How corruption keeps power bills high, hurt households

Kenya’s electricity sector is under fresh scrutiny over high cost of power that is now being blamed on corruption with the impact of crippling sectors critical to the economy and stunting growth and employment creation.

The World Bank, in a new report, indicted the sector, noting that it is characterised by numerous cases of bribery that have yielded costly power purchase agreements (PPAs) but is also characterised by opaque procurement and conflicts of interest, which are among the factors that have resulted in sustained high electricity costs.

In the Kenya Economic Update published last week, the World Bank highlighted how non-competitive PPAs, secretive ownership of Independent Power Producers (IPPs) and government officials seemingly holding interests in some of the IPPs they are supposed to oversee have dented the credibility of the sector and at the same time handed households and manufacturers ever-rising tariffs.

The scathing review by the Bretton Woods institution is not the first and mirrors reports undertaken by different entities, including a Presidential task force and the National Assembly, all recommending major reforms that, however, are not implemented.

In the few instances where some of the recommendations were implemented, including a 30 per cent reduction in power bills in 2022, these have been reversed shortly after.

“High power costs have remained a persistent challenge. Kenya’s power is costly compared to structural and aspirational peers,” said the World Bank in reference to the Asian tigers whose growth trajectory Kenya seeks to emulate. It also compares poorly compared to what are perceived as less resourced neighbours.

“Power costs are more than double those in Viet Nam and other Asian countries and close to 50 per cent higher than those in Uganda for business users.”

It observed that while Kenya has succeeded in connecting 75 per cent of Kenyans to electricity and is on target to achieve universal access by 2030 ahead of many countries in Africa, Kenya has failed to make this power affordable for Kenyans.

The World Bank attributes this to rampant corruption in the power sector, with high costs impacting “most other industries and especially manufacturing—that is, an engine of growth and jobs that Kenya has been keen to ‘rev up’.”

“Opaque and rent-generating power purchase agreements, stemming from governance weaknesses in the procurement of electricity from private providers, have contributed to high costs in the electricity sector.”

“Governance challenges in the power sector have major repercussions for Kenya’s overall economy. The high cost of power has been a long-standing complaint by struggling manufacturers. While Kenya’s manufacturing sector mainly exports within the EAC region, power costs are substantially higher.”

The World Bank noted that current-day PPAs mirror past agreements signed in the late 1990s when Kenya was onboarding emergency power.

At the time, Kenya was experiencing huge shortfalls in power production due to poor weather when it was highly dependent on hydro power.

Emergency power plants, which burn costly heavy fuel oil to produce electricity, were designed to reduce instances of power rationing at a time when the country was desperate for electricity.

Despite the country having improved power production by diversifying from the weather-prone hydro to geothermal as the anchor power source, the World Bank noted that power sector authorities have continued to procure IPPs through the emergency-style processes, exposing the economy to high costs of power.

“Early PPAs were issued in response to declining hydropower due to droughts in the late 1990s and again in the late 2000s. While this involved unavoidable cost increases, emergencies are also often misused in various ways by rent-seeking interests, as demonstrated during the global Covid-19 pandemic,” said the World Bank.

“Furthermore, even though Kenya has substantial experience with competitive PPA procedures, these have not been consistently followed over successive PPA rounds, indicating limited improvements over time.”

Citing a report by the Energy, Environment and Development (EED) Advisory and the Energy for Growth Hub in 2021, the World Bank report noted that out of 42 PPAs signed by Kenya Power, only 24 per cent were known to have gone through a competitive process.

It further noted that the government appears reluctant to implement the Renewable Energy Auction Policy, which was expected to see power producers, especially solar plants, offer bids to sell power to the government, which would then pick the lowest bidder.

“In the case of solar projects, for example, international evidence shows that competitively procured projects are about 47 per cent cheaper than directly negotiated deals,” said the World Bank.

The World Bank report calls on governments to institute reforms in the sector, including implementing competitive bidding processes, opening up ownership of IPPs and implementing past audit findings.

 It is however, not the first to make such recommendations and is, in fact, the latest in a series of reports that have called out power sector players over governance issues that lead to high cost of power.

The 2021 Presidential Taskforce on the Review of PPAs was one of the major moves that Kenya has taken in trying to bring down the cost of power.

Formed by former President Uhuru Kenyatta and chaired by John Ngumi, the taskforce made major recommendations, which included an immediate reduction of power prices by 33 per cent.

In the September 2021 report, the taskforce pointed to what it termed practical areas of reform that could bring down the power tariff by a third, within three months.

These included a review of PPAs, noting that some of the IPPs were in breach of their contractual requirements, which Kenya Power had pointed out in opening up and reviewing the PPAs.

 The taskforce also recommended the reform of Kenya Power and other major electricity sector players, as well as moving away from the controversial take-or-pay PPAs that guarantee producers payment whether they feed the grid or not.

The National Assembly’s Committee on Energy has severally inquired into the high cost of power in Kenya.

 Its latest inquiry started in March 2023 and was concluded in late 2024. It also made major recommendations, including directing the Auditor General, the Directorate of Criminal Investigations and the Ethics and Anti-Corruption Commission to undertake forensic investigations in all existing PPAs, directing Kenya Power to renegotiate PPAs, shift from take-or-pay PPAs to take-and-pay models and implement renewable energy auctions.

It also noted how PPAs were skewed in favour of power producers, noting that while the State-owned Kenya Electricity Generating Company PLC  (KenGen) had generated 60 per cent of the power consumed in the country in 2023, it was Sh54.22 billion or about 35 per cent of the total power purchase costs, while IPPs took 65 per cent.

“Projects implemented by KenGen, which are of similar technology, scope and within the same location, are less costly and yield lower tariffs compared to IPP projects,” said the MPs in the report.

The appointment of the Presidential task force had been preceded by a moratorium on signing and negotiation of PPAs in 2018 that lasted seven years. It was only lifted in 2025.

The Jubilee Administration had expected to put in measures to protect households and businesses from the high cost of power in new PPAs.

The moratorium however, resulted in unintended consequences, with the prolonged freeze in signing PPAs resulting in the drying of the power plant project pipeline, which, according to the World Bank, has resulted in a “renewed deficiency in generation capacity, leading to load shedding in the face of unmet electricity demand, creating additional costs for both households and industry”.

The World Bank last week also raised concerns about high-ranking officials in State agencies who, on retiring from the public sector, take up roles in power production companies.

This, according to the report, pointed to a conflict of interest and also raised concerns about whether the officials had been acting in the public interest while in office or took care of the IPPs' interests.

“For several IPPs, public officials involved in the approval of the projects were later employed by or owned relevant generation companies, raising concerns about conflicts of interest,” said the World Bank.

“Limited transparency about beneficial ownership of companies involved in contracting with the government increases the risk of conflicts of interest.”

The power sector has been cagey with information on beneficial owners of IPPs and has in the past resisted directives by Parliament to make public the owners, citing confidentiality clauses in PPAs.

The World Bank noted that while the Business Registration Service (BRS) has in the past provided Parliament with a list of IPP owners and shareholders, the majority listed foreign corporations as their shareholders, leaving the ultimate beneficial owners unknown.

“This opacity reflects weak de facto enforcement of de jure rules. Available evidence also suggests that amendments to PPA contracts were favourable to the providers without public disclosure or clear and transparent justifications,” said the World Bank.

“Conflicts of interest and non-competitive contracting have intersected with challenges in overall sector management.”