Too little on Power Purchase Agreements (PPAs) as President Kenyatta moves Energy CS and PS

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President today received the Report of the Presidential Taskforce on Review of Power Purchase Agreements constituted vide Gazette Notice No. 3076 of 29th March, 2021.

He effectively moved the Energy CS Charles Keter and PS Eng Joseph Njoroge and replaced them with Defence CS Monica Juma and Gordon Kihalangwa.

The Taskforce was constituted by the Head of State in response to calls from a wide cross section of Kenyans to address concerns about the high cost of electricity for both individual consumers and enterprises.

Further, in constituting the Taskforce, the Administration was concerned that high electricity prices constrain economic activity and limit the realization of our shared aspiration of becoming a globally competitive, newly industrialized, middle income, and prosperous country.

To address these concerns, the core mandate of the Taskforce was to:

“undertake a comprehensive review and analysis of the terms of all Power Purchase Agreements (PPAs) entered into by the Kenya Power and Lighting Company Limited (KPLC)…. and develop a suitable strategy for engagement with the Independent Power Producers (IPPs) and lenders, in
order to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector.”

The President has considered the Report of the Taskforce and notes that the key findings were:

the vast differential between KenGen and Independent Power Producer (IPP) tariffs and electricity
dispatch allocations; the lack of proper demand forecasting and planning, leading to irreconcilable projections as against demand; the existing risk allocation imbalances between KPLC and IPPs further exacerbated by poor contract management frameworks; and an uncoordinated institutional
architecture that inadvertently contributes to enhanced operational costs passed on to consumers.

The President has also examined and welcomed the recommendations of the Taskforce that establish a path towards the reduction of the cost of electricity by over 33% within four months.

The consequence of the proposed interventions is that a consumer who previously spent Ksh. 500 per month on electricity shall by 31st December, 2021 pay Ksh. 330 per month. This cost reduction will be
achieved through the reduction of the consumer tariffs from an average of KES 24 per kilowatt hour to KES 16 per kilowatt hour which is about two thirds of the current tariff.

In affirmation of this seminal and progressive solution to a decades-long problem, His Excellency the President has directed the Cabinet Secretary, Ministry of Energy to secure the immediate
implementation of all the recommendations of the Taskforce by Christmas Day, 2021.

The Taskforce recommendations include:
I. Review and Renegotiations with Independent Power Producers
(IPPs) to secure immediate reduction in Power Purchase Agreements (PPA) tariffs within existing contractual arrangements;

II. Cancellation with immediate effect of all unconcluded negotiations of Power Purchase Agreements and ensure future PPAs are aligned to the Least Cost Power Development Plan (LCPDP);

III. Fast-track and deepen the ongoing reforms at KPLC to restructure it into a commercial entity that is both profitable and also capable of delivering efficient and cost-effective electricity supply to
all consumers;

IV. KPLC to take the lead in formulation and related PPA procurement of the Least Cost Power Development Plan (LCPDP);
V. KPLC to institute Due Diligence and Contract Management frameworks for PPA procurement and monitoring along the lines of the drafts provided by the Taskforce;
VI. KPLC to institute one and five-year rolling demand and generation forecasts and associated models;
VII. KPLC to adopt standard PPAs and proposed Government Letters of Support (LOS) along the lines of the drafts provided by the Taskforce;
VIII. KPLC to undertake a forensic audit on the procurement and system losses arising from the use of Heavy Fuel Oils (HFOs); and
IX. In line with the constitutional imperative for transparency in the public sector, KPLC’s annual reports should include the names and beneficial ownerships of all IPPs with which it has
contractual arrangements.

The Presidential Taskforce was led by Mr. John Ngumi, as the Chairperson, Dr. Elizabeth Muli as the Vice-Chairperson and included the following members: Solicitor-General Mr. Kennedy Ogeto; Hon. Justice (Rtd.) Aaron G. Ringera; Dr. James Mcfie; Mr. Mohammed Nyaoga, SC; Eng. Stanley Kamau; Ms. Wanjiku Wakogi; Eng. Isaac Kiva; Dr. Caroline Kittony; Eng. Elizabeth Rogo; Mr. Sachen Gudka; Eng. James N. Mwangi; Dr. John Mutua; Ms. Anne Eriksson; and Mr. Yida Kemoli. The Joint Secretaries were Mr. Jasper Mbiuki (Executive Office of the President), Ms. Lillian Abishai
(Office of the Attorney-General), and Ms. Elsie Mworia (KPLC).

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