As Kenya cancelled Power Purchase Agreements and saw the axing of its energy minister, a Kenyan Presidential Taskforce on Review of Power Purchase Agreement recommended the country introduce measures to reduce the cost of electricity by a third within four months.
Proposed interventions could mean a consumer who previously spent Ksh.500 a month on electricity would see their bill slashed to Ksh.330 a month. But, there is no indication yet on whether recommendations made by the Taskforce would be enforced or enacted in any way.
Social media responses to the Taskforce Review varied from calls to make public details of PPA agreements to surprise at the axing of the energy minister and freezing of all ongoing and incomplete PPAs in the country.
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Established at the end of March 2021, the Taskforce was constituted by the Kenyan head of state, President Uhuru Kenyatta, to address the high cost of electricity for both individual consumers and enterprises.
It was tasked to “undertake a comprehensive review and analysis of the terms of all PPAs entered into by the Kenya Power and Lighting Company Limited (KPLC)… and develop a suitable strategy for engagement with the IPPs and lenders, in order to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector”.
This newly published report’s findings make reference to:
- the vast differential between Kenya Electricity Generating Company (KenGen) and Independent Power Producer (IPP) tariffs and electricity dispatch allocation;
- the lack of proper demand forecasting and planning, leading to irreconcilable projects 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 the consumer.
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Taskforce recommendations read as follows:
- Review and renegotiations with IPPs to secure immediate reduction in PPA tariffs within existing contractual arrangements;
- Cancellation with immediate effect of all unconcluded negotiations of PPAs and ensure future PPAs are aligned to the Least Cost Power Development Plan (LCPDP);
- 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;
- KPLC to take the lead in formulation and related PPA procurement of the LCPDP;
- KPLC to institute Due Diligence and Contract Management frameworks for PPA procurement and monitoring along the lines of the drafts provided by the Taskforce;
- KPLC to institute one and five-year rolling demand and generation forecasts and associated models;
- KPLC to adopt standard PPAs and proposed Government Letters of Support (LOS) along the lines of the drafts provided by the Taskforce;
- KPLC to undertake a forensic audit on the procurement and system losses arising from the use of Heavy Fuel Oils (HFOs); and
- 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.
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