State to extend Aggreko contract due to poor rains
Aggreko is currently generating 287 megawatts of thermal power or one fifth of the country’s total power consumption under contract. Power prices are likely to remain high in the near future. Photo/FILE
Erratic rains in catchment areas that feed the country’s main dams used for electricity generation have forced the government to extend the services of an expensive emergency power producer - Aggreko - to the end of May for now.
Aggreko’s 90 megawatts Embakasi plant contract was to end on March 31, but its generators will be running until May, implying higher charges on consumers for the use of electricity.
The UK- based company currently generates 230 megawatts or one fifth of the country’s total power consumption under two rolling contracts, the one in question and another that is due for review in November.
“The Government has decided to give Aggreko a new contract. Emergency power will still be in place beyond March 31. But the government has a right to cancel it through a 30 days notice,” said Mr Pradeep Paunrana, who is the chairman of the state-appointed Power Sector Management Committee.
He said another review would be done in May, allowing policy makers to see what impact the ongoing long rains will have at the main reservoirs in eastern province which are still 10 metres below maximum capacity.
The committee which comprises manufacturers, state power utilities as well as the Energy ministry officials was revived as the emergency power gains momentum, amidst dwindling supply from regular and cheaper hydro sources.
A committee of power sector executives, Treasury and the Energy ministries as well as representatives of the Kenya Association of Manufacturers (KAM) recently assessed that Aggreko offered the lowest price amongst contenders for services provision after March 31.
Thermal generation of electricity has become a necessary evil in Kenya where climate change caused by unsustainable land use has made hydro electric power generation less reliable due to erratic rainfall in the face of rising power demand.
Increased use of thermal generated power in the country’s energy mix has seen consumers pay more in power bills, inflated by a surcharge meant to reimburse generators money spent on diesel for running the plants.
The pass-through cost is collected by Kenya Power and Lighting Company on behalf of its contracted producers.
Next month, the fuel cost surcharge will be Sh7.49 per kilowatt hour, from Sh6.84 this month.
That means households, industrial and commercial enterprises that consumed 550 million units last month will pay an extra Sh336 million in electricity bills if their consumption holds at the February levels.
“With increased thermal generation, fuel cost charges per unit of electricity rose from Sh3.92 in April 2009 to Sh7.90 in November, and is now at Sh7.49 per unit for the March bills,” KPLC said in a statement.
The World Bank says that the power crisis is shaving off 1.5 per cent of the country’s GDP in lost business opportunity besides weakening the country’s competitiveness in attracting fresh investments.
The escalation in the fuel cost charge means that electricity in Kenya now costs over Sh13 per unit, compared to Uganda and Tanzania where the price is Sh7.50. Mr Vimal Shah, the chairman for the Kenya Association of Manufacturers (KAM), says the government should ensure consistent supply of quality at an affordable cost.
The treasury, however, says thermal power is highly subsidised.
Emergency generation
“The most recent emergency generation capacity requires a subsidy of Sh5 billion for supplying 140 MW for 9 months, in addition to exemptions from Valued-Added Tax and other duties,” said Joseph Kinyua, the Treasury Permanent secretary.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
