A Sh36.8 billion loan to Kenya Power meant to fund underground electricity transmission to key areas, including State House, has been lying idle for the past six years, costing taxpayers millions in commitment fees.
Documents tabled in Parliament show that the Treasury signed the loan worth Chinese yuan 1.885 billion (Sh36.8 billion at current exchange rates) with China Exim Bank on May 15, 2017, but later flagged the project as non-priority.
“Kenya Power has not utilised this facility as it is deemed not a priority yet the National Treasury signed the loan on behalf of Kenya Power,” says the Controller of Budget.
Kenya Power had wanted to use the money to install about a 30km underground electricity transmission line to provide alternative supply and expand the power grid in Nairobi and expected to complete the project by July 2017.
But the Treasury dropped the project from the priority list, leaving Kenyans with a commitment fee burden for the undrawn loan.
Commitment fees are charged on borrowers for credit that has not been advanced and is a way of guaranteeing that a lender will keep the funds.
Kenya Power wanted to use the first tranche of the loan to build the underground transmission to State House, Lavington, Ngong Road, Kilimani and Hurlingham.
The second part of the credit facility would fund similar projects for Kileleshwa, Westlands, Parklands, Riverside and Ngara.
The underground transmission lines would also reduce the vandalism associated with overhead infrastructure that costs Kenya Power millions of shillings every month leading to blackouts.
Kenya Power also said the underground infrastructure would speed up the expansion of its distribution network and cut costs associated with cash compensation for wayleave acquisition for overhead infrastructure.
The first tranche of the loan was for Chinese yuan 1.2 billion, while the second was for Chinese yuan 685 million.
Kenya Power has, over the years, grown connections and has a base of nine million customers, highlighting the need for a backup transmission line to ease outages.
The fee that the Chinese lender charges in commitment fees remains undisclosed, but the Treasury has been grappling with high commitment fees amid poor planning for dozens of projects.
The Treasury documents tabled in Parliament show that Kenya has paid Sh3.35 billion in commitment fees on undrawn loans contracted by the Treasury with foreign lenders in the last three years.
The fees have added to the woes the Exchequer faces in the wake of high debt servicing obligations that are now gobbling an estimated 60 percent of the ordinary revenue collected by the Kenya Revenue Authority.
The Auditor-General and Controller of Budget have severally recommended that State agencies first acquire land, compensate owners and relocation of utilities lying in project areas, before signing any new loan to avoid delays in drawing the foreign loans.
The two offices have further called on the Treasury to cancel any un-drawn loans as part of easing the debt burden on the country.
The underground electricity lines are one of the biggest projects that went cold even after the Treasury signed financing deals with foreign lenders.
