No contract is immutable; Kenya tells World Bank-backed IPPs

January 22, 2022 Newsroom

Kenya’s Energy Minister Monica Juma has said there are clauses in the contract with independent power producers (IPPs) that allow the government to renegotiate terms.

The CS said every contract has exit clauses and in as much as Kenya respects international commitments, it has a duty to its citizens and will use the clauses to negotiate for cheaper power.

Amb. Juma was speaking in Nairobi where she said the IPPs have been collaborative in back-end meetings as they seek avenues to reduce costs passed on to consumers that make energy expensive.

She said the government will tackle each IPP contractor separately to rework their contracts.

President Uhuru Kenyatta hopes to negotiate theState’s way out of the expensive power purchase agreements to deliver the second tranche of a 15 percent cut in electricity prices by March.

An analysis by the auditor general revealed Kenya Power was buying 1-kilowatt-hour unit from independent power producers (IPPs) for as high as Kes195 and was only able to sell the same power at Kes15.66.

The Kenya Generating Company (KeGen) supplies 70 percent of Kenya’s electricity at Kes5.3 however the IPPs, who supply only 30 percent of the energy, were making more money than Kengen.

Kengen earned Kes44.8 billion in the year ended June 2021 while IPPs made Kes56.3 billion in the same period as a result of their expensive charges.

The government has limited options to force the IPPs, who are owned by powerful institutions such as the World Bank.

Late last year IPPs opposed the reduction, arguing that Kenya has no unilateral right to alter the contracted capacity and payments, saying instead that the State has a duty to protect PPAs — which are inked over a period of 20 years.

They say they spent billions of shillings in building power plants through a combination of debt and shareholder funds that were sourced on the strength of the PPAs or wholesale electricity tariffs.

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