Revealed: The costly price of terminating Kenya Power IPP deals
Kenya faces a hefty cost running into billions of shillings should it opt to terminate payments to independent power producers or default on its obligations to the dealers.
This is according to new data from the National Treasury on public-private partnership (PPP) projects with effective project agreements or Power Purchase Agreements including government support measures and termination terms.
Curiously, the National Treasury does not support the option of the government backing out of the agreements which could see billions in taxpayers’ money sunk to foot the ‘divorce’ bill.
For instance, to opt out of its deal with the 300 megawatt (MW) Lake Turkana Wind Power (LTWP), the government is expected to meet the total cost depreciated at five per cent per year and expenses incurred by the seller as a result of the termination.
This along with the net present value (NPV) of five-year profits at 10 per cent.
Similar termination costs would await the government for the 80.32MW Gulf thermal power plant, the 83MW Triumph Power deal and the 87MW Thika Power pact.
The four projects are valued at Ksh.145.6 billion ($1.3 billion) with LTWP being the costlier of the projects at Ksh.94.9 billion.
Other IPP with outlined but expensive exit terms include the 74MW Kipevu thermal plant, the 90MW Rabail thermal power plant and or power geothermal deals which include four plants.
Some of the PPAs covered by exit clauses are yet to take effect including the envisioned 1050MW Lamu Power Project which is valued at Ksh.224 billion.
The project’s exit clause would have required the full compensation of sums unpaid to all financing parties, termination costs, the value of unpaid construction works at termination and the NPV of five year profits at a 10 per cent discount cost.
Any review of the PPA terms is expected to involve intricate discussions involving not just the project owners but also their financiers.