ENERGY REFORMS

IPPs drop tough stance on power tariff review

The government started engaging 77 power producers last month

In Summary
  • Energy Ministry said this will now pave way for the next 15 per cent cut in power bills as directed by President Uhuru Kenyatta
  • A source told the Star that key  diplomats are involved in the talks
Kenya Power prepaid meters in a flat at Karsarani. /FILE
Kenya Power prepaid meters in a flat at Karsarani. /FILE

Independent Power Producers (IPPs) have dropped tough demands they had put in place before conceding to Kenya's review their initial contracts.

A source at the Energy ministry privy to the negotiations that began last month told the Star in confidence that key diplomats were involved to convince most of the foreign investors. 

"The talks are in the progressive stage after several IPPs dropped tough demands. I can not go into details but just know it was not an easy task. Our partnering countries sent in diplomats to argue the case for Kenya,'' the long-serving officer at the ministry said. 

His sentiments reflect those of Energy Cabinet Secretary Monica Juma who is on record stating that talks with the IPPS are ongoing to reform the sector.

According to Juma, the ministry has been in extensive negotiation sessions with 77 IPPs which have established and clarified a pathway for the delivery of the next 15 per cent reduction in power tariffs.

"The Ministry of Energy remains steadfast in its resolve to drive these irreversible reforms and calls upon all stakeholders, particularly the IPPs to reciprocate the Government's demonstrated good faith as we finalise the negotiation process,'' Juma said in a statement. 

She said the negotiations will be concluded as soon as possible and promised provide further updates in due course.

On April 13, Juma hosted Ambassadors and High Commissioners from the Americas where she briefed them on the status of ongoing reforms in the energy sector.

''The session focused on milestones achieved in the implementation of the Presidential Taskforce Report on PPA and outlined the projected energy future for Kenya,'' Juma tweeted.

They expressed support for the reforms and demonstrated commitment to partnership in the development of the sector.

On April 21, she met ambassadors from the Middle East on the implementation status of ongoing reforms in the energy sector.

The government froze all pending and ongoing contracts between Kenya Power and IPPs in October last year to review existing agreements to lower the cost of electricity in the country.

This is after it emerged that IPPs accounted for 47 per cent of power procurement costs in Financial Year 2020, but only 25 per cent of power volumes, while KenGen accounted for 48 per cent of costs and 72 per cent of volumes.

This raised questions about the number of tariffs paid to IPPs in consideration of the capacity that was procured and the nature of the contractual terms.

President Uhuru Kenyatta's task force on energy reforms in the country formed in March last year had given Kenya Power four months from September to review all power purchase deals with IPPs to pave way for a reduction in the cost of electricity by a third.

The power tariff review was expected to take place in two equal phases, with the first one that saw a 15 per cent reduction in power cost implemented early this year. 

The next tranche of 15 per cent was to be by last month but strained talks with IPPs slowed the process.

Early this week, the Energy Ministry said the next 15 per cent cut will be done anytime soon now on advanced talks with IPPs. 

The government has already awarded Kenya Power Sh9.9 billion to Kenya Power to help offset the expected revenue shortfall from the reduction of electricity prices in January.