Why taxpayers will cough Sh7.3 billion for flopped Ketraco-Adani deal

The government’s decision to engage India’s Adani Energy Solutions to build power transmission infrastructure across the country before undertaking due diligence on the firm is now becoming a costly affair for Kenyans.

This is after it emerged that Kenya is set to pay a penalty for terminating its contract with the Kenya Electricity Transmission Company (Ketraco). 

The Public Private Partnership (PPP) Directorate has disclosed that Kenya is set to pay Adani for contract termination, but said the process is underway and the termination costs are yet to be determined.

It is, however, not the only contract cancellation for PPP projects, which are now starting to pile up and proving costly to the taxpayer. The PPP Directorate also disclosed that the government is set to pay another three firms for contract termination.

These include the French Firm Rift Valley Highway, which had been awarded the contract to build the Rironi-Mau Summit road, but this was cancelled last year. The government is set to pay a Sh7.3 billion penalties for the cancellation, higher than the Sh6 billion reported earlier.

In a new report, the PPP Directorate said the termination of the Adani contract is now underway, adding that the outcome of the process would determine how much the state would pay.

Adani was in 2023 awarded a contract to build three electricity transmission lines and substations through the PPP model. The award was, however, cancelled in 2024 following a directive by President William Ruto, citing the indictment of Adani executives in the US. 

The Adani project was also rejected by a segment of power sector players and the Kenyan public for failure to undertake proper public participation, as well as transparency concerns. “Termination process is underway; thus, the termination costs are yet to be determined,” said the PPP Directorate in the report on the state of PPPs in the year to June 2025. 

It added that the project was cancelled before it reached financial close following the “disqualification of the proponent due to new information on their credibility”.

READ: Adani-Ketraco multi-billion deal yet to be cancelled

Despite the firm’s credibility being questioned, there is speculation that the government could pay Adani upwards of Sh5 billion in settlement.  

The firm had presented Ketraco with a Privately Initiated Proposal (PIP) to expand power infrastructure. The government is pushing increased private capital through PPPs in building public projects owing to inadequate funds to finance large infrastructure projects. 

In the proposal, Adani Energy Solutions was to build three transmission lines totalling 371 km and three substations, including the 206-kilometre, 400kV Gilgil-Thika-Malaa-Konza line. The projects will cost $907 million (Sh117.91 billion).

It would then operate and maintain the infrastructure for 30 years while charging electricity consumers to recoup their investments over 30 years. Ketraco is paid what is termed as wheeling charges by Kenya Power to evacuate electricity from power plants to its distribution network. 

The charges are passed on to consumers. Other than transparency concerns and failure to subject the proposal to a public participation process, Kenyans also raised concerns about the impact that the arrangement would have on the cost of power, noting that the wheeling charge might be higher than what the taxpayer-funded Ketraco is paid.

Adani had expected to play a significant role in Kenya’s PPP space, as the government had also handed JKIA to India’s Adani Airport Holdings for upgrade and expansion, but this was also cancelled following public uproar and the firm’s indictment in the US on bribery allegations.

The Adani power infrastructure project is among the four cancelled projects that the government is set to pay the contractors for contract termination.

The PPP Directorate also disclosed that the government would pay Sh7.32 billion to French firms that formed the Rift Valley Highway consortium for the cancellation of the contract to build the Rironi-Mau Summit road. 

The road, which was also to be built through the PPP model, had been awarded to the consortium of Vinci Highways SAS, Vinci Concessions SAS, and Meridiam Infrastructure Africa Fund but was cancelled last year on concerns of high toll fees and unfavourable terms, including the requirement that the government cover financial shortfalls. 

The project has since been handed to a consortium of China Road and Bridge Corporation (CRBC) and Kenya’s National Social Security Fund (NSSF). The PPP directorate also disclosed that the government is set to pay for the cancellation of two contracts under the roads annuity programme.

It has already terminated the contract for Road Annuity Lot 32 of the Annuity Programme for the construction and rehabilitation of a 67-kilometre road to augment the existing road network from Illasit to Taveta through Njukini.

ALSO READ: Taxpayers to cough Sh243m legal fee after Adani-JKIA deal flopped

The contractor will be paid about Sh438 million. It is in the process of terminating the contract for Road Annuity Lot 3 that entailed the construction and rehabilitation of Wajir–Habaswein–Samatar (68 kilometres) and Rhamu-Mandera (75 kilometres).

The PPP Directorate said the cancellation of the two road annuity projects was on account of “lack of value for money”.

In the report, the PPP Directorate said Kenya's exposure to PPP project termination reached Sh217.7 billion as of June, stemming from 13 projects whose combined construction cost was Sh188 billion.

The majority of these are renewable electricity generation projects that have recently begun supplying the national power grid. “The total estimated exposure related to termination sum payments amounts to Sh217.7 billion,” said the directorate.

“However, it should be noted that the likelihood, value, and timing of such termination payments cannot be determined with certainty in advance. Furthermore, it is improbable that all projects would be terminated simultaneously, thereby triggering the aggregate termination sum of Sh217.7 billion at once."

It added: “As such, based on the World Bank recommended six per cent probability of early termination by the Contracting Authorities, the maximum contingent liability for the PPP projects is hereby reported as Sh13.06 billion.”