The Energy Regulatory Commission says KenGen cannot enter the retail market as it would amount to a conflict of interest.
ERC on Wednesday said electricity distribution would remain Kenya Power’s mandate while KenGen will stick to generation and related activities.
Through a proposed Energy Bill that is yet to get approval, KenGen is hoping to get the green light to engage in wholesale power sales as part of the plan to shore up its revenues.
Power producer KenGen’s #ticker:KEGN bid to sell electricity directly to large customers has met strong headwinds after the energy sector regulator said the State-owned firm cannot enter the retail market as it would amount to a conflict of interest.
The Energy Regulatory Commission (ERC), which must approve any such moves, on Wednesday said electricity distribution would remain Kenya Power’s #ticker:KPLC mandate while KenGen will stick to generation and related activities.
“We don’t want a scenario where one single player would be doing everything – generating and at the same time selling to end users as this could present conflict of interest and hurt a segment of consumers.”
Both companies are majority owned by the government.
“We want KenGen to focus on generation and Kenya Power to stick to distribution,” ERC director-general Pavel Oimeke said at a Press briefing, effectively locking out KenGen’s quest for approval to enter the power sales market.
KenGen, which is listed on the Nairobi Securities Exchange (NSE), had recently expressed interest in selling bulk power directly to new factories in Naivasha, near its Olkaria geothermal power plants.
Through a proposed Energy Bill that is yet to get approval, KenGen is hoping to get the green light to engage in wholesale power sales as part of the plan to shore up its revenues.
Manufacturing industries in the proposed special economic zone in Naivasha, would enjoy lower power tariffs arising from a minimisation of transmission costs as a result of the short distance from power plants to users.
Kenya is betting on the special zones to fire up its industrialization, and create wealth and jobs.
Mr Oimeke said that allowing KenGen the power retail market would reverse all the gains made in the journey unbundling the power market – where roles such as generation, transmission and distribution have been assigned to different State entities.
Before 1996, Kenya Power covered the entire value chain – generation, transmission and retail, a model that was deemed unsustainable, prompting the creation of new agencies like KenGen and later Kenya Electricity Transmission Company (Ketraco).
KenGen’s proposed entry into power sales had set the stage for competition in the retail market, currently monopolised by Kenya Power.
ERC’s rejection of the bid now means KenGen must redirect its energy to growing KenGen Energy Services, a subsidiary it created to handle non-generation business, as a way of diversifying its revenue streams.
The Nairobi bourse listed firm, which is 70 per cent owned by the government, has been racing to deliver returns to shareholders, who have gone without a dividend for two years in a row.
KenGen’s half- year net profit for the period to December dropped 11.4 per cent to Sh4.09 billion, saddled by high amortisation costs.
In a similar period, Kenya Power’s bottom line plunged 30 per cent to Sh2.9 billion, dimmed by heavy cost of financing debt.
KenGen, along with independent power producers, sell electricity to Kenya Power for onward retail to homes and businesses. It controls 70 per cent of the country’s installed power capacity.
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