Energy ministry set for review of contracts with electricity firms

The process of reviewing contracts that Kenya Power has with various electricity producers is set to commence over the coming weeks as the government pushes to reform the country’s energy sector.

The Energy ministry said it has held preliminary talks with independent power producers (IPPs), which have laid ground for the renegotiation of the power purchase agreements (PPAs).

Successful renegotiation of the contracts, largely blamed for high electricity costs, is expected to sustain the reduction in the cost of power announced recently.

A 15 per cent cut in the electricity tariff is among the visible results since the government embarked on the energy sector reforms. Another 15 per cent reduction is expected by March this year.

Energy Cabinet Secretary Monica Juma said yesterday the government is pushing ahead with the other reforms that will include renegotiating PPAs that power producers signed with Kenya Power.

The reforms are based on recommendations by the Presidential Taskforce on the Review of PPAs.

Ms Juma dismissed past claims that the contracts leave little for Kenya Power to manoeuvre. Senior government officials and energy sector experts have noted the lopsidedness of PPAs, including their structure that makes them difficult to review.

The CS, however, said no contract is unchangeable.

“Somewhere in that contract, it says that it can be re-looked when circumstances have changed. We are not coming to this lightly,” she said during a press briefing in Nairobi.

The government in December asked the IPPs to engage with the government with the aim of renegotiating the PPAs.

While Juma did not disclose the number of IPPs that had expressed interest in taking pay cuts for the electricity sold to Kenya Power, she said they had come forward and have had preliminary talks with senior ministry officials.

“IPPS not only heeded the call but have engaged with us in listening sessions that have outlined a number of areas of interest,” she said.

She said the ministry and IPPs are now preparing to start formal negotiations, which could result in the producers selling power at lower costs.

The ongoing reform process, the CS said, will also see radical changes not just within Kenya Power but across other State-owned power sector agencies.

Other than the 15 per cent reduction in the cost of power that was gazetted by the Energy and Petroleum Regulatory Authority (Epra) on January 7, Kenya Power last year also started reforms that included suspension of the procurement team to pave way for investigations on alleged malpractices.

Epra has also designed the Kenya Electricity Transmission Company (Ketraco) as the system's operator, a key role in matching electricity demand with supply.

Juma said the next phase of reforms will affect all energy agencies, which she said was aimed at ensuring alignment across the ecosystem.

“These reforms are irreversible… this administration will not relent on the reforms in the energy sector,” she said.

“In fact, the experience of the last weeks strengthens our resolve in this direction,” she said in reference to the countrywide power outages experienced last week after electricity transmission towers collapsed.

During the briefing, Energy Principal Secretary Gordon Kihalangwa said additional measures are being put in place to protect the transmission lines and other equipment.

This includes gazetting them as restricted areas and in instances where the pylons are located in populated areas, fencing the land. 

The reforms are expected to bring about a sustainable power sector, including putting Kenya Power firmly back to profitability.

They are also expected to sustain the 30 per cent reduction in the cost of power that is expected to be achieved by March.

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