Energy sector in crisis – why you will pay dearly

To say that the energy sector in Kenya is going through tumultuous times would be an understatement.

The sector, which powers the country right from the electricity intensive industries that drive the economy all the way to the users of koroboi lamps, has descended into what could be its worst chaos.

The nascent upstream oil industry has not been spared, where the Government has been unable to move crude oil from Turkana to Mombasa after the colourful and much-hyped presidential flag off on June 3, as locals protest over neglect.

Also understated is the heavy cost that Kenyans will have to bear not just now but in years to come. This is already evident in their monthly power bills and at the pump.

The cost of manufactured goods is also likely to increase as industries struggle with high cost of electricity and petroleum products.

Kenya and the people of Turkana will also in future have to take less profits from the sale of crude oil as the joint venture partners in Lokichar deduct what has been paid for idle equipment and staff following an impasse with the community.

The highlight of the moment is Kenya Power, which was left without its C-suite after almost all of its senior managers were arrested and charged in court for economic crimes and abuse of office.

At the centre of the charges is the purchase of faulty transformers and a bungled up procurement process for the hiring of contractors that assist understaffed Kenya Power’s technical department undertake emergency repairs and construction jobs, referred to as labour and transport (L&T) contracts.

The power firm may have lost billions in the transactions, with the faulty transformers having cost it Sh4.5 billion while the Director of Public Prosecution charges that the L&T contractors may have been irregularly paid.

The companies were contracted to undertake emergency repairs and construction of power infrastructure over a two-year period for Sh255 million. Of this, Sh160 million has been paid and are now claiming the balance of Sh95 million.

The firm is also battling a court case over inflated power bills towards end of last year, which is said to have been an attempt to recover Sh10 billion uncollected fuel levy in the year to June last year. Lawyer Apollo Mboya filed the pro bono case in which he accuses Kenya Power of abusing its monopoly and infringing on consumer rights by inflating bills.

Earlier in the week, Charles Keter Cabinet Secretary Energy made an attempt to defend the Kenya Power management but has received a backlash with politicians asking him to quit.

Kenya Power is not the only firm under Keter’s docket that is under siege for bungled up operations that have resulted in loss of tax payer funds and rising electricity bills.

The Kenya Electricity Transmission Company (Ketraco) has seen the Government pay Sh5 billion in penalties to the investors of the Lake Turkana Wind Power (LTWP) for failure to have a power line in place by December 2016.

Ketraco hired a Spanish firm – Isolux Corsan - to put up the power line to evacuate electricity from the wind farm in Marsabit to the national grid at Suswa.

Sh1 billion penalty

The firm, which later filed for bankruptcy, failed to meet the deadline exposing Kenya to monthly penalties for failure to have the line in place as agreed with LTWP to enable it monetise its investments in the 310-megawatt wind power plant.

The Sh5.7 billion was a negotiated penalty, with a promise to have the line in place by August this year. The line has since been given to new Chinese contractors who are expected to finish it in time but failure to do so will expose taxpayers to another Sh1 billion a month penalty to LTWP.

The penalty already paid will be recovered from consumers through monthly bills once the wind plant starts feeding power to the grid.

Energy Principal Secretary Joseph Njoroge recently said construction of the line is nearing completion. “The line must be completed by August this year,” said Njoroge told the National Assembly Committee on Energy during a recent sitting.

Other than electricity, the petroleum industry, which is under the purview of the Petroleum and Mining Ministry, has had its fair share of tough running.

The Kenya Pipeline Company has also enjoyed negative limelight in the recent weeks. The parastatal has been fighting claims that it has lost Sh95 billion through wayward award of procurement tenders, claims it denied and said they were all above board.

The claims are, however, against the background of investigations by officials from the Ethics and Anti-Corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI), who have searched homes of former and current KPC officials.

Among the projects where investigating agencies are looking into include the supply of hydrant valves, used in refuelling planes at the Jomo Kenyatta International Airport (JKIA) and the just concluded Mombasa-Nairobi pipeline. The supply of the hydrant valves is said to have been single sourced.

The completion of the Mombasa-Nairobi pipeline has been delayed for more than one and a half years, with the contractor Zakhem International of Lebanon demanding Sh18 billion for the extension period.

KPC Managing Director Joe Sang, however, said the claim has come down to Sh4 billion after an arbitration process.

Also under the Ministry of Petroleum is a stalled plan to distribute subsidised cooking gas cylinders to poor households. The Mwananchi Gas Project that was expected to have distributed cylinders to over a million households in the last financial year is yet to start, with a pilot undertaken in Kajiado and Machakos only distributing 6,000 cylinders.

The National Oil Corporation of Kenya (NOCK) – the implementing agency – recently said it had halted as the pilot revealed lack of mechanisms to prevent cheating during implementation.

Cooking gas

Households that did meet the low income criteria were issued the six kilogramme cylinders that were going for a discounted rate of Sh2,000 against the market rate of Sh4,000. Poor households had also taken advantage of the poor mechanisms to guard abuse and acquired more than once cylinder. The project aims at distributing 4.3 million cylinders over three years.

Petroleum Principal Secretary Andrew Kamau said the Ministry as well as NOCK and other players involved in the programme had sealed the loopholes and were readying to restart the programme.

“NOCK and other stakeholders are finishing up on this and other issues. Everything will be sorted out in the next one or so months and we will be ready to roll out,” he said last week.

While cooking using LPG might appear like a luxury, it is increasingly becoming cheaper than the dirty fuels such as charcoal and fuel wood for many urban and rural households.

Had the project been implemented within the stipulated timelines, it would have cushioned households from the high costs of Kerosene and charcoal, whose prices have gone up substantially owing to different factors including high cost of crude oil as well as additional taxes that are aimed at fighting adulteration of petrol and diesel.

The price of charcoal has almost doubled over the last year after the Government banned logging in February in an effort to save Kenya’s fast-disappearing forest cover. The per litre cost of kerosene has reached Sh85.73 per litre in Nairobi this month, from Sh66 in May last year. After the ban, a surge in charcoal imports from Uganda also alarmed Kenya’s neighbour, which has since banned exports to Kenya. This made worse the situation, with charcoal prices going up 66 per cent in the 12 months to May this year.

The cost of a four kilogramme tin of the fuel had risen to Sh138 in June this year from Sh81 in May last year, according to data by the Kenya National Bureau of Statistics (KNBS).

Early Oil Pilot Scheme

The turmoil in the sector has also extended to the upstream. The nascent industry, whose only visible project to the larger Kenyan public has been the Lokichar project spearheaded by Tullow Oil, has been grappling with an archaic legal work whose review has stalled in Parliament. There is also an apparent failure to talk with communities, which has resulted in the current disruption of work in Lokichar.

On hold is the Early Oil Pilot Scheme, whose first phase started with the trucking of crude oil stored in Tullow Oil’s facilities in Turkana on June 3 but was halted when local communities and leaders started protesting, saying the State had reneged on earlier promises among them beefing up security. Tullow Oil on Tuesday last week said it would shut down its camp at Kapese in two weeks’ time should the standoff not be resolved.

The firm said it had lost as much as Sh200 million as of last week to maintain operations at the camp, which are minimal, as well as pay for leased equipment that is idle on site due to the confrontation with the community.

While the cost will be borne by Tullow in the short term, it will recover this and other costs once commercial production starts by 2022, eating into the profits, part of which would have gone to the Government as well as the people and Turkana County.

The firm said the Ministry of Petroleum had delayed signing an agreement with the community, which would have paved way for resumption of activities at the camp. The Ministry has been mum on the agreement or attempts put in play to resolve the impasse.  

[email protected]