Friday, April 8, 2016

THE GHOSTS OF KARUMA PROCUREMENT RETURN TO HAUNT PROJECT

The troubles that dogged the Karuma Hydropower project’s procurement continue to stalk the project threatening the multi-billion dollar dam’s future usefulness.

In the current spurt the Energy ministry and the Uganda Electricity Generation Company Ltd (UEGCL) are in a heated battle over the supervision of the Karuma and Isimba dams, with accusations and counter accusations being traded, a situation that has been brought to President Yoweri Museveni’s attention.

But first some background.

"The tendering of the contractors of the $1.6b Karuma power dam was mired in controversy where government officials disregarded due process, ignored caution from the procurement agency, the courts of Uganda, the IGG, the cabinet and for good measure tried to rope in the President into their scheme to force through their favoured candidate in an unparalleled show of impunity.....

Ministry officials seemed to favour China International Water & Electric Corporation (CWE) over eventual winner Sino Hydro Corporation, another Chinese firm.

In the process they delayed the 600 MW dam’s construction by almost two years. Construction finally started in 2014, two years beyond the initial timelines.

The process was so compromised that the cabinet was forced to cancel it on the advice of the IGG and not only did Museveni have to personally appeal to China to help build the dam but had to chair an evaluation committee which interviewed and vetted the short listed companies!

As a compromise CWE was offered the 183 MW Isimba dam project, when Sino Hydro Corporation was eventually awarded the contract to construct Karuma Dam.

First forward to the present and the two projects are fast heading towards a stalemate as the energy ministry and UEGCL fight to resolve the issue of who is responsible for the two projects construction.

At the beginning of the project, in December 2013 a memorandum of understanding (MOU) was drawn up between the energy ministry, UEGCL and Uganda Electricity Transmission Company Ltd (UETCL).

In that agreement UEGCL was appointed the implementing agency of the Karuma and Isimba power plants and UETCL was to implement the construction of the transmission lines from the dams to substations in Namanve, Luzira, Mukono and Iganga.

The MOU was signed after the ministry had already identified the contractors for the two dams, employed its own supervising engineers – Energy Infratec PVT Ltd (EIPL) of India and already obtained financing of $1.69b from the China Exim bank.

China Exim Bank’s funding – a loan stretching over 20 years with a five year grace period at between two percent and four percent annual interest, will account for 85 percent of the project costs with the government coming up with the other 15 percent.

The distribution of responsibility on the projects was reiterated in a ministerial policy direction that was gazetted in September 2014 where the energy minister Irene Muloni instructed that,

“Government has appointed UEGCL as its representative in overseeing the construction works and later as owner of the hydropower plants and also appointed UETCL to oversee the construction of the evacuation lines and related substations.”

However months into the project, UEGCL following monitoring reports on the Karuma dam  complained that there was non-compliance with the project works and requested an expert  to assist in the supervision.

Finance ministry permanent secretary Keith Muhakanizi to whom the request was made, while pointing out the strategic nature of Karuma Dam and raising concerns about that UEGCL does not seem to be in control of the project, which he pointed out had ultimate responsibility for delivering the project, wrote,

“You are hereby required to urgently put in place adequate measures to fulfil the requirement as the implementing agency of the project,” Muhakanizi wrote in a 6th March 2015 letter to UEGCL boss Harrison Mutikanga and copied to energy ministry permanent secretary Kaliisa Kabagambe.

Kabagame in response communicated to the finance ministry on 11th March and Muhakanizi responded saying he had earmarked sh30b for project supervision in 2015/16 by UEGCL.

UEGCL went ahead and contracted two firms – SMEC International and AF-Consult Switzerland Ltd.

However this was after Austrian firm, ILF Consulting Engineersn -- hired by UEGCL,  did an independent audit of the Karuma and Isimba projects issuing a damning report which pointed out among other things,

“The confusing project management organisation structure of the Employer and conflicting roles and responsibilities between MEMD (energy ministry) and UEGCL has hindered the project implementation process,” the firm’s Dr Kamal Gautam said.

“The employer’s current project management system is ineffective and unable to provide firm leadership in project implementation process…. Such a project management approach by the employer will further impair the quality, cost and progress of the projects.”

In his references to the employer, even he was not clear whether he was talking about the ministry or UEGCL or both.

"In addition the consultant pointed out that the two projects were short of money, questioned the competence of the supervising engineers contracted and recommended that the supervising engineers should be in daily contact with the contractor engineers...

The consultant warned that “Delays in rectification of the identified issues and lack of implementation of the recommendations may prolong the project completion dates, impair project quality and easily overrun the project budget.”

Some shuffling and ejection of key staff at EIPL happened between the issue of the consultant’s report in June last year and the end of 2015, but were still found wanting by UEGCL’s own project management consultants – SMEC and AF-Cosult.

In January this year UEGCL boss Harrison Mutikanga wrote to the energy ministry pointing out that the poor supervision of the two projects continues and suggested that EIPL address issues that were raised in the consultant’s report, clarify on the different roles of the ministry and UEGCL on the project and halt payment to EIPL for their failure to adequately supervise.

In responding a month later on February 10, 2016 the ministry’s accounting officer Paul Mubiru first put Mutikanga in his place by pointing out that, “I am neither answerable to you nor do I get instructions from you,” before chastising him for his style of correspondence  which he circulates “wholesale”.

Mubiru went on to point out that the criticism of EIPL was unfair and may have been prompted by a conflict of interest between UEGCL’s project management consultants who bid and lost to EIPL, in an earlier tendering process for project management consultant.

“I wish to reiterate that EIPL won the tenders for Owners’ engineer for the two projects competitively,” Mubiru wrote. “Any attempt to smuggle the PMC into Owner Engineer role through the back door using the tactics of wide dissemination of malicious allegations against EIPL will be both futile and very costly to the nation.”

Mubiru questioned why the UEGCL’s engineers were reluctant to present their findings in the presence of the onsite engineers and wondered about the integrity of the reports.

Mubiru also pointed out that the ministry has ultimate responsibility over the two projects, “There is no way MEMD can bury her head or hide under any entity as regards to success or failure of these projects … the role of any other entity in delivering those projects is supportive and peripheral.”

He also declined to halt payments to the supervising engineers “on hearsay or your instructions.”

When contacted for comment on the breakdown in cordiality between his office and the ministry, Mutikanga said,

“All we are after is the smooth implementation of the project. Because eventually if we don’t get good dams we will spend a lot on operations and maintenance jeopardising the viability of the projects and our ability to repay the loan, which we are contracted to repay,” Mutikanga said.

He denied that they were trying to smuggle their supervisory engineers to take over the project pointing out that they were tendered with the full knowledge of the board, on which Mubiru seats and under the advisement of the Public Procurement Disposal of Public Assets Authority (PPDA).

Museveni has instructed minister Muloni to get to the bottom of these turf wars and suspend work in need be on the dams’ construction so that remedial work can be done if they are deemed necessary.
 And parliament too has summoned the warring parties to appear before them to resolve the issue.

Attempts to contact ministry officials were futile.

The continued bickering surrounding the two dams does not augur well for our power situation. The commissioning of the 250 MW Bujagali dam in 2012, alleviated debilitating daily load shedding up to that point and savesd government hundreds of billions of shillings in subsidies to the thermo generation operators.

However further delays on Karuma, which was supposed to be commissioned by 2018 according to the earlier time line, may send the country back into the "dark ages".



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