Thermal independent power producers (IPPs) will no longer be required to hold minimum stocks of heavy fuel oil (HFO), freeing up millions of dollars in working capital, if a proposal by a committee of Parliament is adopted.
The IPPs are currently required to have a set quantity of fuel a hand at all times to ensure that they can sufficiently generate and supply power to the grid at a moment’s notice.
But the National Assembly’s Departmental Committee on Energy wants this requirement to be reviewed by the Energy and Petroleum Regulatory Authority (Epra).
IPPs currently spend millions of dollars of their working capital to purchase fuel to meet the requirements. The committee argues that removing this requirement will allow IPPs to free up working capital for other needs.
The committee, which is chaired by Mwala MP Vincent Musyoka, has, however, directed that these benefits that IPPs stand to gain from the review should be passed on to consumers. It made the recommendation following an inquiry into the high cost of electricity in the country.
The committee also wants the energy regulator to review the minimum amount of electricity that the thermal IPPs supply. Kenya Power is currently required to purchase a fixed minimum amount of electricity from these IPPs, whether the power is needed or not, under the take-or-pay model.
“That, within nine months upon the adoption of this report, Kenya Power, in conjunction with Epra, review the minimum stock contractual obligation of HFOs under the thermal power plants as well as the minimum dispatch allowable for the plants to meet the manufacturer’s requirements,” said the committee in a report received by Parliament on November 25, 2024.
“Arising from this, the benefits in terms of the release of working capital to be passed on to consumers by potentially lowering capacity charges, while Epra regularly monitors stock levels at the IPPs through ensuring the installation of smart, tamper-proof fuel consumption meters to monitor utilisation on an ongoing basis.”
If the proposal by the MPs is adopted by the House, it will mark the first time that the thermal IPPs will enjoy this benefit in three years.
In April 2016, Epra’s predecessor, the Energy Regulatory Commission (ERC), exempted these IPPs from the minimum stock requirement due to low dispatch levels of thermal power. This perk was enjoyed by Gulf Power, Triumph Power, Thika Power and Iberafrica Power.
State-owned KenGen, which operates a number of thermal plants, was not granted the exemption.
However, Epra revoked this exemption in December 2021 following recommendation by the Presidential Taskforce on the Review of Power Purchase Agreements, which was formed by former President Uhuru Kenyatta in March 2021.
A subsequent forensic audit report by Auditor-General Nancy Gathungu found that during the four-year period when the IPPs were given the exemption, it saved them $8,313,258.68 (Sh1.07 billion) in working capital.
“From our assessment, the gazette notice released working capital requirements of $8,313,258.68 for four IPPs. This did not include interest charges that the IPPs would have incurred. However, this benefit was not passed on to consumers,” said Ms Gathungu in her verdict.
