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