Ghosts of the past return to haunt Davis Chirchir

Financial Standard
By Macharia Kamau | Mar 30, 2023
Energy CS Davis Chirchirat Menengai crater in Nakuru on March 17, 2023. [Kipsang Joseph, Standard]

When Davis Chirchir walked through the corridors of the Ministry of Energy and Petroleum in October last year, he was on familiar grounds, having served as the first Energy and Petroleum Cabinet Secretary in the Jubilee administration.

While many of the operations may have moved to Kawi House in South C, the team of engineers, economists and other professionals largely remained the same.

More importantly, the challenges - or if you would like to look at them as opportunities - have also not changed much.

Some of the decisions Mr Chirchir made as Energy and Petroleum CS in the first three years of the then Uhuru Kenyatta government have come back to haunt him.

Key among them involved the cost of power and petroleum products, which have been going up and show no signs of easing.

While every administration, including President William Ruto's, appears hell-bent on cutting electricity prices, at least going by their public pronouncements, this remains an elusive goal.

It is the same case for fuel, albeit this was particularly bad in the last few months of the previous regime to the extent that it had to subsidise retail costs of fuel.

The current regime is now torn between cushioning Kenyans with subsidies or letting market forces dictate prices.

The Energy Ministry scrapped subsidies on super petrol last September but still continues to subsidise diesel (through a cross-subsidy plan where petrol users pick up the tab for diesel users), while the State foots the subsidy bill for kerosene.

Kenya's dream of being an oil producer also appears to have come a cropper since Mr Chirchir left in 2025 when Tullow and its partners started the talk of commercial production.

The cost of power has been a pain point for different administrations as it has been for both President William Ruto and his predecessor Uhuru.

Both trusted Chirchir to come up with solutions to the challenge. A decade ago, Mr Chirchir was at the helm when the Energy Ministry came up with the grand plan to increase the country's power production capacity by 5,000 megawatts (MW) over a three-year period.

The then government was banking on large projects such as the planned electrified Standard Gauge Railway (SGR) and other mega projects such as Konza Technopolis city and Lamu Port-South Sudan-Ethiopia-Transport (Lapsset) as well as private sector projects, including steel and cement mills and mining activities.

This was also at a time when the country was first implementing the devolved system and there were expectations county-based industries would drive demand for electricity. This demand coupled with the power that would have been availed in large quantities would drive down the cost of electricity.

This, however, never worked as neither the expected investors in the power nor the industries that would have driven such demand came on board.

So ambitious was the plan that to date, a decade later, the country has only increased the power generation capacity by 1,400MW - a fraction of the 5,000MW - to 3,040MW as of June 2022.

The envisioned plan, which would have seen the domestic tariff fall to Sh9 and industries pay Sh8 per unit of electricity, never came to be. If anything, consumers have witnessed successive increases in the cost of power through the years.

Today, a household consuming 200 units of power per month pays Sh5,600. This is 66 per cent more compared to the Sh3,373 that such a household paid in 2013 when Mr Chirchir unveiled the ambitious plan that he said would offer relief.

The cost of power will further go up beginning April 1 following the new electricity tariff that Epra published Friday. This is despite the new administration insisting it plans to lower power costs.

In January, President Ruto said his government had put in motion plans that would see power prices come down within the next year.

The plan includes the completion of power transmission lines that would enable the country to use power plants that are currently not in use due to a lack of infrastructure.

These include the Turkwell hydropower plant that is currently not fully utilised due to a lack of transmission lines, according to President Ruto and a number of geothermal wells that have been drilled but continue to lie idle.

"We are going to spend Sh1 billion to sort out three transmission lines so that we can retire the plant that we have at Muhoroni, which is producing energy at 52 US cents (Sh65)... we are getting power from our hydros at 4 US cents (Sh5). Can you compare between four US cents and 52 US Cents? This is because we have power at Turkwel and other hydros that we are not using because of lack of transmission lines," said Ruto in a televised interview reviewing his first three months in office at the time.

He said: "I have instructed that we complete these lines within the next 10 months so that we make sure we bring down the cost of energy because we will retire some of these thermal plants that are causing this huge cost."

When President Ruto made these remarks, Epra was embarking on a public participation process for the new electricity tariff. Kenya Power made the application in October 2022. The process has yielded another tariff that will see Kenyans pay more for electricity.

The new tariff also locks out 1.5 million households from the subsidised tariff referred to as the lifeline. The lifeline category will now apply to customers using 30 units a month from the previous 100 units.

This is expected to lock out 1.5 million from the subsided category, according to Kenya Power, but still, retain a majority of the company's customers at 6.3 million.

In the tariff, Epra has created a new category of domestic consumers - Domestic Category One - which will be made of the 1.5 million consumers kicked out of the lifeline band.

Those under the lifeline band will pay a basic energy charge of Sh12.20 per unit of electricity. The basic energy charge is the cost of power before taxes, levies and pass-through costs such as fuel, forex and inflation costs are loaded.

This will be a 58 per cent increase from the current tariff of Sh7.70 per unit that was introduced at the beginning of last year following the presidential directive to bring down the cost of power by 15 per cent.

It is also a 22 per cent hike when compared to the basic energy charge under the 2018 tariff, the last time that Epra undertook a tariff review, which it considered as the base tariff when undertaking the review this year.

Domestic Consumer Category One - which will cover households consuming between 31 and 100 units - will pay a basic energy charge of Sh16.30 per unit.

They were previously covered by the domestic lifeline tariff and paying Sh10 per unit under the 2018 tariff and Sh7.70 per unit under the 15 per cent reduced tariff.

In the new tariff, the most hit are the ordinary domestic Consumer Two (DC2) Category, which covers families consuming over 100 units of power per month, who will now pay a basic energy charge of Sh20.95.

This is an increase of 66 per cent when compared to last year's discounted tariff, which was discounted at 15 per cent, with consumers paying Sh12.6 per unit. It is also 32.5 per cent higher than the 2018 tariff where the energy charge was set at Sh15.80.

This is the cost of power before taxes, levies and pass-through costs are added, which when factored in push the cost to over Sh30 per unit.

While the President has publicly talked about lowering power prices and even appeared to have plans that could at least give Kenyans breathing room as they grapple with the high cost of living, his ministers do not appear to buy into his optimism.

The President's economic advisor David Ndii in February weighed in on the cost of electricity, saying the country has two options - to pay higher costs or start experiencing outages.

He went on to say that Kenya Kwanza never promised cheap power in its manifesto. This is despite the coalition's manifesto promising to "improve (electricity) reliability" and "bring down the cost of electricity."

At the time, Dr Ndii had said if Kenyans are not willing to pay the price, the country would deteriorate to the level of South Africa, which has been grappling with power blackouts lasting up to 12 hours daily in the country's worst power crisis. This was attributed to low tariffs that led to the failure of the sector to invest in refurbishing the power production and transmission infrastructure as well as in new power plants and transmission lines.

Other than the high cost of fuel, the petroleum subsector has in the recent past faced the challenge of dollar shortage and a weak that in the recent past has threatened to disrupt the supply.

While the stability of supply has improved in recent years, petroleum consumers are still prone to outages.

This was experienced last year when the industry protested delays by the government to refund them for keeping prices stable at the pump.

The refusal to pick up products from Kenya Pipeline Company's depots as well as the alleged diverting of products meant for the Kenyan market to export markets caused serious shortages that persisted in late March and throughout April last year.

At the time Chirchir was exiting the Ministry in 2015, Tullow and its joint venture partners in the Turkana oil had just submitted a draft Field Development Plan to the Government.

At the time, Tullow had said "this will inform discussions as Tullow and its Partners progress towards potential FID of both the Kenya and Uganda upstream development projects."

The project that is expected to usher Kenya into the league of oil producers has not moved much since then.

Tullow in its annual report published Friday noted that it has just submitted an FDP for approval by the government and Parliament.

"In March 2023, the Kenya Joint Venture partners submitted the final Field Development Plan (FDP) for approval to the Ministry of Energy & Petroleum and the Energy and Petroleum Regulatory Authority," said Tullow in its report to December 2022.

"The FDP is based on a life of field resource of 585mn bbls gross, initial plateau production of 120,000 barrels of oil per day and capital investment of (about) $3.4 billion (Sh442 billion) to first oil."

"The FDP approval process, including ratification by parliament, is expected to conclude later this year."

The firm and its joint venture partners are also still looking for a strategic partner. The new firm is expected to play a critical role in moving the project to its commercial phase.

"In parallel, we continue to progress from a farm-down to a strategic partner in a joint process with our partners," said the firm.

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