How electricity firm overpaid independent power producers

KenGen sign at the Stima Plaza, Ngara, Nairobi. January 17, 2023. [Elvis Ogina,Standard]

The Auditor General has questioned the difference in the price that Kenya Power pays for electricity bought from KenGen compared to what it pays the independent power producers (IPPs).

The disparity is such that while KenGen supplied nearly two thirds – 63 per cent – of electricity consumed over the year to June 2022, it pocketed just 41 per cent of the total amount that Kenya Power paid to power generators.

This meant that though the IPPs account for slightly over a third of the electricity Kenya Power bought, their pay was much higher at 59 per cent of what KPLC paid in electricity purchases.

This was due to the high cost of power from the IPPs that average at Sh11.87 per unit of electricity, compared to power bought from KenGen that costs Sh3.93 per unit, according to analysis by the Auditor General, who adds that the IPPs could be highly overpaid.

“Analysis of the electricity units purchased during the year under review against the cost of purchase revealed a disparity between the cost of power procured from Kengen and the power procured from IPPs,” said Auditor General Nancy Gathungu in her report.

“The analysis revealed that KenGen supplied a total of 7,911 gigawatt hours or 63 per cent of total power purchased while the IPPs supplied the remaining 4,742 GWh (37 per cent).

“However, the cost of total power purchased from KenGen was Sh38.9 billion which is only 41 per cent, compared to the purchase of power from IPPs totalling Sh56.27 billion or 59 per cent.”

Gathungu says Kenya Power got a raw deal in the contracts it signed with the IPPs, to the extent that in some instances, the company pays the IPPs much higher than the price it sells power to customers.

“The analysis further revealed that it cost KPLC an average of Sh3.93 per kilowatt hour (KWh) of power purchased from KenGen while it cost the company an average of Sh11.87 per Kwh of power from the IPPs,” she said in her report.

“The company therefore entered into expensive contracts with IPPs and was in some instances selling power below the cost price.”

Kenya Power increased purchases from thermal IPPs over the period to June 2022 to cater for reduced power production from hydro power plants owing to the drought that has hit the country for the last three years.

This resulted in a spike in the fuel costs, which grew 137 per cent to Sh26.49 billion from Sh11.18 billion in 2021.

Fuel costs are charges that are passed through to consumers and compensate the thermal power producers for the costs they incur in acquisition of heavy fuel oil used for power generation. According to the Auditor General, the 137 per cent increase in the fuel charge was, however, not commensurate with the amount of electricity that the company bought from the thermal power producers, which grew by 68 per cent.

“Thermal energy purchased increased to a total of 1,577GWh units from 940GWh units in 2020/21, an increase of 637GWh units or 68 per cent,” said the Auditor General in the report.

“The increase in the fuel costs, therefore, did not match the increase in units of thermal energy purchased during the year.”

By Brian Otieno 38 mins ago
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