Inefficiencies at Kenya Power have raised the cost by up to 30 per cent and the firm must review expensive power purchase deals, seal system losses and ease tax regime to realise cheaper electricity.
Retiring of IPPs
In March, President Uhuru Kenyatta appointed a task force to undertake a comprehensive review and analysis of the terms of all Power Purchase Agreements (PPAs) entered into by the Kenya Power and probe the compliance of all associated agreements with government policies.
This was after it was revealed that most of those independent power producers (IPPs) are selling to Kenya Power at 15 times higher than the amount charged by Kengen.
The John Ngumi-led task force is finalising the report that will see at least 10 of those IPPs retired after contract reorganisation.
Speaking to the Star, Ngumi said the task force was given six months to report back to the appointing authority and they are determined to stick to the plan.
"We are determined to deliver our findings to President Uhuru Kenyatta by the end of September," he said, without giving further details.
Even so, a source at the committee, who asked not to be named due to the sensitivity of the matter, told the Star that four of the IPPs did not follow due process.
Early this week, Auditor General Nancy Gathungu invited investigative agencies to conduct a further probe into the missteps that may have cost taxpayers an additional Sh3 billion on one of the IPPs, the Lake Turkana Wind Power Project.
Kenya Power is forced to pay an average of Sh65 billion to the 19 IPPs every year, accounting for nearly half of the firm’s operational costs.
According to Kenya Power’s electricity purchase costs summary for 2018 seen by the Star, the electricity distributor spent Sh64.8 billion to buy 10.7 billion kilowatts of power from 19 producers up from Sh60.4 billion in 2017.
The amount has been growing by at least Sh4 billion every year, hitting Sh73.5 billion in the year to June 30.
For instance, Kenya Power bought a kilowatt of power from Triumph Power Generating Company at Sh69.26 compared to Sh4.63 from KenGen, almost 15 times more.
Other IPPs including Gulf Power Limited, Iberafrica Power, Power Technology Solution and Tsavo Power sold a kilowatt at Sh26.34, Sh16.96, Sh14.70 and Sh11.77 in that order.
Orpower 4 Inc, a subsidiary of Ormat Technology, an Israel-owned power firm listed on the New York Securities Exchange, sold each kilowatt at Sh9.68, more than double that of Kengen.
Dollar to shilling denominated
An internal audit report by Kenya Power, seen by the Star, shows this can cut household power bills at an average of Sh7 per /kWh and Sh5.69/kWh for businesses, easing the cost of living for families and increasing local manufacturers’ competitiveness in the global market.
If radical changes proposed by the company’s board and the Ministry of Energy are well executed, families will pay an average of Sh16.3/kWh, the lowest rate in the region after Tanzania’s Sh10.86/kWh.
On the other hand, manufacturers could pay Sh13.23/kWh from the current Sh18.9kWh, the highest in Eastern and Southern Africa.
Last week, manufacturers weighed in on the high electricity costs in the country, terming it the biggest impediment to Uhuru's agenda on manufacturing.
“Our proposal is to get power cost below $0.09 or Sh9 to brew local manufacturing and boost our competitiveness in the international market. We are currently disadvantaged with power bills accounting for a good percentage of the production cost," Kenya Association of Manufacturers CEO Phyllis Wakiaga told the Star in a recent interview.
According to the report, these are some of Key Performance Indicators given to former Kenya Power managing director Bernard Ngugi, who resigned early this month.
The company did not give reasons for his exit in the middle of his contract with the listed power distributor.
And to help ease the cost of power in the country, the report is proposing shilling denominated Power Purchase Agreement to shield consumers from currency volatility and stabilize prices.
Loans advanced to power sector firms for infrastructure projects such as power generation plants and transmission lines are mostly in US dollars.
The local currency was exchanging at Sh85 against the dollar five years ago, but has weakened to Sh108 currently. This means that Kenyans could be paying 17 per cent more on dollarised loans.
Last year, the firm’s finance costs increased by 21 per cent to Sh12.48 billion due to an increase in unrealised foreign exchange losses owing to the depreciation of the Kenya Shilling.
This month, the foreign exchange adjustment component on the power bill has nearly doubled compared to last month, rising Sh1.07 per unit of power consumed from Sh0.67 per unit in July.
Last October, electricity users were forced to pay an average of Sh4 more per kilowatt after the Energy Petroleum Regulatory Authority (EPRA) increased fuel cost charges and foreign exchange fluctuation adjustment.
This as the shilling traded at the weakest level of Sh110.05 against the greenback.
A study commissioned by the Ministry of Energy in 2018 and implemented by GuarantCo said use of local currency financing will lead to productive recycling of savings within a country rather than increasing the country’s external debt burden.
GuarantCo chief executive Samuel Chasia said Kenyans are forced to pay higher power tariffs to repay mostly foreign investors who pump money into the sector when the shilling is more stable against the dollar.
War room
In order to cut system losses costing the firm at least Sh18 billion every year, the board, according to the report, suggested the setting up of a war room to tame power theft.
This is part of the company’s plan to cut system losses to less than 20 per cent from the current 24 per cent. The report shows that a percentage of system losses are equal to Sh1 billion.
Early this year, the company advertised a tender for the provision of Cellebrite UFED Touch Ultimate and renewal of forensic tool kit to enhance system checks and surveillance.
This is expected to nab the firm’s technicians working in cahoots with some heavy users, especially in the cement, steel and plastic industries, to drop power, embezzling billions of the firm’s revenue.
The forensic tool is aimed at curbing the loss of billions of power revenue every month. System losses have seen the company’s total provisioning increase from Sh8.25 billion in 2018 to Sh18 billion.
Procurement audit
The audit report has also recommended for a forensic audit of the firm’s crowded stock.
By June this year, the company’s idle stock was at Sh10.8 billion, this as the country continues to witness power outages due to lack of relevant accessories like transformers.
In May, the Parliamentary Public Investment Committee thwarted the power utility’s plan to source for a favourable forensic via tender No. KPI/9A.2/RT/031/2021.
In a letter seen by the Star, the committee asked the state-owned power utility to engage the Office of Auditor General in sourcing for a suitable supplier.
