Power firms must give price concessions


Former Industrial and Commercial Development Corporation chairman John Ngumi. FILE PHOTO | NMG

The John Ngumi commission on renegotiation of Power Purchase Agreements (PPAs) this week invited key stakeholders and members of the public to submit written memoranda on the subject. According to the notice, submissions must reach the task force by May 28.

Expect a deluge of submissions especially from lawyers representing the merchant plants. I agree that by asking stakeholders and members of the public to hand in memoranda, the Ngumi-led task force has started well.

But I still insist that such a high-stakes and politically-sensitive affair needs a higher standard of transparency and disclosure.

Public engagement should include disclosure to the public of all memoranda received from stakeholders -and even more critical- release for public scrutiny of those secretive PPAs.

If we can’t see the PPAs, what- as members of the public – are we supposed to react to? The task force should publish everything preferable on a web site.

Admittedly, there may be confidentiality agreements that prohibit release of documents to the public. But we must look at the big picture because PPAs commit both the government and all electricity consumers in this country to large financial payments –in some cases- for periods as long as thirty years. The electricity consumer in this country has a right to know.

I read from somewhere that in the Supreme Court of Belize once ordered the public release of PPAs for a major merchant plant there.

In November, 2002, the Uganda High Court- in a landmark decision- also ruled that the PPAs for another large IPP project there be released to the public.

Too much secrecy around unsolicited IPP projects is why we have ended up with more expensive power than the sole off-taker can buy. Secret negotiations is why allegations of corruption keep popping up whenever IPPs contracts are on the cards.

The risk of awarding more contracts than are necessary is usually very high because political elites demand huge kickbacks.

Today, the trend where countries find themselves with excess expensive power- and where PPAs have been signed at a rate beyond the capacity of the sole off-taker- is widely associated with the padding of IPP contracts to accommodate back- handers for corrupt public officials.

Can the Ngumi commission crack it? It remains to be seen because the task force is pitted against an unholy alliance of powerful interests.

In June 2016, President Uhuru Kenyatta directed that all contracts between IPPs and the government be reviewed and those found not to be cost effective be legally and amicably terminated.

The directive was pronounced at State House during and Energy Summit of stakeholders in the energy sector.

Consequently, Cabinet Secretary, Charles Keter appointed an 18-member task force to review power purchase contracts.

The task force made several recommendations including the following. First, that the government stops receiving new applications and approvals of any new Expressions of Interest for solar and wind projects.

Secondly, that the government should revoke Expressions of Interest and terminate projects that had been approved but had not progressed for three years. Thirdly, that all solar and wind projects be subjected to an open auction policy.

Finally, that all solar and wind projects that execute PPAs be given a deadline of reaching financial close within twelve months.

As it turned out, the recommendations did not see the light of day. The advantage for Ngumi and his team is that they are coming to the field under totally different circumstances.

The feedback I have received on articles I have written on the subject lately, suggest that there is a distinct fear within sections of the international lending community that too many IPPs are coming into the arena too fast.

Investors are worried whether KPLC will be able to absorb all the power produced by all IPPs that are lining up- and asking questions whether or not the sole off-taker will soon reach a point when it will not be able to honour commitments to IPPs.

Reality may force investors to face up to changed circumstances and to accept to give concessions.

Private power producers have created an expensive power glut in this country. The trend must be stopped.