Uhuru shifts second 15pc power cut to next government

kenya power pre-paid tokens

Pre-paid electricity token machines provided by Kenya Power. PHOTO | FRANCIS NDERITU | NMG

Kenyans will miss out on the second tranche of a 15 percent cut in electricity bills with the pledge now shifted to the next government after the August general elections.

Sources privy to the matter told Business Daily that it is impossible to realise the second cut under this regime since the Ministry of Energy is yet to open talks with the ‘big’ Independent Power Producers on cutting wholesale power prices.

The talks were expected to centre on lowering the costs at which Kenya Power buys electricity from the generators and offer the utility firm room to cut retail tariffs by another 15 percent without sinking into losses.

The State has also not provided a budget for the second cut after offering Kenya Power a Sh14 billion subsidy that allowed the firm in January to cut retail tariffs by 15 percent.

An official from the Electricity Sector Association of Kenya (ESAK) — the lobby for Kenya’s top IPPs— said big firms are yet to get an official invite from the ministry for the talks less than three weeks to the end of the financial year.

“It (Ministry of Energy) has started negotiations with the smaller IPPs but the big IPPs are still waiting to be called,” said the official who sought anonymity.

“Time is short for any negotiation with the bigger plants considering the elections are two months out. There is no chance of the 15 percent happening now.”

The Ministry of Energy did not respond to queries on the status of the second tranche of the 15 percent cut that the government had promised to implement by the end of this month.

Private power producers, mainly owned by foreigners, have opposed the push to lower wholesale tariffs

OrPower 4 Inc, which files disclosures at the US Securities Exchange and has the largest private geothermal operations in Kenya, says the government has instead decided to review new power purchase deals rather than renegotiate the old ones.

Documents tabled in Parliament show an allocation of Sh7.5 billion for Kenya Power that the Treasury said will cushion the power utility against anticipated revenue loss in the second phase of the 15 percent cut.

But a source at Kenya Power clarified that the allocation is part of the Sh14 billion that the government committed to pay the utility in the first cut effected in January.

“The Sh7.5 billion in the new budget is part of the Sh14 billion that the government committed to absorb from the first cut of 15 percent. It is not money to cushion us for the second cut,” said the source at Kenya Power who is not authorised to address the media on the matter.

“The second cut is a matter that is upon the new government to decide if it wants it or not, then it will guide the Treasury.”

The utility had projected revenue losses from the first cut at Sh26 billion, with the government shouldering Sh14 billion while the remaining Sh12 billion was spread across Kenya Power and the Kenya Electricity Transmission Company Limited.

The first cut was hinged on Kenya Power lowering system losses and the share of electricity bought from generators such as KenGen that does not reach homes and businesses.

The cut reduced the cost of buying 200 units of electricity to Sh4,373 in February from Sh5,185 in December last year.

The State promised a similar cut by the end of June based on the review of Power Purchase Agreements (PPAs) between IPPs and Kenya Power.

Under a typical power purchase agreement, a power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell it to consumers.

A review of the PPAs is part of the recommendations of a task force appointed by President Uhuru Kenyatta that found that there was a huge disparity between the tariffs charged by main power producer KenGen and IPPs.

The government opted for negotiations over forcing the IPPs to lower tariffs in the wake of opposition from the firms.

Some four IPPs that include Lake Turkana Wind Power, Rabai Power, OrPower 4 and Tsavo Energy account for a quarter of the electricity that Kenya Power buys for sale, underlining the impact of the big producers in the move to cut cost of power.

The four of the biggest IPPs provided 2,989 GWh which was a quarter of the 12,101 GWh that Kenya Power bought from producers in the year ended last June.

Mr Kenyatta promised a 33 percent cut in the cost of electricity last year in a move to boost investor climate by making energy costs competitive compared with other African nations such as Ethiopia, South Africa and Egypt.

The cuts were also aimed at easing the cost of living on households that have for years grappled with steep power bills.

Delays in the negotiations with IPPs and lack of funds or financial commitment from the National Treasury to cushion Kenya Power from revenue losses have left the second cut of 15 percent in the hands of the next government.

The funds are meant to protect Kenya Power from losses and help maintain the path on the profitability path even though the full impact of the first cut will be reflected in the results of the full year ending this month.

The company’s net income increased 27.6 times to Sh3.8 billion in the half-year ended December from Sh138 million a year earlier. This came as sales jumped 21 percent to Sh83.5 billion.

The additional customers helped raise electricity unit sales 8.7 percent to 4,562 Gigawatt hours (GWh).

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