The bid by power producer KenGen to raise the Masinga dam by 1.5 metres has been suspended on doubts over its economic viability.
This is the second time the company’s bid to implement the $15 million (Sh1.3 billion) project has flopped after the first attempt in 1997.
KenGen has said that raising the dam will boost its capacity from the current 1.5 billion litres to nearly two billion and improve water flow management at the Seven Forks hydropower complex.
Heavy rains occasionally cause the dam to overflow when the water hits the maximum level of 1,056.5 metres, leading to a loss of over 100 million litres.
The firm’s managing director Eddy Njoroge had disclosed that the project has been deferred indefinitely but declined to give the reasons, referring Business Daily to the Energy ministry.
“It has been deferred due to policy issues which the Ministry of Energy can elaborate,” said Mr Njoroge who is set to leave the Nairobi Securities Exchange-listed firm on June 30.
Patrick Nyoike, the Permanent Secretary at the Energy Ministry, said the project has been deferred because the capital expenditure is not worth the expected gains.
He said there is also a revenue dispute between KenGen and Tana and Athi Rivers Development Authority (Tarda), which owns the dam. KenGen owns the power generating equipment at Masinga and pays fees to the local authority for use of the dam’s infrastructure.
“If the frequency of water overflow at the dam is high then it would warrant the investment. The overflows occur about once in six years which does not justify raising the dam,” Mr Nyoike said.
The PS said Tarda was also unhappy with fees it gets from KenGen as turf wars emerge in government circles pitting ministries of Energy and Regional Development over ownership and management of resources like the Masinga dam.
“Raising Masinga dam has to make economic sense first and these issues within government also have to be resolved,” Mr Nyoike said.
Samuel Gichuru, the former managing director of then Kenya Power and Lighting Company, said the dam project was in the works in 1997 but could not be implemented due to a donor freeze.
He, however, says the project was viable at the time.
“It was just a matter of financing. But today the least cost assessment may show there are other options,” he said.
Suspension of the project has scuttled KenGen’s plans to raise its power generation capacity, slowing down its revenue growth in the medium term.
The firm estimates the project’s capacity at 81 million kilowatt-hours worth about Sh200 million based on the current average electricity tariff of Sh2.42 per Kwh.
The power producer’s net profit rose 40 per cent to Sh2.8 billion in the year ended June 2012 as sales increased 11 per cent to Sh15.9 billion.
This came as it sold 5.4 billion Kwh in the period compared to the 4.9 billion Kwh it sold to Kenya Power a year earlier.
Masinga currently has an installed capacity of 40,000 Kwh, with KenGen producing between 60,000 and 230,000 Kwh annually depending on hydrology at the dam whose power supplies Nairobi and Mt Kenya region.
KenGen first attempted to raise Masinga dam’s full supply level in the 1990s when it hired consultancy firm Knight Piesold to conduct an environmental impact assessment (EIA) study for the project.
In 2005, KenGen hired consultancy firms NORPLAN and Howard Humphreys to undertake a rapid EIA study, arguing that the one conducted in 1997 had become outdated.
In January 2009, KenGen again called for consultants to carry out a full EIA study on the project which it said it was ready to commission.
The false starts signal disagreements between KenGen and Tarda besides opposition from other government agencies.
The reasury owns 70 per cent stake of the power producer, giving the government control over its operations and strategic direction.
The remaining 30 per cent is held by individual and institutional investors who bought into the company in the 2006 initial public offer.
Mr Gichuru notes that the intended connection of the Kenya grid with Ethiopia, where a massive hydro-electric project is in the works and the Southern Africa Power Pool could have changed the viability as far as cost benefit analysis goes.
Other sources like geothermal and wind have over time become the preferred renewable sources.