A Sh4.9 billion Kenya Pipeline Company (KPC) tender for an upgrade of fuel transit to western Kenya and neighbouring countries has run into headwinds after the State corporation rejected joint ventures and subcontracting of foreign firms.
This has triggered a fight among bidders seeking the multi-billion shilling contracts, pushing the battle to the courts.
A gas dealer, Leah & Moses Ltd, has petitioned judges to compel KPC to allow foreign subcontractors and joint bidding for fair competition and inclusivity.
It argues that the upgrade is wide and requires multiple players to boost financial and technical capacity of the bidders.
KPC wants to build tanks in Eldoret, Kisumu and Nakuru, adding to the widened pipelines for transit of refined fuel products locally and to neighbouring countries and reduce trucks, a slow and unreliable method that clogs roads.
Many of Kenya’s refined fuel imports, as well as those in transit to neighbouring countries, have to be transported by truck, a slow and unreliable method that clogs roads.
Kenya Pipeline reckons that the tender is restricted in efforts to support local firms, curb capital flight and rev up employment.
“KPC diligently carried out an assessment and established that a number of citizen contractors do hold the required qualifications and experience,” says the company. But bidders argue the restriction is meant to eliminate competition and offer an edge to predetermined local firms.
Limiting foreign involvement in public contracts emerges amid an outcry about an influx of Chinese businesses driving out local companies, and the US recently termed the protectionist stance as a barrier for investments.
A recent wave of Chinese investments in real estate, retail and road construction sectors has further added to the unease.
Like other African nations, Kenya had turned to China over the past few years for funds, technology and equipment to develop its infrastructure, including its biggest project since independence, the Mombasa to Nairobi standard gauge railway (SGR) line.
Leah & Moses reckons that the KPC restriction denies bidders the right to enter into associations or joint ventures with both local and foreign contractors.
“This is contrary to the provisions under Article 36 of the Constitution of Kenya that allows every person the freedom and right to association with other persons. The petitioner herein is not an exception,” the firm’s director, Jordan Kiprono, says in the petition.
The firm further claims that the tender is listed as a national open tender, limiting participation of cash rich foreign firms and ability of local firms to seek technical expertise from international companies.
Under the KPC deal, bidders can only subcontract local supplies and caps the ceding of works to other contractors at 25 percent of the deal value.
It also bars joint ventures or multiple firms working together to get a piece of the Sh4.9 billion deal, which will see Kisumu works cost Sh2.73 billion, Eldoret Sh2 billion and Nakuru Sh119.6 million.
“Previously, KPC’s projects awarded under the JV structures have encountered challenges due to disagreements between partners and this has led to serious consequences for the company,” says KPC.
“Subcontracting model has proven to be more effective for KPC.”
But the State agency has also put curbs on subcontracting in the quest to place heavy responsibility on the main contractor.
Besides locking out foreign firms in sharing parts of the contract, the main bidder must handle at least 75 percent of the work.
“Subcontracting is limited to a maximum of 25 percent, allowing a qualified mechanical contractor to engage specialists for other disciplines as needed,” says KPC.
In the petition, Leah &Moses argues that KPC provided a restrictive or obstructive provision which aimed at barring the firm from any association with foreign sub-contractors.
The firm has pointed out that the qualification criteria set by KPC requiring that the “subcontractor shall be a citizen contractor”, restricting bidders like them from engaging into any form of subcontractual association with a foreign contractor.
It argues that the restriction was an unfair practice contrary to Article 227 of the Constitution and Sections 3 (a), (b) and (e) of the Competition Act, 2010. “The firm above is threatened that its constitutional right and freedom of association has been curtailed by the respondent without any justification and this is likely to restrict the Petitioner from competitively submitting its bid to the Respondent,” Leah &Moses says in court papers.
Lawmakers have multiple times attempted to amend the Public Procurement and Asset Disposal Act, 2015, to prevent foreigners from bidding for any contract valued up to Sh1 billion.
High Court judge Bahati Mwamuye earlier this month suspended the tendering pending the determination of the petition by Leah & Moses.
However, KPC moved to court and successfully had the freeze lifted, arguing that the corporation risked losing the approved budget for the project as the financial year draws to a close in June.
The State firm argued that it might also lose an opportunity to boost the flow rate of aviation fuel, super and diesel to western Kenya and the neighbouring countries.
It argued that over 30 bidders took part in pre-tender site visits and whose time and expense spent in participating in the tender process was in danger of being irreversibly lost.
While lifting the freeze on April 7, Justice Mwamuye directed the parties to appear before him for submissions on June 10 and promised a judgment on July 3.
