarded the 15 additional wells to the Chinese company was not “a case of contract variation but a contract extension”. Either Mr Njoroge was engaging in senseless semantics or did not know the legal meaning of “contract extension” and “variation”.
>
> A contract in law can be extended only as it relates to time or the period of performance. If a given time frame was initially provided for its performance, and one of the parties sought more time to perform his obligations, the parties can extend the time. Variation of a contract on the other hand occurs when its other terms like subject matter, consideration and other critical components are changed. It is clear that Mr Njoroge varied substantially the contract with the Chinese company.
>
> Second, it was purported that the tender board that authorised the variations of the contract was the same as the original board and thus it had the mandate.
>
> Mr Njoroge contended in the advertisement that by virtue of the Transitional Clause 3(2) of the Third Schedule of the Public Procurement and Disposal Act, the initial tender board was in law entitled to sit and vary the contract.
>
> Mr Njoroge deliberately misled Kenyans in the advertisement. Let us reproduce Section 3 of the Third Schedule of the Public Procurement and Disposal Act (2005).
>
> “3(1). Procurement proceedings commenced before this Act comes into operation shall continue in accordance with the applicable law before this Act comes into operation.
>
> “3(2) A procurement proceeding commences for the purpose of subparagraph (1) when the first advertisement relating to the procurement proceeding is published or, if there is no advertisement, when the first documents are given to persons who wish to participate in the procurement proceeding”.
>
> It is apparent that Mr Njoroge was not only misleading Kenyans but deceptively so. The tender was already awarded and concluded and a lucrative contract was on the table for the Chinese.
>
> Between February 11 and 15, 2008, a Kenyan delegation led by Dr Silas Simiyu and a six-member team from the Great Wall Drilling Company led by Mr Zhang Zhaofeng held contract negotiations at the Holiday Inn in Nairobi. The opening remarks gave away the purpose of the meeting.
>
> It read: “KenGen invited GWDC for negotiations on the contract extension for drilling… KenGen explained that the purpose of the meeting was to negotiate extension of the contract. In this contract extension, 15 production wells will be drilled.”
>
> After going through a number of simulations, the parties agreed to lopsided negotiations and thereafter signed a contract worth over US$82 million dollars for the Chinese company.
>
> The Permanent Secretary in the Energy ministry, Mr Patrick Nyoike, and the Solicitor General, Mr Wanjuki Muchemi, tried to close the stable when the horse had already bolted. A number of letters were exchanged between these two offices raising the issue of how far the rot in KenGen goes and how powerful Mr Njoroge is.
>
> In a letter dated April 4, 2008, Mr Nyoike reassured the Solicitor General that “with respect to section 27 of the Public Procurement and Disposal Act, 2005, I would like to confirm that Great Wall Drilling Company of China was procured through a very thorough international competitive bidding process”.
>
> Mr Muchemi said he was not aware of the contract and that his advise was not sought. His annoyance, however, comes across as stage-managed. In a reply dated April 24, 2008, to the letter by Mr Nyoike, Mr Muchemi wrote, “We hereby wish to state categorically that the State Law Office must be consulted before a contract is signed and at all stages during negotiations. We emphasis once again that posto facto clearances are completely discouraged”.
>
> Up to this point Mr Muchemi was rightly outraged that a contract of this magnitude could be signed without the legal authorisation of his office. But the last paragraph of the letter gave away the charade these offices were engaged in. They were simply playing ping-pong on Kenyans.
>
> He concluded the letter by stating: “We are unable to do a proper legal due diligence at this stage. Nevertheless, we hereby confirm that the above mentioned commercial contract is valid and legally binding between the parties”.
>
> If the Solicitor General had discharged his professional obligation to his client, he would have realised that the contract was contra statute and illegal ab initio.
>
> His advice exposed the cavalier attitude with which the State Law Office handled multi-billion contracts. It explains why billions of shillings were lost through sheer negligence and gross ineptitude.
>
> Notwithstanding the patently illegal aspects of varying the contract in favour of the Chinese company, the contract does not make economic sense. It runs foul of the cardinal economic principle that the cost per unit of production decreases as more units are produced.
>
> This is because the large number of units produced share the fixed costs. But in this contract variation, the average cost per well for the initial six units is US$3.4 million, but for the additional 15 wells the cost increases by 61 per cent to US$5.48 million per well. It is hard to justify this steep rise. It can, however, be explained by the chain of events that was well choreographed by Mr Njoroge and the Chinese company.
>
> The amount was varied to defraud Kenyans and provide for kickback for the KenGen cartel.
>
> This contract and the general conduct of Mr Njoroge bring into sharp focus the impunity that has gained currency in the country. Mr Njoroge has blatantly breached the law and made the taxpayer lose billions of shillings in questionable circumstances.
>
> The Nairobi Law Monthly has filed a constitutional reference that seeks to gain access to all the information and documents in the custody of Mr Njoroge and KenGen.
>
> We have further written to the Director for Public Prosecution, Mr Keriako Tobiko, asking him to prosecute Mr Njoroge.
>
> It is only by boldly addressing these issues in the public that masters of grand corruption and impunity can be held to account.
>
> In the coming months we will keep you informed of the turns and twists of these two cases.
>
>
http://www.nairobilawmonthly.com/modules/frontpage/php/fullview_content.php?mode=0&multi=0&type=0&pos=0&limit=0&id=236&
>
>
> --
> Simekha JME
> Projects & Allied Consultants Ltd, Nairobi, Kenya
> Tel: +254 721 920 151
> Fax:
(+254 20) 341099> E-mail:
simekha...@paconsult.co.ke;
simek...@gmail.com
>
>
> If You want to to know Me, then You must know My story, for My story defines who I am.
>