A Presentation by:

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PUBLIC PRIVATE PARTNERSHIPS IN THE POWER SECTOR
IN KENYA

• A Presentation by
• Laurencia K. Njagi,
• Company Secretary
• Kenya Power Lighting
• Company Ltd
• To the Law, Justice and Development Week 2012

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INTRODUCTION

• Comprehensive reforms implemented between 1993
  and 2000 in accordance with the Energy Sector
  Policy Framework Papers 1993-1995 and 1996-1998 .
• Objectives of the reforms were to enhance
  operational efficiency and attract private sector
  investment in power generation.

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INTRODUCTION

• The private sector participation would
• (i) Create competition in the generation
  function
• (ii) Improve operational efficiency and
• (iii) Complement GoKs investment which could be
  used in other sectors not attractive to private
  sector.

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SUMMARY OF IMPLEMENTED REFORMS

• Separation of commercial functions from policy
  setting, and regulatory functions.
• This involved transfer of power assets owned by
  government and two regional development
  authorities to two main public companies i.e. the
  Kenya Power Lighting Company Ltd. (transmission
  assets) and Kenya Power Company Ltd., now KenGen
  (generation assets).

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SUMMARY OF IMPLEMENTED REFORMS

• Unbundling of generation function from
  transmission and distribution functions.
• KenGen undertaking generation function and KPLC
  undertaking transmission and distribution
  functions.
• KPLC and KenGen were required to operate on a
  commercial basis under a Power Purchase Agreement
  which was first entered into in 1999.

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SUMMARY OF IMPLEMENTED REFORMS

• Legislative reform through the enactment of the
  Electric Power Act, 1997.
• Establishment of a power sector regulator in
  1997 the Electricity Regulatory Board with the
  mandate to set retail tariffs, approve negotiated
  PPAs between KPLC and generating companies and
  overall regulation of the sector.

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SUMMARY OF IMPLEMENTED REFORMS

• The Electric Power Act, 1997 was repealed in 2006
  and replaced with Energy Act -to consolidate
  electricity and petroleum regulation into one
  regulator.
• Development of power generation projects on the
  basis of approved national least cost investment
  plan.
• Cost reflective electricity tariffs.

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PPP Projects in Energy Sector
No. Plant Capacity (MW) Type FCOD /Status Procurement Method
1. IberAfrica 106 Thermal 1997 Open competition on first 56MW, then extension in 2007
2. Tsavo Kipevu II 74 Thermal 2001 Open Competition
3. OrPower 4 100 Geothermal 2000 Open Competition for phase 1 later expansion
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PPP Projects in Energy Sector
No Plant Contracted Capacity (MW) Technology Full Commercial Operation Date/Status Procurement Method
4 Rabai 90 Thermal 2009 Open Competition
5 Mumias 25 Bagasse 2008 Co-Generation
6 Thika 87 Thermal 2013 Open Competition
7 Triumph 83 Thermal 2013 Open Competition
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PPP Projects in Energy Sector
No. Plant Contracted Capacity (MW) Technology Full Commercial Operation Date/Status Procurement Method
8 Gulf Athi River 80 Thermal 2014 Open Competition
9 Aerolus Kinangop 60 Wind 2014 Feed In Tariffs
10 AGIL Longonot 140 Geothermal 2014 Unsolicited Proposal
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PPP Projects in Energy Sector

• Other 4 mini hydro projects under feed in tariff.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(i) Least Cost Power Development Plan

• Kenya has a 20 year Least Cost Power Development
  Plan for transmission and generation systems that
  is updated annually.
• The Government and KenGen agree on the projects
  to be developed by KenGen based on its financial
  and technical capacity.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(i) Least Cost Power Development Plan

• KPLC procures private investors to develop plants
  not being developed by KenGen.
• Most of the geothermal and hydro projects are
  implemented by KenGen due to low IPP bidders
  interest.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(i) Least Cost Power Development Plan

• In order to remove the risk of geothermal steam,
  a fully state-owned geothermal company has been
  established to carry out geothermal exploration
  and development and to sell steam to private
  developers and KenGen for conversion to
  electricity.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(ii) Bridging Capacity Gap

• In the event of delays in the implementation of a
  committed project in the LCPDP, a decision is
  made to procure development of a power plant of a
  technology which can be implemented in a short
  period by private investors to bridge the
  capacity gap.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(ii) Bridging Capacity Gap

• This has been the case for a number of thermal
  projects.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(iii) Feed In Tariffs For Renewable Energy

• Kenya has a Feed In Tariff with set energy charge
  rates for various renewable energy sources to
  encourage their development.
• Proposals from interested developers are analyzed
  and approved if found adequate by a Standing
  Committee under the Ministry of Energy.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(iii) Feed In Tariffs For Renewable Energy

• PPA negotiations are carried out between the
  private investors and KPLC.

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CRITERIA FOR PROJECT DEVELOPMENT ON A PPP
BASIS(iv) Unsolicited Proposals

• Some projects have been awarded for development
  as PPPs following unsolicited proposals.
• Mostly in technologies like geothermal and wind
  which are difficult to subject to competitive
  bidding without investing first to ascertain the
  natural resource potential.

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LOCATION OF THE PLANT

• A decision on the siting of the project is made
  based on the location of the natural resource
  (hydro, geothermal and wind), the proximity to
  the load centre and transmission and distribution
  connection facilities.

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PROCUREMENT PROCESS AND APPROVAL

• Kenya has a Public Procurement and Disposal Act,
  2006, that governs procurement by government and
  state corporations.
• Competitive bidding is the normal method of
  procurement.
• The Act provides for a review mechanism of
  appeals from bidders who are dissatisfied with
  the procurement/evaluation outcome.

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PROCUREMENT PROCESS AND APPROVAL

• The Public Private Partnerships Regulations made
  under the Act provide specialized procedures for
  procurement and approvals of PPP projects and
  sets out a PPP Secretariat under the Ministry of
  Finance.
• A PPP Bill is before parliament as a stand alone
  legislation for PPPs.

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PROCUREMENT PROCESS AND APPROVAL

• The negotiated PPAs are subject to approval by
  the sector regulator, the Energy Regulatory
  Commission.

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IPP PRICES

• The prices payable to IPPs in the PPAs are
  derived from competitive bidding process.
• For the Feed In Tariff Policy projects, the rates
  are set by Feed In Tariff Policy.

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IPP PRICES

• The prices for unsolicited proposals are
  negotiated i.e. project costs, cost of funding
  are screened including the rate of return to be
  allowed and are, where applicable, compared with
  those of existing projects.

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IPP PRICES

• The rate of return is guided by ERCs Tariff
  Policy which had followed a study.

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RISKS THAT KPLC AND GOK HAVE TAKEN

• KPLC has taken the market/demand risk -PPAs are
  on a take or pay basis this arrangement will be
  reviewed as the market becomes competitive.
• The forex risk is borne by electricity consumers.
  Payments are denominated in either dollars or
  Euros. The variations are passed through to
  customers.

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RISKS THAT KPLC AND GOK HAVE TAKEN

• Political risks are borne by GOK through a
  legally binding letter of support issued to the
  projects.

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PAYMENT SECURITIES PROVIDED

• The payment security provided to IPPs by KPLC has
  usually been stand by letters of credit from
  commercial banks in Kenya covering 3 4 months
  of payments
• In view of planned increased IPP participation,
  KPLC requested GOK to support the sector by
  providing sovereign guarantees to IPPs.

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PAYMENT SECURITIES PROVIDED

• In order to manage contingent liability, GOK
  requested IDA to provide partial risk guarantee
  to four projects (87MW Thika), (83MW Triumph),
  80MW Gulf) and 52MW geothermal extension) thus
  dispensing with sovereign guarantees.

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FACTORS THAT HAVE CONTRIBUTED TO SUCCESSFUL PPPS
IN POWER SECTOR

• An enabling environment -National Energy Policy
  and Energy Act, 2006.
• Both recognise need for cost reflective retail
  tariffs and IPP charges that should, among
  others, enable the investors to attract capital
  and compensate them for the risks assumed.

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FACTORS THAT HAVE CONTRIBUTED TO SUCCESSFUL PPPS
IN POWER SECTOR

• A mature regulatory framework ERC was created
  in 1997 and has been approving PPAs and setting
  retail tariffs.
• Capacity of KPLC to procure, negotiate, and
  monitor IPPs.

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FACTORS THAT HAVE CONTRIBUTED TO SUCCESSFUL PPPs
IN POWER SECTOR

• Financial stability of KPLC as the off-taker.
• Sound governance of KPLC and energy sector
  leadership.
• Structured competitive procurement process of
  PPPs.

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THE END THANK YOU