Kenya Power has a less-than-logical reason for paying millions of dollars to a government agency for a controversial power plant
Recent revelations from the Rural Electrification and Renewable Energy Corporation (Rerec) that it sells power to Kenya Power (KP) in dollars left senators and the public in utter disbelief. Rerec CEO Peter Mbugua told a Senate Committee the agency sells 54.65 megawatts of power generated by Garissa Solar Power Plant to Kenya Power in dollars.
Mbugua said the company will continue charging KP Sh7.4 ($5.09 cents) per kilowatt-hour for the next 20 years, explaining that the electricity company owes them Sh600 million in 14 outstanding invoices after they began charging KP in November 2018.
“We are billing Kenya Power because the plant is still our asset, and the money we get is used to pay KenGen for operating and maintaining the power plant and to offset the loan taken to put up the power plant,” Mbugua said.
Mbugua further claimed that unless KP decides to alter its tariffs, invoicing the Utility company in dollars has no impact on the price of electricity. Additionally, the Rerec boss maintained that the transaction between Rerec and KP was haggled in greenbacks due to the currency’s simple conversion.
He added that they paid KenGen an annual fee of roughly Sh200 million to manage the station and handed over the plant’s operation and maintenance to KenGen in 2021. However, Rerec still manages the assets.
After a House Committee sought inquiries into Rerec about the 54.6 Megawatts (MW) Garissa solar power plant project financed by a Chinese loan, the Ministry of Energy came under scrutiny in 2022. It emerged that REREC borrowed Sh13.5 billion in 2018–19 to build the Garissa Power Plant, whose life expectancy is 25 years compared to a loan repayment period of 15 years.
The Parliamentary Committee determined that the project may only bring in a maximum of Sh500 million annually, signaling that after 15 years of loan payback, REREC will have paid only Sh7.5 billion, indicating that it may not fully repay the loan.
Paying Rerec in dollars by KP exposes the utility business to exchange rate volatility, a cost that is then passed on to consumers. For instance, KP will have to spend more shillings to purchase the same number of dollars if the dollar’s value rises against the shilling. The price of electricity for consumers will rise as a result.
What is more, KP finds it more challenging to budget for its electrical bills when paying in dollars. This is because the corporation cannot foresee how much it will need to spend on electricity in the future. Making wise financial decisions may be challenging for Kenya Power due to this uncertainty.
Finally, using dollars increases KP’s susceptibility to outside shocks. For instance, the dollar’s value might drop if there is a financial crisis in the US, causing KP’s cost of purchasing dollars to rise as a result.
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