arbitration / adr news

Kenyans risk $4 loss to bankrupt Spanish firm

30 November 2021

Kenyan taxpayers are on the verge of losing Ksh4.8 billion ($42.7 million) to a Spanish firm contracted by the State-owned Kenya Electricity Transmission Company (Ketraco) to construct an electricity line linking the local and Ugandan power grids. 

Ketraco lost a second attempt in court to stop paying the foreign contractor, Instalaciones Inabensa S.A, the amount for breach of the contract financed by an African Development Bank (AfDB) loan. 

The State Corporation, which was found at fault in terminating the contract, has been fighting the payment awarded to the Spanish contractor by an arbitration tribunal on July 30, 2019. 

After losing the first attempt at the High Court in February this year, Ketraco asked the appeal court to suspend the execution of the orders of Justice Maureen Odero. 

“The contractor is a foreign company, has no known assets or physical place of business within Kenya and it is of questionable liquidity as its parent company, Abengoa SA, has filed for a Voluntary Declaration of Bankruptcy in Seville Spain,” Ketraco informed the appellate court. 

But Justices Asike Makhandia, Mbogholi Msagha and Mumbi Ngugi ruled that there was no evidence to show that the contractor would not be in a position to repay the amount should Ketraco’s appeal succeed. 

Ketraco had entered into two contracts with the Spanish firm for construction of an electricity transmission line and extension of an existing sub-station at Lessos in Rift Valley in April 2013. 

The firm was awarded the tender to construct a 127 kilometre 420-kilovolt double circuit line from Lessos substation to Tororo in Uganda with a capacity of 1200 megawatts. 

The power interconnection project was part of the electricity network aimed to link Kenya to Uganda, Rwanda, Burundi, and the Eastern part of the Democratic Republic of Congo under the Nile Equatorial Lakes Subsidiary Action Program (NELSAP). 

In April 2016, Ketraco terminated the contracts over what it termed “non-performance’’, leading to a dispute that was referred to arbitration. 

After the termination of the contract the firm went to court and obtained an order that has caused a delay in hiring a new contractor. 

The arbitrators unanimously ruled in favour of the Spanish firm and ordered Ketraco to pay Euro 30,887,820.39 (Ksh3,933,563,926.67) and interest of Euro 6,477,870.77 (Ksh824,956,842.56). It continues to attract further interest of 12 percent per annum from the date of the award until payment in full. 

In addition, the tribunal condemned Ketraco to shoulder the legal costs, arbitrators' costs and administrative costs of Ksh102.1 million ($907,555), Ksh83.5 million ($742,222) and Ksh2 million ($17,777.78) respectively. 

The total bill slapped on Ketraco was in excess of Ksh4.8 billion ($42.7 million).

Source: The East African