Kenya is set to adopt local currency tariff power purchase agreements in a bid to lower electricity cost to consumers, a government official said on Tuesday.

Joseph Njoroge, Principal Secretary in the Ministry of Energy, told a media briefing in Nairobi that the bulk of financing into the power sector is in hard currency, primarily in U.S. dollars and thus most power purchase agreements are not in local currency.


“We are targeting to have the first local currency power purchase agreement to be approved by May 2019,” Njoroge said.

According to the Ministry of Energy, Kenya has 80 power purchase agreements between independent power producers and state owned power distributor Kenya Power.

Njoroge noted that the economic benefits of using local currency denominated power purchase agreements outweighs the costs and so Kenya will ensure that going forward, all new power projects of less than 10 megawatts will use local currency tariffs.

He added that power plans of between 10 MW and 40 MW will use a hybrid of local and foreign currency while those power plants greater than 40 MW will use foreign currency until Kenya develops capacity to mobilize domestic funding for mega power projects.

Njoroge said that as a result of adopting foreign currency denominated power purchase agreements, consumers have paid collectively an additional 200 million dollars in the past 15 years on their electricity bills.

He noted that hard currency power purchase agreements are costly to electricity consumers because they place the foreign exchange risk in the hands of Kenya Power, which receives revenues in Kenyan shillings and therefore passes on the additional cost to consumers by way of foreign exchange currency adjustment on their monthly electricity bills.

Njoroge said the cost of electricity production in Kenya is above most countries due to a combination of factors including use of foreign currency to undertake power projects.

He added that the average tariff for electricity consumers stands at 0.13 U.S. dollars per kilowatt hour but with operationalization of local currency power tariffs, the figure will drop to ten cents per kilowatt hour.

Pavel Oimeke, the Director General of the Energy Regulatory Commission (ERC) said that financiers have expressed interest in developing an additional 4,000 MW of power.

Oimeke noted that developers of electricity power plants who are going to use local currency will be given preference over those using hard currency.

He noted that while foreign currency denominated tariff agreements are currently the norm across Sub-Saharan Africa, most advanced economies use local currency.

Oimeke revealed that the use of foreign currency to fund power plants made economic sense in the past but the growth of capital markets has made use of local currency a viable option.

Geoffrey Gangla, the Chairman of the Alternative Investment Committee, Fund Managers Association, said the use of local currency tariff power purchase agreements has numerous benefits to the economy.

Gangla said a local currency regime to fund power projects will lead to an increase of domestic investor participation in the energy sector that is currently dominated by foreign capital.

He noted that a recent study indicates that the maximum pool of available local currency for power projects from insurance, pensions and commercial banks over the next ten years is estimated to be approximately 44 billion dollars.

According to Gangla, in order to ensure a smooth transition to use of local currency power tariffs, Kenya Power should offer to purchase electricity at a high cost to early adaptors in order to encourage uptake of use of local currency to fund power projects. Enditem


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