MPs to investigate Kenya Power over inflated electricity cost

Kenya Power is once again on the spot over inflated electric power costs it buys from Independent Power Producers (IPPs) as MPs launch investigations into the firm’s “opaque” operations.

The investigations will be undertaken by the Energy Committee of the National Assembly as directed by Speaker Muturi’s directive following an intervention by Garissa Township Aden Duale.

“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,” Mr Duale says. 

Mr Duale says that it does not make sense for the company to continue buying expensive power from IPPs.

Data in parliament shows that Kenya Power procures electric power from IPPs at an inflated rate of Sh23 per kilowatt hour.

 This is notwithstanding that Kenya Power can easily obtain the same power from Kenya Electricity Generating Company (KenGen) at Sh0.50 per kilowatt hour.

 What is interesting is that the IPPs buy electricity from KenGen at about Sh0.50 per kilowatt hour before offloading it to Kenya Power at the inflated rate.

This is in view of the fact that Kenya Power can still get the same power directly from KenGen, a state agency, at a cheaper rate.

The inflated power costs, according to Mr Duale, are then passed on to the consumers, making Kenya’s products expensive and therefore not competitive in the market.

“Why can’t Kenya Power buy from KenGen directly? The two are state corporations funded by the taxpayer and audited by the Office of the Auditor-General. This does not make sense to the country’s economy,” says Mr Duale.

“The basis for the huge difference between the rate charged by KenGen and that charged by IPPS must be explained. Why would the IPPs make humongous profits while the government complains of depressed revenue?” he says.

The probe comes after President Uhuru Kenyatta appointed a 16-member task force to review the country’s sole power distribution company’s Power Purchase Agreements (PPA) with the IPPs.

Already Auditor-General Nancy Gathungu has said that Kenya Power is technically insolvent and requires financial bailout from the national government to stay afloat.

Ms Gathungu, in the audit report as at June 30, 2020, tabled in the National Assembly, notes that the company recorded a loss before tax of Sh7.04 billion during the period under review with a marginal profit before tax of Sh333.6 million.

The situation at the power firm is made worse by the fact that its liabilities of Sh117.5 billion far much outweigh its current assets of Sh42.63 billion by Sh74.85 billion.

Nakuru Town East MP David Gikaria, who chairs the Energy Committee promised to get to the bottom of the issues affecting the country’s power distribution company.

“It is our mandate to ensure that the shady dealings at Kenya Power come to an end,” Mr Gikaria said.

“You cannot load over expensive power to the economy and expect it to grow. It is not possible,” he added.

To get to the bottom of these inflated electric power costs, Mr Duale wants the Energy Ministry to provide details on the rate KenGen supplies electric power to IPPs.

The rate at which the country’s power distributor buys from IPPs is also required.

Mr Duale further wants the Energy ministry to provide a list of all IPPs including their stakeholders, directors and addresses to the committee.

The amount paid to each of the IPPs by Kenya Power and the Ministry of Energy since commencement of their respective contracts is also required.

The government is also required to explain measures taken to reduce the cost of electricity to households, businesses, factories and other consumers with a view to supporting President Kenyatta’s big four agenda of enhancing manufacturing. 

The audit report further notes that the Power Purchase Agreements (PAA) with power producers, which account to 54 percent of the total cost of sales are significant to the financial woes bedeviling the company.

 This is considering their fixed nature and may have adversely affected the company’s performance resulting in the huge losses.

The company’s financial statements reflect the cost of sales of Sh87.5 billion with Sh47.5 billion in power purchase costs, which relates to capacity charge as per PAAs.

“Until these strategies are implemented, the company will continue bearing the high fixed capacity charges,” the audit report signed by Ms Gathungu says.

Mr Duale notes that sustainable industrialization of any country is dependent upon regular and reliable access to sufficient and affordable sources of energy, the critical drivers of manufacturing, transport and other key sectors of the economy. 

The 2017/18 report from the Office of the Auditor-General further casts a gloomy picture on the accounts of the Kenya Power.

The report before parliament reveals that the country’s sole power distributor risks losing Sh2 billion in interest and penalties for failing to declare unclaimed assets in its books to the Unclaimed Financial Assets Authority (UFAA).

The audit report discloses that as at June 30, 2018, the state corporation held in its books financial assets worth about Sh3 billion- Sh1, 728,504,000 in 2018 and Sh1, 163,739,000 in 2017.

These assets ought to have been reported and surrendered to the authority in line with the UFAA Act.

The assets held by the state corporation include customer refunds, unidentified receipts, way leaves compensation, uncollected dividends and stale cheques among others.