Energy Ministry to force IPPs into tariff cut negotiations

The Ministry of Energy is set to force independent power producers (IPPs) into tariff negotiations which are meant at lowering the cost base to utility Kenya Power.

The move represents a change in tact by the Ministry which has until now relied on ‘good faith’ negotiations with the power producers.

“I must stress that while good faith negotiations remain our preferred modus operandi, we are also determined to obtain appropriate redress where egregious acts injurious to Kenya were perpetrated during the awarding of power producing agreements (PPAs),” Energy Cabinet Secretary Monica Juma said on Friday.

The pronouncement by the Ministry implies that the government is likely to drag the independent producers to the discussion table by digging into the award of the power deals.

This is likely to lead to a confrontation between the government and IPPs in a scenario where producers are found to have taken advantage of deals signed to end in a lopsided engagement.

The forced negotiations come as the Ministry makes slow strides in striking deals with the independent producers to lower tariffs.

On Friday, the Ministry of Energy revealed three IPPs operating in the variable renewable energy space had signed up to lower tariffs.

Ministry officials could not however reveal the identity of the three producers as they avoid spooking IPPs financiers, a majority of whom are shared among producers.

Four other larger IPPs have also proposed short and medium-term tariff reduction solutions as part of the ongoing negotiations.

Hopes of a second round of 15 per cent trim in consumer electricity tariffs however appear doomed at least in the medium term as the Energy Ministry cites disruptions by dynamics ‘beyond’ its scope.

Negotiations with IPPs had been initially expected to yield in a 15 per cent consumer tariff cut by the end of June.

This to add to an initial 15 per cent tariff cut from a reduction in commercial and technical losses by Kenya Power.

Over the long-term however, Energy CS Monica Juma has assured Kenyans of reduced electricity prices as an outcome of ongoing reforms.

“As we continue to negotiate for lower costs (for Kenya Power), that will transmit into an automatic reduction in electricity prices. Kenyans should expect that there will be a reduction in tariffs going forward,” she added.

“It’s not just the tariffs, the introduction of technology and innovation enabling consumers to select and be in control of the choices they make and the amount of energy one takes up, puts the power in one’s hand to lower their own tariff.”

Despite the botched second consumer tariff review, CS Juma has taken pride in the retention of electricity prices/tariffs at 15 per cent below the pre-reforms era as a key achievement for the Ministry.

Electricity prices in the country have held unchanged since January when the government affected the 15 per cent slash to consumer tariffs.

“Globally, everyone has been seeing an increase in their tariff, but we have not,” CS Juma stated.

The ongoing negotiations with IPPs are also expected to rope in KenGen which represents Kenya Power’s largest source of electricity.