Economy

KenGen seeks Sh5.8bn refund from State for geothermal wells

mugo

KenGen managing director and chief executive Albert Mugo. PHOTO | FILE

Summary

  • The Sh5.8 billion is equivalent to 21.8 per cent of KenGen sales of Sh26.5 billion for the year to June.
  • Ministry of Energy officials said Wednesday that the government would settle the dues owed to KenGen.
  • The government has a 70 per cent majority shareholding in the company.

Electricity producer KenGen is seeking a Sh5.8 billion refund from the government for financing the drilling of geothermal wells with a capacity of 280 megawatts fed to the grid in 2014.

The Nairobi Securities Exchange–listed company said that it funded the development of the steam wells at Olkaria in Naivasha on behalf of the Ministry of Energy and Geothermal Development Company — the agency in charge of geothermal energy development.

“This amount has been outstanding since 2013 and earmarked to be settled in the current fiscal year,” said KenGen managing director Albert Mugo.

A payout looks set to strengthen the financial position of the utility firm which produces electricity for sale to Kenya Power which then retails to homes and businesses.

The Sh5.8 billion is equivalent to 21.8 per cent of KenGen sales of Sh26.5 billion for the year to June.

The injection of the additional 280 megawatts into the national grid in 2014 helped to reduce the share of expensive power supplied to consumers from diesel generators, cutting electricity bills by about 30 per cent.

Ministry of Energy officials said Wednesday that the government would settle the dues owed to KenGen. The government has a 70 per cent majority shareholding in the company.

“This will be settled. Remember they also owe us money in form of dividends,” said Joseph Njoroge, Energy PS in charge of electricity.

“The wells belong to the government and were developed using a loan facility which KenGen paid for on behalf of the government,” he added.

KenGen has sought approval from the Energy Regulatory Commission (ERC) to raise the tariffs for its major hydropower plants with an installed capacity of 765 megawatts or 47 per cent of the firm’s total power capacity.

Mr Mugo said the proposed tariff increment is informed by recent expansion of the company’s hydropower capacity and the need to deliver returns to its shareholders.

READ: Higher power bills loom as KenGen seeks to raise tariffs

The higher tariffs look set to strengthen Kenya Power’s hand in its push to increase electricity prices for homes and business to cover rising operation expenses.

KenGen has a total power capacity of 1,617 megawatts, out of which 820 megawatts is hydropower, 518 megawatts is geothermal, 25.5 megawatts is wind energy while the rest is thermal sources.

The company’s hydropower amounts to about a third of electricity bought by Kenya Power for onward sale to home and businesses, a signal that an increase in the bulk tariffs would put pressure on the ERC to review retail tariffs to cover the additional costs.

The government recently opposed Kenya Power’s quest to increase retail tariffs, arguing that it goes against the policy of delivering cheap electricity needed to ease the burden on households and make Kenya a competitive country.

KenGen’s hydropower is the cheapest energy source in the country at Sh3 per kilowatt hour, followed by geothermal (Sh7) while thermal tops Sh18 per unit.

Kenya’s total installed power capacity is 2,333 megawatts, which is supplied by KenGen (1,617 megawatts) and independent power producers (716 megawatts).