The Presidential Taskforce on Review of Power Purchase Agreements (“ PPA Taskforce ”), constituted in to address concerns about the high cost of electricity, has recently presented its report to the President of Kenya with its recommendations. Although the full report has not been published, we understand from the State House Press Release the main recommendations of the PPA Taskforce to be: review and renegotiation of existing power purchase agreements (“ PPAs ”);
immediate cancellation of all ongoing but un-concluded PPA negotiations;
reforms at the Kenya Power and Lighting Company (“ KPLC ”);
KPLC to take the lead in formulation and related PPA procurement of Kenya’s Least Cost Power Development Plan;
institution of contract management and due diligence frameworks on Independent Power Producers (“ IPPs ”) and PPAs;
adoption of standardised PPAs and government letters of support;
forensic audit on the procurement and systemic losses arising from the use of heavy fuel oil (thermal plants); and
Inclusion within KPLC’s annual reports of the names and beneficial ownership of all IPPs with whom KPLC has contractual arrangements.
We understand from the State House Press Release that the main aim of these recommendations is to reduce the cost of electricity in Kenya by over 33% within four months.
These recommendations have been received with mixed reactions by various energy sector stakeholders. However, in the wake of the recent challenges faced by the electricity sub-sector (including the declaration of force majeure on some PPA’s by KPLC during the COVID-19 pandemic), many existing IPPs have expressed their willingness to sit at the renegotiation table with a view to negotiating a viable and sustainable PPA business model.
It remains to be seen whether the PPA renegotiations can be undertaken within the four-month period recommended by the PPA Taskforce, keeping in mind all the competing interests of the general public, government, political actors, investors, sponsors, developers, lenders, shareholders, guarantors and other interested actors. It appears that such renegotiations may result in reduced tariffs in return for an extended PPA term.Notably during the tenure of the PPA Taskforce, a moratorium was placed on “all PPAs not concluded as at [29 March 2021] including any related letters of support and legal opinions pending issuance by the Attorney General and the renewal of all PPA’s not concluded as at [29 March 2021]” . It is not surprising that one of the recommendations of the PPA Taskforce is the immediate cancellation […]