At the end of September 2021, Kenyan President Uhuru Kenyatta issued a statement on the presidential taskforce appointed to, among other things, review the power purchase agreements (PPAs) entered into between the State-owned offtaker, Kenya Power & Lighting Company (KPLC) and independent power producers.

 

7 February 22

The President’s statement highlighted some key recommendations made by the Taskforce in its report. The recommendations by the Taskforce will have significant ramifications for existing and future independent power producers (IPP) projects in Kenya and potentially on Kenyan private public partnership (PPP) projects beyond the energy sector.

On 7 October 2021, the President appointed a steering committee to be responsible for the implementation of the Taskforce report and recommendations. The steering committee has been granted a tenure of six months.

At the time of the Presidential statement and the appointment of the steering committee, the Taskforce report was not generally available, however, the Taskforce report has since become available in the public domain.

One notable recommendation in the Taskforce report is that PPAs should be reviewed and re-negotiated with a view to lowering the tariffs charged by the IPPs to KPLC. The Taskforce has in its report set out its recommendations as to how the re-negotiation of PPAs for different projects would be approached, based on the current status of implementation of these projects.

In this alert, we summarise the Taskforce’s proposed approach to the re-negotiation of PPAs for various types of projects.

 

Status of IPP Project Taskforce Recommendation
1. In operation
  • For those Heavy Fuel Oil (HFO) thermal plants which the Taskforce considers to be in material breach of the terms of their PPAs, the Taskforce has recommended that KPLC renegotiate or terminate the PPAs within four (4) months.
  • For the wind IPPs, the Taskforce has recommended that KPLC re-negotiates the tariffs downwards using the State-owned power generator KenGen’s pricing as a benchmark for such IPP tariff re-negotiation.
  • For geothermal IPPs, the Taskforce has recommended that KPLC renegotiates the tariff downwards to the KenGen pricing benchmark, including through a refinancing of the capital structure (interest coupon and tenor) taking advantage of the maturity of the plants.
2. Signed and effective PPAs, plant under construction
  • KPLC to re-negotiate PPA tariffs for plants whose tariffs were approved under the Feed in Tariff (FiT) Policy 2012 or earlier FiT policies, with an aim to reducing the tariffs under such PPAs to reflect certain tariffs reductions (below the 2012 FiT tariff) that were achieved by KPLC in negotiation with other IPPs following guidance from the Energy Regulatory Commission (now the Energy and Petroleum Regulatory Authority) and the Ministry of Energy.
3. Signed and effective PPAs, but construction of the plant has not started
  • Subject to the demand forecast, KPLC to negotiate a 12-to-24-month delay of commercial operation dates.
4. Signed PPAs, but not effective (that is, conditions precedent not yet fulfilled)
  • Subject to the demand forecast, KPLC to negotiate a 12-to-24-month delay of commercial operation dates.
5. Signed and effective PPAs, construction complete, but PPA has lapsed or there is a default by the IPP KPLC to either:

  • negotiate new commercial operation dates, if the capacity is required by KPLC based on its demand forecast; or
  • terminate the PPAs if the capacity is not required by KPLC.
6. Unsigned PPAs.

 

  • KPLC to refer unsigned PPAs to the proposed new Feed-in-Tariff (2021) and reverse auction power procurement.

 

This alert is part of our ongoing series on recent developments in the Kenyan power sector. Click the links below to read more.
  1. Legal Alert | The Presidential Task Force on the Review of Power Purchase Agreements
  2. Legal Alert | Are Power Purchase Agreements Set for Renegotiation?

 


Should you have any questions regarding the information in this legal alert, please do not hesitate to contact Amyn Mussa.

 

 

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