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From ray of hope to source of pain: The story of Independent Power Producers

FINANCIAL STANDARD
By Macharia Kamau | July 5th 2021

Olkaria Geothermal Power Plant in Naivasha.[File,Standard]

In the early 2000s, Independent Power Producers (IPPs) played a major role in stabilising the supply of electricity in the country.

The companies stepped in to bridge the power generation gap resulting from years of underinvestment in the electricity industry by the State.

Failure to adequately invest in power generation would plunge the country into darkness in 1999 and 2000, following a two-year drought that saw the country’s hydropower dams dry up.

The government resorted to rationing electricity as it could not meet demand. At the time, 70 per cent of the country’s power generation came from hydroelectric dams.

Domestic and commercial customers had to do without grid power for about 12 hours a day for six months, devastating livelihoods and businesses.

It is against this backdrop that the country earnestly opened up the power sector to the IPPs.

But in the rush to do so, the details of the contracts that the power firms signed with the government were put on the back burner.

This exposed the country to being tied up to secretive contracts that are said to be heavily skewed in favour of the power producers.

The signing of such skewed contracts went on for years, even after the country achieved a degree of power stability with the expansion of generation from geothermal.

The country needed power, with the mantra among high ranking government officials manning the sector being that it is better to give consumers expensive power than not give them power at all.

Thanks to the Energy Act of 1997, it was not difficult to bring on board the IPPs, which would put up thermal power plants. Such plants are fairly easy to install and start operating compared to others such as geothermal.

There has not been power rationing in the scale seen in 1999 and 2000 partly due to the entry of IPPs.

However, the companies have turned into pariah entities, with everyone blaming them for the high cost of power. Kenyans are increasingly questioning the billions paid to the companies, with the payments at times not being commensurate with the power they supply, thanks to clauses in the contracts that guarantee them payment for just having their plants ready to feed the electricity grid.

The dissatisfaction played out in Parliament over the recent weeks, with MPs seeking to see details of the Power Purchase Agreements (PPAs) signed between Kenya Power and the IPPs.

These include the thermal power firms, whose electricity is fairly expensive, selling a unit of power to Kenya Power in the region of Sh30, while others sell at around Sh10 or less.

Last month, the Public Investments Committee (PIC) started pushing Kenya Power to present to the committee the PPAs that it has signed with the various power producers.

The company initially cited confidentiality clauses in the agreements but later gave in to the committee’s demands.

However, the watchdog committee noted it could not make them public as it was also bound by the non-disclosure clauses in the agreements.

In addition to the lawmakers’ push to have a peek into the existing PPAs, there are efforts to have future contracts okayed by Parliament before they are signed.

National Assembly’s Committee on Finance and National Planning has proposed amendments to Public-Private Partnerships (PPP) Bill 2021, requiring the IPPs to open up for scrutiny by Parliament. This will include tabling of PPAs – both existing and future contracts – that the companies sign with Kenya Power in Parliament for approval.

The Bill, which is being debated at the National Assembly, is expected to replace the current PPP framework.

Power plants set up by IPPs are built as Public-Private Partnerships (PPPs), with the government putting in some facilitation, including letters of support.

In other instances, it entails de-risking the process, for instance, by undertaking exploration of geothermal fields and drilling wells, while the private firms put up plants.

“The Cabinet Secretary responsible for a contracting authority that enters into a power-producing agreement with a private party under this Act shall submit the agreement to the National Assembly for approval,” reads the additions to the PPP Bill. In the fourth schedule, it has listed 18 power plants that have PPAs with Kenya Power.

The Bill also wants the auditor general to look into the companies annually to ascertain that Kenyans are getting value from the power producers.

But stakeholders say the criticism against the IPPs is uncalled for, noting that they incur heavy investments in putting up the power plants, and it is only fair that they can recoup their investments as they have no one else to sell their power to.

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