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MP files petition querying Kenya Power deal with electricity firm

Chairman of the Board of Directors of Kenya Power, Vivienne Yeda and Kenya Power Acting Managing Director and CEO Rosemary Oduor, during the Company's 100th AGM. [File, Standard]

A petition has been filed in the National Assembly asking the House to look into relations between Kenya Power and one of its biggest electricity suppliers.

Baringo North MP Joseph Makilap wants Parliament to probe the deal between Kenya Power and Lighting Company (KPLC) and the Lake Turkana Wind Power (LTWP) firm, specifically regarding payments made in 2017 before the power producer was connected to the electricity grid.

The government and LTWP have in the past explained that the payments were a penalty for failure by the State to provide the power generation firm with a transmission line by early 2017.

The power purchase agreement (PPA) between Kenya Power and LTWP provided for the penalty should the State not have provided a line between Marsabit – where the plant is located – and Suswa for redistribution to the rest of the grid.

Mr Makilap questions whether there was a link to the billions of shillings paid by Kenya Power for electricity not utilized, and the high utility bills.In the petition, the MP also says the Kenya Power board chair Vivienne Yeda is the director general of the East African Development Bank (EADB), a co-financier of LTWP.

“Is it not a conflict of interest that Ms Yeda, the EADB director general, the bank which financed the project, doubles up as the chairperson of Kenya Power? posed Mr Makilap in a letter dated October 7 to the National Assembly Clerk. “In whose interest was the chair appointed at Kenya Power to represent?”

Parliament is in recess and it is expected that when it resumes, the petition will be tabled before the House Business Committee for allotment. As a matter of procedure, all petitions are tabled in the House and then forwarded to the relevant committees for further investigation. In this case, it could be the House Energy Committee or the Public Investment Committee (PIC).

When contacted, Ms Yeda - through a spokesman - denied that there was any conflict of interest. “Lake Turkana (Wind Power) was started in 2006 and was ready to generate power in 2017 and Yeda was appointed Kenya Power chair in 2020, 14 years after project started,” the spokesman told The Standard.

“The power purchase agreement was signed in 2013 and payments, among others, approved in 2017, all before Ms Yeda became chair.”

LTWP has for the last four years since it started electricity production emerged as the second largest supplier to Kenya Power after the State-backed Kenya Electricity Generating Company (KenGen).

According to Kenya Power’s annual report, the company earned Sh17.34 billion in the year ended June 2021. The earnings have steadily risen from Sh11 billion in June 2019.

LTWP started to feed the national grid around October 2018. The power producer signed financing agreements with African Development Bank (AfDB) and other lenders including EADB in March 2014 and in December, received the first batch of funds. According to EADB’s annual report, it advanced $5 million (Sh600 million at current exchange rates) to the project, which was put up at a total cost of $698 million (Sh83.8 billion).

The project’s other financiers include the European Investment Bank (EIB), the Trade Development Bank, Proparco of France, the Netherlands Development Finance Company (FMO), and the EU Africa Infrastructure Fund (EU-AITF).

The lenders salvaged a dream that had almost died when LTWP suffered a major setback after the World Bank withdrew support for the project in October 2012, citing a flawed PPA between the wind project and Kenya Power.

The World Bank, which was to offer guarantees to investors in case electricity from the plant was not taken up by Kenya Power, noted that clauses requiring Kenyan consumers to pay whether power was used or not would negate the idea of the wind farm that was supposed to bring down power costs.

It further argued that these ‘take or pay’ clauses in the PPA exposed Kenya Power to high financial risks.

LTWP, the largest wind farm in Africa, put Kenya on the world map when it started feeding power to the national electricity grid in October 2018. It is also among the best performing in the world, with capacity factors of 60 per cent compared to wind farms in Europe that have a capacity factor of between 35 and 30 per cent. This would mean it produces 186MW on average while a similar farm in Europe would do an average of 108MW.

Thermal power

This is because of its location in Marsabit where wind speeds are high. The plant has also reduced Kenya’s reliance on thermal power producers whose electricity is generally more expensive.

It has over the years had an eventful life but this was particularly more visible and painful to power consumers and the Exchequer after its completion in 2017.

However, LTWP has had to fight off criticism. It has been investigated several times by different parliamentary committees, including the Public Investment Committee (PIC).

The committee, then chaired by Mvita MP Abdulswamad Nassir, wrote a report in June 2022 that questioned the Deemed Generated Energy (DGE) payments made when the government failed to live up to its end of the agreement and have a transmission line ready in early 2017. The report further noted that the agreements were skewed and requested that the Attorney General and relevant government officials be put to task over it.

LTWP in 2017 raised a storm after it called up a clause in the agreement with Kenya Power that provided for the firm to be compensated if the State would not have delivered a transmission line between Loyangalani and Suswa by start of 2017.

This would be a penalty for denying the firm an avenue to monetise its investment by selling electricity to Kenya Power.

The power line, which was delayed after the initial contractor Isolux fell into a financial crisis, was completed in August 2018 and enabled the evacuation of power from Marsabit to Suswa, where it is then redistributed through the grid and onto consumers’ premises.

The company demanded €167 million (Sh19.87 billion at current exchange rates) but following a series of meetings among LTWP, the Energy ministry and Kenya Power, the penalty was negotiated to €127.6 million (Sh15.18 billion). The government paid €46 million (Sh5.5 billion) while the balance would be recovered from consumers in their power bills. This saw the cost of power from the LTWP plant go up by €0.00845 (about Sh1) per unit.

The tariff hike was effected in June 2018 and will stay until May 2024, referred to as the DGE recovery period. This is the money that Mr Makilap wants Parliament to take a fresh look at. The government has, however, admitted that the €46 million (Sh5.5 billion) lump sum it paid to LTWP was excess. LTWP and the Energy ministry earlier this year told the PIC that the penalty was based on estimates of how much power LTWP could produce as there was no data at the time showing patterns of power generation.

Once the plant started generation, the data collected showed that the penalty should have been less by €6.17 million (Sh734 million).

LTWP tried to refund the money in 2021 but it kept bouncing back and the Energy ministry officials told PIC that the bank details given to the company were incomplete.

“The then accounting officers (between 2019 to 2022) for the Ministry of Energy and the National Treasury should be reprimanded for their inordinate procrastination (for more than 30 months) in providing correct bank details to the LTWP in which a refund of Sh734 million (Euros 6.17 million) was to be deposited,” said PIC in its June report that was probing certain aspects of the wind farm as well as the 428km transmission line.