Negotiate a fair electricity purchase deal for everyone

After months of waiting, President Uhuru Kenyatta finally received the taskforce report on the review of power purchase agreements (PPAs). The President ordered the cancellation of ongoing and incomplete PPAs that are negotiated by the electricity distribution monopoly Kenya Power.

He also directed the Ministry of Energy to reduce the power tariffs by a sizeable 33 percent before the end of December, signalling a reduction of the rates of buying power from the generators.

Concerns about electricity prices have been raised at many past discussions involving industry lobbies and high-ranking policy-makers.

Among others, industrialists have singled out power charges as a key cost of doing business and the element featured prominently in the Cost of Doing Business report, the just retired World Bank index.

Renegotiating the PPAs, however, will require a delicate balancing act to ensure Kenya Power remains sustainable, the power generators get value from their investments and legal suits do not result from rewriting the deals.

It is important to remember while renegotiating that Kenya’s focus on the so-called Least Cost Power Development Plan, which emphasises use of renewable energy, requires investors who understand the technology and expect meaningful return on investment (ROI).

We urge the government team that will engage the power producers to assess and understand the complex matrix of Kenya Power’s sustainability, investors’ interests and the pain of industrialists and the micro businesses that at present create the majority of jobs in Kenya.

Reviewing the PPAs should start almost immediately now that the Ministry of Energy has been instructed to lower the power tariffs within two months, a step that is likely to cut Kenya Power’s revenues.