Economy

Lake Turkana Wind rules out cuts in tariffs as State eyes 15pc drop

Phylip Leferink

Lake Turkana Wind Power CEO Phylip Leferink (left) and the firm's project adviser Rizwan Fazal. FILE PHOTO | NMG

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Summary

  • LTWP has ruled out any reductions in wholesale electricity prices, making it the biggest independent power producer to publicly reject the push by government to bring down tariffs.
  • Kenya is seeking to negotiate with Independent Power Producers (IPPs) to lower wholesale power prices in a bid to lower the cost of electricity to homes and businesses by 15 percent before June.
  • LWTP’s stance comes amid opposition from the foreign-backed electricity producers on the lowering of tariffs to Kenya Power.

Lake Turkana Wind Power (LTWP) has ruled out any reductions in wholesale electricity prices, making it the biggest independent power producer to publicly reject the push by government to bring down tariffs by a further 15 percent.

LTWP Chief Executive Officer Phylip Leferink said on Tuesday that lowering its prices to Kenya Power #ticker:KPLC will hurt its cash flows and ability to honour its financial obligations like loan repayments.

Kenya is seeking to negotiate with Independent Power Producers (IPPs) to lower wholesale power prices in a bid to lower the cost of electricity to homes and businesses by 15 percent before June.

LWTP’s stance comes amid opposition from the foreign-backed electricity producers on the lowering of tariffs to Kenya Power.

“A straight slash on the tariff, for us that is not on the table and the government knows it. What the government wants as far as LTWP is not possible, chopping off our tariff. We cannot agree to it because it will impede the financial integrity of our company,” Mr Leferink said on Tuesday.

The negotiations between the government and IPPs are expected to centre around lowering the costs at which Kenya Power buys electricity from the generators and offer the utility room to cut retail tariffs by 15 percent without sinking into losses.

LTWP has a capacity of 310 megawatts — enough to power up to one million homes —entered into a power purchase agreement (PPA) with KPLC in 2009.

The company is selling wind energy to Kenya Power at euros 9.2 per kilowatt-hour (Kwh) from the initially agreed 8.4 (Kwh).

The increment of euros 0.00845/Kwh covers a penalty after the government delayed in linking power from LTWP to Kenya Power.

Mr Leferink added that the company like other IPPs is yet to get an invitation from the Ministry of Energy for the talks whose delay puts into question the government’s bid to further lower the cost of power.

The government is anchoring the next batch of a 15 percent cut on the negotiations whose delay is putting to doubt the ability to effect the reduction by end of next month.

Kenya Power in January effected a 15 percent cut on retail tariffs— being the first drop of a 30 percent cut that President Uhuru Kenyatta promised in August last year.

The first drop was hinged on the firm lowering system losses-- the share of electricity bought from generators that do not reach homes and businesses, due to power theft and leakages from an aging network.

The second 15 percent cut is anchored on the review of Public-Private Agreements between Kenya Power and IPPs after a presidential task force found that there was a huge disparity between the tariffs charged by main power producer KenGen #ticker:KEGN and IPPs.

Kenya initially said it would unilaterally force the IPPs to lower the wholesale prices of electricity in a bid to cushion consumers struggling with costly essential items such as food and ease public anger over the high cost of living.

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

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

Lowering of electricity prices is meant to boost economic growth by making energy costs competitive compared with other African nations such as Ethiopia, South Africa and Egypt.

Kenya has been trying to boost foreign investment in the manufacturing sector in recent years and the first batch of 15 percent reduced the cost of buying 200 units of electricity from Sh5,185 in December to Sh4,373 in February.

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