The untold conspiracy sabotaging cheaper electric power for all Kenyans

By / May 7, 2015


President Uhuru Kenyatta’s repeated campaign on Labour Day to expand electricity connections and reduce its cost for Kenyan consumers will have to contend with powerful interests keen on sabotaging any such initiatives.

There have been numerous efforts from the Government to have electricity costs come down, and growing number of Kenyans point out that there has been some modest reduction. To industry analysts however, it’s obvious that Kenyans should be enjoying far cheaper rates than what they currently pay.

While it’s an open secret that Kenyan consumers for years have borne the brunt of one of the highest electricity rates in Africa that ranged from Ksh 17 to Ksh 23, moves to fast track this reduction are hampered by interest groups who for years have continued to reap billions off our current electricity bills.

This high cost of power has made the cost of living and doing business in Kenya non-competitive. Kenya’s poor power supply has been blamed for high cost of living in the country. Its capital city Nairobi was in 2014 regarded as Africa’s most expensive city by the Economist Intelligence Unit.

It is for this reason that many investors have in the last 10 years relocated their manufacturing bases to countries such as South Africa and Egypt in order to reduce the cost of doing business.

On assumption of office in 2013, President Uhuru Kenyatta and his deputy William Ruto projected that the cost of electricity in Kenya would go down by 30% by the end of October 2014 and a further 50% this year.

The Weekly Citizen can authoritatively reveal these efforts will have to contend with a little talked about energy structure that  has over the year given diesel Independent Power Producers – IPPs over 76% of Kenya’s electricity budget every year.

Ironically while for example in the 2013/2014 financial year, the government paid 76% of its electricity budget (almost Kshs 57 billion) to the diesel generating IPPs, these companies produce only 30% of Kenya’s electricity.  The remaining 24% of the government electricity spending pays for 70% of Kenya’s electricity. It is an arrangement a majority of industry analysts describe as outrageous and criminal.

While most analysts believe the Uhuru administration is genuine in seeking to reverse this 30%-70% (generation) Versus 76%-24% (Cost)  ratio, there is doubt whether Jubilee can implement its energy manifesto fast enough as it will antagonize the masters of diesel power generation who are losing money since increasingly they are generating less and less electricity.

Last year’s data show that diesels generation has been coming down while being replaced by Geothermal. But more needs to be done to reduce the overall cost of power by the 50% benchmark that President Kenyatta pledged and Kenyans are demanding.

Geothermal activity in Kenya is abundant, so it makes very good sense to develop more geothermal power here. The question is: why is the journey towards more use of geothermal slow?

“Geothermal is our choice for speeding generation capacity. It only costs US 7c/KWh compared with diesel generation that costs 22c,” KenGen MD Albert Mugo has repeatedly declared in several speeches.

President Uhuru Kenyatta’s statement in 2013 that Kenya will henceforth bank on geothermal, wind, natural gas and other cheaper energy sources to reduce the cost of electricity is said to send shockwaves through the energy cartels fraternity as it put billions of dollars of business at risk for diesel power generation companies.

“Kenya plans to add 5,000 megawatts to its grid by the end of 2016, with geothermal power accounting for almost a third or 1,646 megawatts while wind will load 630 megawatts. The shift will reduce the cost of doing business and make Kenya one of the low-cost countries,” said Uhuru in 2014.

While Kenyans and the business community celebrated this announcement, little did most realize that the beneficiaries of the existing power arrangement would go tooth and nail to scuttle any moves to tap alternative green power.

The conflict is not hard to figure out with hard facts that the Weekly Citizen recently obtained.

It is on record that Kenya has been spending KShs. 44 billion annually on purchase of diesel for power generation alone, and an additional KShs. 13 billion on electricity generation.

Kenya’s over-reliance on hydro-power since independence has been hurt by lower rain levels which over the years have decreased hydro power output. To ease frequent power outages diesel thermal plants for emergency power were introduced. The power they generated cost 3-4 times more than hydro-power resulting in Kenyans paying higher and higher electricity bills.

This scenario became lucrative as newly introduced Independent Power Producer cartels preyed on the expanded demand for electricity to encourage inflated contacts to pay for “emergency power” while neglecting and sabotaging expansion of any alternative sources.

Under the KANU regime the ground was deliberately shifted to favour over-use of diesel for power generation since the people involved in the diesel generation were the same decision makers in the industry.

Between 1997 and 2003, diesel IPPs shielded by powerful KANU power brokers minted billions as hydro power plants were frequently “shut down for maintenance” and while the productivity of hydroelectricity was “officially” described as poor and unreliable due to hydrology occasioned by climate change. The government was “forced” to not only use the expensive diesel generated power, but to also deploy “emergency power”, which is four times more expensive at KShs 35 per kilowatt hour (sometimes as high as KShs 44 pkh) as compared to the average bulk power price at KShs 9.10 per kilowatt hour.

While the original plan by the Ministry of Energy was to employ Medium Speed Diesel Plants for peak load at an average price of KShs 20 per kilowatt hour, these medium speed diesel power plants have continuously operated 30% of the time instead of the normal 13%.

President Mwai Kibaki’s regime set out to stem this alarming and unsustainable escalation in the cost of power, by identifying geothermal power as the solution to Kenya’s energy needs. A World Bank Business Plan development team led by Geothermics (USA) and PWC consultants in 2007 mooted development of a special purpose geothermal company.

In 2009 Geothermal Development Company (GDC) was formed with the sole mandate of accelerating the development of geothermal resources in Kenya. Mr Silas Masinde Simiyu a double PHD holder and Seismology expert who was part of the World Bank consulting team was appointed its first CEO with a mandate to formulate and put in motion a strategic plan.

The strategy to tilt the energy mix in favour of steam and wind energy was based on a study by global consulting firm McKinsey & Co. The report clearly said “geothermal energy, despite carrying a high capital cost, is the cheapest and most sustainable energy option for Kenya”.

The report compared geothermal generating steam power cost of KShs 5.60 per kilowatt hour which is cheaper that the price of hydro-power (KShs 9.10 per kilowatt hour) to the extreme KShs 35 per kilowatt charged by Diesel Thermal IPPs companies.

For several years 5 major diesel IPPs have dominated the industry as sellers of electricity to the government of Kenya. Reducing their stranglehold on electricity has been a painful cat and mouse battle.

The new Jubilee government decided to take the bull by its horns with the UhuRuto team boldly forecasting reduction of punitive electricity bills that are blamed by industry analysts and investors for Kenya’s high cost of living.

The battle lines went several notches higher when President Uhuru’s government in 2014 relentlessly pursued expansion of Geothermal power with clear instructions to energy bureaucrats to reduce diesel generation. This drastically reduced total diesel-generated power dispatched to the national grid from 38% to 10%.

Prior to the formation of GDC, geothermal development pace was deliberately slowed down by the decision makers with a strange “policy” that emphasized drilling steam without conversion to electricity. This led to an accumulation of steam without converting it to power. This wasteful “model” which lasted years was obviously designed to safeguard the billions being earned by diesel generation.

For example, the recently commissioned 280MW geothermal plant took 16 years.  Drilling started in 1998 and lasted until 2014/15 for the 280MW Olkaria power plant to be completed and commissioned.  The 105MW Olkaria Olkaria II Power plant took 23 years from drilling to commissioning while the 45MW Olkaria I power plant took 28 years! Even the recent 110MW Olkaria III IPP power plant took 27 years from commencement of production drilling to the time full 110MW of power got connected to the national grid.

What Kenyans have never known is that this “slow drill to completion” model lasting between 16 to 27 years was deliberate to give an edge and protect the companies selling electricity to the government through diesel generation.

The recent 105MW GDC’s Menengai project has also alarmed the power cartels as it expected to be connected to the national grid in 5 years since drilling started in 2011! This would be a record by any standard in the world.

The Jubilee government’s mission to totally replace the diesel/thermal generation sources is already experiencing hostile resistance from entrenched power cartels.

Three major interests stand in the way to enabling the Jubilee government achieve its cheap electricity initiative.

Diesel IPPs form the major group that would experience drastic loss of a business in which they are estimated to have bagged over KShs 1 trillion shillings in the last 15 years. The leading diesel IPPs consist of Agreco, Tsavo, Ibera Africa, Thika Power and Rabai.

The next group likely to oppose the fight for cheaper power would be little discussed Geothermal Independent Power Producers (IPPs) who won concessions to exploit geothermal energy under Sen Kiraitu Murungi when he was Energy Minister under the Kibaki regime.

What these IPPs perfected was the art of securing geothermal fields for speculative purposes knowing very well that they had neither the capacity nor the intention to develop them.

They would then scout for people to come and invest with the hope of selling off the concessions for a kill.  And being associated with the captains of industry at that time, they believed that their plan was foolproof.

The evidence of this speculation is shown when with concessions in Longonot (AGIL), Akiira ( Marine Power )  and Suswa (Wallam) whose licensee now stands revoked) have not drilled a single well since 2009, and yet nobody seems to take notice or raise eyebrows. On the other hand, GDC that was formed the same time when these concessions were granted has more than 400MW (Steam) in Olkaria being sold to KenGen for the 280MW generation and 135MW (Steam) in Menengai to be converted by IPP’s.

The expanded GDC mandate would threaten moneyed interests if a cabinet paper declaring all geothermal resources to be managed by GDC as the property of the people of Kenya is followed to the letter.

Under the GDC model, GDC drills wells and provides steam to IPPs who convert it into electricity on a pre-determined tariff for 25 years.

Already the first casualty has been the retaking of the Suswa field and hand over to GDC after the WalAm spent 5 years doing nothing on the field.

The current bad publicity and incessant power struggles to control the GDC is widely perceived to emanate from players who would have wanted to get into geothermal sector using the old style. GDC seems to have become a threat to the fortunes that diesel power generators and long term drilling companies have enjoyed over the years. They want to continue drilling without converting steam into electricity to allow their diesel power plants to continue running. This way, they reap from both drilling contracts and diesel based power sales.

The purchase of 7 drilling rigs by GDC – a public entity – is also said to have angered business interests whose private drilling contracts are set to be phased out.  Donors and development partners who have approved GDC’s acquisition of more drills as a cost effective way to fast track exploration are reportedly frustrated at cases of deliberate obstruction through politically instigated maneuvers.

While this “war between elephants” goes on, the proverbial grass is suffering. In last five years alone, the Kenyan economy has lost Kshs. 220 billion on fuel cost charges (FCC) alone, an amount which can be straight away eliminated by going 100 percent geothermal.

These wars have extended to Ketraco, the company charged with “transporting” power by building power lines. Transmission from Olkaria to the coast has remained incomplete for the last three years, due to politically-instigated local community “unrest” over land on which transmission lines were to be constructed. Currently more than 70MW of geothermal power that should be wheeled to Mombasa remains unused at Olkaria denying coastal residents cheaper power.

Ideally, the savings that could accrue courtesy of GDC’s unique and fast tracked geothermal power development model, and the resultant cheaper electricity tariffs, should by now be music to the ears of Kenyans and investors and also a huge boost to the Jubilee manifesto. At the current generation levels, Geothermal has helped reduce the cost of power generation by 57 billion annually.

Energy analysts are clear that Uhuru Kenyatta’s Jubilee government has an uphill task to drastically reduce the influence of these established cartels fronted by the masters of diesel power generation who will lose billions of shillings since expansion of geothermal power will mean they are generating less and less electricity.

During the 2013 inauguration President Kenyatta promised to tackle the high cost of power “Take my word that the cost of goods will come down and this will lead to a lower cost of living for all Kenyans”.

Failing to reign in the greed by “power barons” risks turning the “cheaper electricity” pledge by Jubilee into another dogged laptop fiasco.

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