Economy

Energy ministry goes mute on pledge to cut power bills

Kenya's Energy Cabinet Secretary Monica Juma.

Kenya's Energy Cabinet Secretary Monica Juma. PHOTO | PSCU

The Energy ministry has gone mute three weeks after the expiry of its second deadline for cutting electricity prices by a further 15 percent, having failed to complete negotiations with expensive power producers.

Energy and Petroleum Cabinet Secretary Monica Juma said in January the cost of power would come down by March 31 to fulfil President Uhuru Kenyatta’s promise of reduced electricity bills to homes.

This would have seen the cost of power reduce by a third.

Dr Juma had promised to institute further cuts in the power sector by streamlining costs to achieve an additional 15 percent reduction in energy prices in the first quarter.

The cuts were also hinged on a deal to review power purchase agreements (PPAs) signed over the years by Kenya Power #ticker:KPLC .

The utility firm in January cut retail tariffs hinged on its lowering system losses -- the share of electricity bought from generators such as KenGen #ticker:KEGN that does not reach homes and businesses due to power theft and leakages from an ageing network.

Other players in the sector on Wednesday directed our inquiries to the Energy ministry. Dr Juma did not respond to our calls and text messages for comment on the progress of the electricity cost review.

In her January press statement, the ministry had pledged to deliver the cut in prices by March.

“We are working hard at ensuring the next 15 percent tranche is effected in this quarter [January to March] as promised,” the January press release said.

The 15 percent cut implemented in January saw the cost of buying 200 units of electricity drop from Sh5,185 in December to Sh4,373 in February.

The State promised a similar cut in a plan based on the review of PPAs after a task force appointed by the President found that there was a huge disparity between the tariffs charged by main power producer KenGen and the IPPs.

Kenya Power bought 46 percent or Sh41.1 billion of its electricity from State-controlled KenGen, with other top producers being wind plant—Lake Turkana Wind— and US-based geothermal firm, OrPower 4 Inc.

More than half of Kenya Power’s Sh89.1 billion power purchase costs are capacity charges paid to power producers.

The IPPs, which are owned by powerful institutions like the World Bank, opposed a unilateral push to lower the cost at which they sell electricity to Kenya Power, setting the stage for a legal battle.

They reckon that they spent billions of shillings on building power plants through a combination of debt and shareholder funds that were sourced on the strength of the PPAs or wholesale electricity tariffs.

The IPPs opposed the reduction, arguing that Kenya has no unilateral right to alter the contracted capacity and payments, saying instead that the State has a duty to protect PPAs — which are inked over a period of 20 years.

The fear of a legal tussle with powerful foreign investors forced the State to retreat and opt for a negotiated deal with the IPPs.

The talks seem to have stalled, signalling the failed bid to deliver lower electricity prices at a time when petroleum prices have pushed up the cost of living.

The promise of an additional cut in electricity prices would have offered relief to homes struggling with higher pump and LPG gas prices.

It would also have helped absorb the pass-on cost of higher fuel prices to electricity bills.

The government is under pressure to keep inflation in check ahead of the August General election despite the huge energy costs and reverse the increase in electricity bills during his tenure.

Electricity prices have nearly doubled since Mr Kenyatta took office in 2013, with 50 units rising from Sh508 in July 2013 to Sh945 in December before falling to Sh769 in February.

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