Why MPs' report on long-awaited cheaper electricity will delay
A parliamentary committee probing the high cost of electricity has encountered hurdles in its quest to produce a watertight report that could save consumers.
A parliamentary committee probing the high cost of electricity has encountered hurdles in its quest to produce a watertight report that could save consumers, sources have told the Sunday Nation.
The report that was expected to be ready by mid this month, is now likely to be delayed as the committee ties the loose ends that could end up making their efforts useless.
Threats of a legal battle with the Independent Power Producers (IPPs), alleged sabotage by powerful industry players, lack of exit and re-negotiation clauses on the Power Purchase Agreements (PPAs) coupled with the involvement of highly placed individuals in the Executive in the sector are among the factors posing a headache to the panel.
Sources said the committee has internally expressed concern that should they terminate the contracts of the IPPs midway, the power producers are likely to go to court to mount a legal battle and sabotage the entire process.
Since the government still has no infrastructure in place to produce enough power for the country, the concern in the committee is that the IPPs could deliberately plunge the country into frequent blackouts during the court battle.
The Auditor General, Nancy Gathungu, in her presentation to the committee said the PPAs the government signed with the IPPs have no exit clause and revision depends on the goodwill of the power producers.
The committee has since invited Attorney General, Justin Muturi, to advise on the legal implications of ending the contracts midway.
National Treasury Cabinet Secretary Njuguna Ndung’u is also expected before the committee to give the financial implication on what it will cost the taxpayers if the contracts are allowed to run up to 2032 and if they are terminated at the moment.
On the other hand, Energy and Petroleum CS Davies Chirchir will give the committee a timeframe which the government will need to put infrastructure in place in case the contracts are terminated after three years.
While appearing before the committee on Friday over a recent nationwide blackout, Mr Chirchir said it takes between six to seven years to set up a geothermal plant, a revelation that put the committee in a fix, since in its draft report, it had proposed to end the IPPs contract in three years a duration the MPs said is enough to put in infrastructure to plug in the deficit that will be left by the IPPs.
On the payment of IPPs in Kenyan currency as opposed to US dollars as is the case in the current PPAs, the committee has recommended a Bill so as to anchor it in law. However, this will only address future PPAs and not the ongoing ones.
The IPPs had opposed the proposal to be paid in local currency saying they secured loans with international banks when they were putting up their power plants hence cannot change repayment of loans mid-contract.
To address this, sources say the committee has proposed a cap of megawatts that an IPP contracted to produce power should secure loans with banks locally.
“Our banks now have the capacity to give out some of these loans and therefore we are saying they must secure loans locally so that we pay in shillings,” said a member of the committee.
The committee has also proposed the standardisation of Heavy Fuel Oil (HFO) imported by IPPs which is used in power generation so that the cost passed to consumers on fuel charge is the same across all the IPPs.
Currently, different IPPs buy HFO in different places at different prices, a cost they pass to Kenya Power when selling them power and the power utility in turn passes it to consumers.
MPs want the National Treasury to either scrap the taxes levied on HFO imported by IPPs or reduce it at a rate they will agree on during the meeting. The committee argues that the move is necessary since parliament during consideration of the Finance Act had already doubled the Value Added Tax (VAT) rate on petroleum products to 16 from eight percent.
A report tabled in parliament by Auditor General Nancy Gathungu on IPPs and the procurement of heavy fuel oil revealed that consumers have been overbilled due to malpractices in the procurement of heavy fuel oil which IPPs use to generate power.
Two individuals linked to powerful persons in the executive have also been found by the committee to be owners of two IPPs hence the committee’s fear on how to move since the report is likely not to see the light of the day in the House should they make any drastic recommendations on the two people.
The committee is also mulling at stripping Energy and Petroleum Regulatory Authority (Epra) power of approving PPAs and instead forming an independent body that specifically handles IPPs. This the MPs say will solve the conflict of interest of some individuals in the Energy sector that also own IPPs hence negotiate for skewed contracts that end up hurting consumers.
This however will call for the amendment of the Energy Act a move that could take time hence delaying the reduction of cost of power.
In order to actualise the proposal of IPPs selling power directly, the committee in its proposal wants Epra publish regulations in three to operationalise the Energy Act passed in 2009
The committee has also unanimously agreed that all future PPAs will have to be approved by parliament to ensure that they are not skewed.
