The Geothermal Development Company (GDC) risks losing Sh69 billion on steam wells and associated infrastructure after three Independent Power Producers (IPPs) failed to secure a guarantee or a letter of support from the government.
The three IPPs have for the last seven years failed to secure the Treasury backing to finalise the signing of the power purchase agreement for the power plants development under the Menengai Phase I Project.
Auditor-General Nancy Gathungu says the failure of the parties to fulfil their contractual obligations has led to the delay in the project implementation by more than seven years, risking the investment made by GDC of Sh69,055,342,000 in steam wells and associated infrastructure.
“GDC, on the other hand, had sunk 52 well, 21 of which are producing and completed, tested, and commissioned the steam gathering systems whereas the IPPs were yet to fulfil any of their obligations,” Ms Gathungu said in an audit of the Ministry of Energy for the financial year to June 2021.
“Further, it was not certain when the project would be completed since the effective start date was indicated to be the date the IPPs take over the sites.”
Ms Gathungu said the amount spent continues to attract significant interest charges with no income generation.
She said GDC entered into project implementation and steam supply agreements (PISSA) with three IPPs on November 1, 2014, for the development of a 35MW geothermal power generating plant in the Menengai Geothermal Project area.
She said the agreement provided that GDC shall complete, test and commission the steam gathering system while the IPPs upon getting a partial risk guarantee would finalise the signing of the power purchase agreement and get a letter of support from the government.
The final IPPs conditions would make lenders provide the required funds for the project.
“A review of the implementation status of the IPPs and GDC deliverables as of June 30, 2021, revealed that Quantum Power East Africa (QPEA) was yet to obtain a partial risk guarantee from the National Treasury,” said Ms Gathungu.
She said the request was made on October 9, 2019, but no response had been received by June 30, 2021.
Ms Gathungu said Sosian Menengai Geothermal Power Limited was awaiting the Kenya Power and Lighting Company PLC to finalise the signing of the Power Purchase Agreement (PPA), with the same still pending as of June 30, 2021.
The auditor said Orpower Twenty-Two Limited was yet to get a letter of support from the government as an application made on April 20, 2019, had not been responded to.
She said the GDC management indicated that M/s Sosian Menengai Geothermal Power Limited’s PPA became effective on September 23, 2021, and that it was mobilising funds to start the construction.