Uncertainty clouds state-initiated 33pc tariff reduction that has fallen behind by six months.
Kenya Power is grappling with operational challenges as a result of persistent negative working capital position, increased payment for idle capacity, transmission losses, high indebtedness and incessant boardroom wrangles.
The situation has been exacerbated by a Ksh5.7 billion ($49.13 million) debt moratorium granted by the National Treasury in 2020 that is expiring June 30 with full repayment (principal and interest) expected to start in July, according to the firm’s latest annual report (2021).
This is forming a cloud of uncertainty on the state-initiated reform programme at the utility firm and the full transition to a 33 percent tariff reduction that has fallen behind by six months.
Barely two weeks ago three independent directors — Elizabeth Rogo, Abdulrazaq Ali and Dr Caroline Kittony-Waiyaki — resigned under unclear circumstances, with insiders pointing to disquiet in the board.
These resignations come just two years after the government overhauled the entire board to streamline firm operations, enhance efficiency in power distribution and transmission and restore the firm to a profitability path following a series of scandals by the directors.
The Office of the Auditor General says operational challenges facing the utility firm could hamper its capacity to deliver on the state’s promise of clean, affordable and reliable power to the consumers.
Last year, the Presidential Taskforce on the review of PPAs recommended that Kenya Power, which has been declared a ‘special Government Project’ slash electricity costs by 33 percent effective December 2021, as part of efforts to attract foreign direct investments and promote industrial growth.
While a 15 percent reduction in power cost has been realised, there is silence over second phase for a further 15 percent cut in electricity tariff despite Energy CS Monica Juma pledging to complete the total reduction by March 31.
According to Kenya Power’s acting managing director Geoffrey Muli, the second phase of the 15 percent reduction in electricity tariffs depends on the successful conclusion of the PPA negotiations.
“The second phase of the 15 percent reduction in electricity costs is hinged on the successful conclusion of the ongoing PPA negotiations, which are ongoing,” Mr Muli told The EastAfrican.
Costly purchases
The Auditor-General’s report for the financial year ended June 30, 2021, says the fixed capacity charges in power purchase agreements (PPAs), which account for 52 percent of total cost of power purchased significant and adversely affected operations of the company.
The report notes that Kenya Power will continue bearing the high fixed capacity charges if the capacity charges are not renegotiated downwards and the commercial operation dates of the PPAs aligned in line with the company’s medium term power demand such that there is no excess power generation.
The capacity charge cost for independent power producers during the year was higher than the cost of the energy purchased indicating that the IPPs were operating below their capacity resulting in payment for idle capacity which negatively impacted the profitability or sustainability of the company.
According to the report there is disparity between the cost of power procured from Kenya Electricity Generating Company (Kengen) and that procured from IPPs.
While Kengen supplied 70 percent of the total power purchased and IPPs supplied the remaining 30 percent, the cost of power purchased by Kengen was only 44 percent of the total costs compared with IPPs which was 56 percent
It costs KPLC an average of Ksh5.30 ($0.04) per kilowatt hours (KWh) of power purchased from Kengen while it costs an average of Ksh15.30 ($0.13) per KWh for power sourced from IPPs.
It was noted that the effective unit cost of power purchased from some IPPs was as high as Ksh195 ($1.68) per KWh, Ksh136 ($1.17) per KWh and Ksh118 per KWh while the same was sold at an average of Ksh15.66 ($0.13) per KWh.
“KPLC therefore entered into very expensive contracts with IPPs and in some instances, sold power below the cost price,” according to the Auditor General.
The report notes that the capacity charge component of the energy paid to IPPs was always more than the charge for actual energy supplied and even the fuel costs paid to some IPPs is always higher than the cost of energy/power procured.
Kenya Power faces high system losses that have increased to 23.95 percent from 18.68 percent in the past eight years compared to the allowable system losses of 19.9 percent.