President Uhuru Kenyatta has ordered the cancellation of the Sh22.2 billion Kimwarer dam contract.
The President at the same time allowed Arror dam to continue after its design was scaled down from 96 metres to 60 metres.
"The optimised dam will be technically viable since it will only require about 250 acres and cost Sh15.4 billion with power and Sh13.1 billion without power. The dam was previously estimated to cost Sh28.3 billion," State House spokesperson Kanze Dena said in a statement.
The re-evaluation followed a recommendation by a technical committee comprising quantity surveyor Julius Matu, and engineers Benjamin Mwangi and John Muiruri.
The technical committee was chaired by Infrastructure Principal Secretary Paul Maringa.
The report shows that the Sh22.2 billion Kimwarer dam was overpriced and was neither technically nor financially viable.
Treasury Cabinet Secretary Henry Rotich and his Principal Secretary Kamau Thugge were forced to step aside in July over the dams.
Director of Public Prosecutions Noordin Haji charged Rotich, Thugge and 26 others with flouting procurement rules and committing illegalities in the Arror and Kimwarer dams.
Uhuru had asked the technical team to assess the viability of the two dams and file a report within 30 days.
The team reviewed the designs, technical sustainability and financial proposals of both dams and established that no current reliable feasibility study had been conducted on the project.
There was only a feasibility study carried out on a similar project 28 years ago. That study showed that a geological fault across the 800-acre project, which would have negative structural effects on the dam.
The project area is settled and would require compensation of those to be displaced.
According to the technical design of the Kimwarer dam, the water supply would involve pumping.
The pumping would make the project financially unsustainable in the long run.
The President discontinued Kimwarer dam on the recommendation of the technical committee.
The team was satisfied that the Arror Multipurpose Dam Project is economically viable but overpriced. It recommended a cost rationalisation plan to ensure cost-effectiveness.
"As part of the cost rationalisation plan, the Technical Committee has prepared new Bills of Quantities (BQ) for a modified dam with its height scaled down to 60 metres from the original design height of 96 metres," the statement read.