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How Kenyans are kept in the dark on bad electricity deals

When Garissa Town MP Aden Duale on June 10 sought information from the chair of the Departmental Committee on Energy on information on the cost of power – especially what the independent power producers charge Kenya Power – he was taken in circles. And so was the country.

For two months, Mr Duale sought to know how much each company was paid per month. During one of the committee sessions, he had been asked to get a court order so that the Cabinet secretary could furnish him with the names of the specific directors of the 13 companies that sell electricity to Kenya Power.

Thanks to the murky world of power purchase agreements, the high cost of energy has remained one of the biggest bottlenecks to economic growth. The cost of power in Kenya, according to data, is four times that of South Africa, for example, and it is the consumers who bear the brunt of this mischief.

“Rather than pursuing the objective of supplying the Kenyan economy with affordable electricity, Kenya Power has on the contrary presided over a massively inflated power supply regime that has regressive effects on the already overburdened taxpayers and businesses,” said Mr Duale.

He told the National Assembly that Kenya Power procures electric power from independent power producers (IPPS) at an inflated price of Sh23 per kilowatt hour.

“In this irregular arrangement, the IPPs normally purchase electricity from Ken-Gen at approximately Sh0.50 per kilowatt hour before offloading it to Kenya Power at an inflated rate of Sh23 per kilowatt hour,” he said.

In 2010, Ms Martha Karua had raised this issue in Parliament, asking why the Ministry of Energy was continuing to renew IPP contracts even when they knew that they were ripping off Kenyans.

“If you look at the names of the companies, they are the same companies which were contracted before 2002. Their contracts are being renewed with the same prices. I think it is careless of the ministry concerned and the government to allow badly negotiated contracts to affect the lives of Kenyans,” said Ms Karua.

When local activists, under the Electricity Consumers Association of Kenya, tried to get to the bottom of the racket in 2018, their lawyer Apollo Mboya entered consent on October 22, 2018 and the matter was dismissed – leaving some of the activists at a crossroad. Thus, a chance to scrutinise the billing process and the contracts by the IPPs was lost.

Mr Mboya had filed the class action suit accusing Kenya Power of abusing its monopoly and had asked the court to declare that the distributor made false or misleading representations of electricity tariffs and bills, thereby infringing on consumers’ rights. He also wanted the court to declare Kenya Power’s monopoly unconstitutional.

The lawyer was, initially, following his own case of over-billing and, as he said later, Kenya Power admitted that it had actually been over-billing. He later became part of a group that started a campaign known as #SwitchOffKPC that brought on board many other complainants.

As it emerged then, Kenya Power was over-billing its customers while trying to recover “unbilled fuel cost revenue” worth billions of shillings that it had, ostensibly, not added to consumers’ bills.

In its 2018 accounts, Kenya Power indicated that the balance was fully billed to customers in the financial year ended June 30, 2018 upon approval bythe Energy Regulatory Commission (ERC). The billing, it said, was based on the individual customers’ consumption in the respective months of billing.

Interestingly, consumers were never informed of these extra charges.

The IPPs came onto the scene in 2000 as an emergency plan to sustain electricity supply during droughts, Soon, they became permanent; after all they had found an easy way to make money.

Since most of the power purchase agreements are set in dollars, any fluctuation pushes the costs higher and it is the consumer who pays for. As a result, electricity consumers continue to shoulder high costs of energy, even though the country has made strides in the generation of cheap energy.

In March, on the floor of the Senate, Wajir Senator Ali Abdullahi Ibrahim dismissed Kenya Power as “a looter. They are collecting money from everybody but failing in every way, not only in the rural areas but also in Nairobi. A person has to pay Sh30,000 or Sh40,000 for a house which has five people. KPLC is a looter and something should be done about it.”

It has also been found that the electricity system losses an estimated 20 per cent of net generation, coupled with some extreme voltage fluctuations and intermittent power outages.

Two kinds of losses

“I had the privilege of being the Minister for Energy. We noticed that Kenya Power suffers from two kinds of losses, that is, technical losses that lead to power outages, and commercial losses. So, it is a loss-making entity.

“However, this should not be the case because it is a monopoly and is supported heavily by the National Treasury, which borrows and guarantees money to it to improve services to Kenyans yet it is unable to do so,” former minister Ochillo Ayacko told Senate.

When the business community add up the cost of electricity, thanks to the charges by IPPs, the cost of doing business in the country goes up.

According to the Ministry of Energy, the country’s peak load capacity is supposed to reach 15,000MW by 2030. To meet this demand, the country must have an installed capacity of 19,200MW.

This will be a challenge because KenGen, the largest power producer in Kenya with a market share of 65 per cent, has an installed capacity of only 1,817.82MW. Whether it can help bridge the gap in the next nine years is up in the air.

One of the problems when it comes to the cost of power is that Kenya has excess installed capacity, which means that consumers pay for power that they hardly consume to keep the IPPs in business.

Whereas KenGen gives Kenya Power 71.7 per cent of all the energy it distributes, its costs proportion only works to 48.3 per cent. On the contrary, the independent power producers, who only supply 26.5 per cent of power, account for 47.6 per cent of the proportion of costs, pointing to a major rip off of power consumers.

In 2004, when Sessional Paper No. 4 was tabled, it was hoped that the unbundling of functions in the electricity sub-sector would guarantee consumers cheap energy.

It not only proposed the setting up of a single energy regulator, but also the establishment of the Geothermal Development Company (GDC) which would sell steam to future IPPs, and KenGen for electricity generation.

The Sessional Paper also proposed the KenGen initial public offer (IPO).

There was also the unbundling of Kenya Power and Lighting Company (KPLC) into a transmission company, Kenya Electricity Transmission Company (Ketraco) – which was 100 per cent state-owned – and Kenya Power to carry out distribution.

Ketraco operates the electricity lines and the power loads that enable it to bring electricity from the power plants to the consumer.

With Kenya Power enjoying a monopoly in power distribution, it enters into contracts with IPPs and KenGen, but has experienced weak financial performance that has hindered its capacity to grow and gain access to lenders.

Bad performance

A study done by the Institute of Economic Affairs (IEA) a few years back concluded that the bad performance of IPPs seems to come from their poor ability of to generate power.

“While most of the IPPs operate thermal power plants, their return to scale is inferior… unlike that of KenGen. This highlights the fact that, unable to attract top energy producers, Kenya has mainly hosted “second-class” power companies that are not among the most efficient at producing.

“Moreover, this may also reflect the numerous hindrances encountered by companies when it comes to doing business in Kenya, such as red tape or corruption,” the IEA stated.

It has also been noted that intense lobbying by large electricity consumers of the agencies in charge of setting the prices has seen them get power at cheaper rates compared to domestic, small commercial and small industrial consumers.

As a result, the small commercial group has been the most profitable for power producers thanks to the design of the tariffs that prevent them from diluting the fixed charge with cheap variable change, according to the IEA report.

There is also the inherent problem of tenderpreneurs who have made Kenya Power the dumping ground for faulty products.

“What nobody is going to say is that KPLC (Kenya Power) is overwhelmed by faulty transformers brought here by tenderpreneurs. They will never tell you. In Makueni County alone, there are 300 failed transformers…” alleged Makueni Senator Mutula Kilonzo Jnr.

It is these cartels that have been procuring some of the equipment that has been made constant supply of electricity impossible.

“We told them not to buy transformers from some rural village in northern India, Pakistan or China. We told them to buy transformers where we used to procure them from, in Germany or Britain, and they can get a 10-year guarantee, and they used to last long,” recalled Ephraim Maina in the Senate.

The fact that Kenya Power was supposed to award tenders to the lowest bidders saw the company go for cheap transformers.

“My committee has offered to write a letter to the National Treasury, if need be, asking that KPLC be given exemption on the issue of this tendering, so that they can procure transformers from the best in the world,” said Mr Maina.

While there has been immense infrastructure development in the power sector over the last 10 years, the energy cost has yet to be tamed.

White elephant

“Kenya Power has become more of a white elephant in this country… The major problem or the elephant in the room is the cartels that embedded themselves in this company.

“Today, even as you want to bring an alternative solution to have enough power for this country to grow, you will not be able to break that cartel. There is a cartel in Kenya Power Company and I want the chairperson to go deeper, not only on the outages of the supply of power, but dig deeper and come up with all the names of cartels within Kenya Power because they are comfortable, you cannot move them,” said Kisumu Senator Fredrick Outa.

By 2018, it had come to the attention of Auditor-General Edward Ouko, that Kenya Power was in the red.

“As at June 30, 2018, the company’s current assets of Sh54,620,181,000 were less than current liabilities of Sh106,257,796,000, resulting in a negative working capital of Sh51,637,615,000,” the Auditor-General noted.

It was also found that the company was in breach of borrowing covenants.

So bad has its collection of debts been that in 2018, it doubled the total cumulative provision for impairment of electricity receivables to Sh8.5 billion from Sh4 billion in 2017. While non-payment by ordinary consumers leads to disconnection, this has not been so with big consumers.

Attempts to investigate corruption within Kenya Power have historically been compromised. Once, in 1995, MP Otieno Kopiyo complained about the way a committee that had been set up to investigate KPLC found itself at the hands of the firm.

“When we were going to Turkwell Gorge, we got two chartered planes from Air Kenya. I was told that this Parliament did not pay for these chartered aircraft.

“They were paid for by the Kenya Power and Lighting Company… whose activities we were going to investigate. So, I found it ethically quite questionable that they should provide chartered aircraft to a committee that was going to investigate them,” said Mr Kopiyo. – nation.africa.com