The Presidential Task Force on the Review of Power Purchase Agreements
President Uhuru Kenyatta, through a special Gazette Notice No. 3076 published on 29 March 2021 (the Gazette Notice), appointed a taskforce primarily assigned with undertaking a comprehensive review and analysis of all power purchase agreements (PPA) entered into between various independent power producers (IPPs) and the Kenya Power and Lighting Company Limited (KPLC) (the Taskforce).
The constitution of the Taskforce by the President follows the revocation of a standing committee appointed by the Cabinet Secretary for the Ministry of Energy to undertake a similar exercise, through special Gazette Notice No. 2219, published on 15 March 2021(the Revoked Notice). Notably, the mandate of the standing committee in the Revoked Notice was centred on the re-negotiation of PPAs, whereas the mandate of the Taskforce in the Gazette Notice has been extended to include termination of PPAs and any other appropriate actions the Taskforce deems fit as recommendation options.
Key Issues to Note
The term of the Taskforce shall be six months with effect from 29 March 2021 although the term may be extended as specified through a gazette notice. In addition, the Taskforce shall report to the President through the Cabinet sub-committee on KPLC.
The Taskforce comprises of:
- Chairman John Ngumi (current chairman of the Industrial and Commercial Development Corporation);
- Three (3) joint secretaries namely: i) Jasper Mbiuki (Secretary, Legislative Affairs and Regulatory Compliance at the Office of the President); (ii)Lillian Abishai (Deputy Chief State Counsel at the Office of the Attorney General & Department of Justice) and; (iii) Elsie Mworia (Legal Counsel at KPLC); and
- Fifteen (15) members drawn from the private and public sectors with expertise in various fields such as law, finance and other fields.
The scope of the Taskforce includes the following:
- undertaking a comprehensive review and analysis of the terms of all PPAs entered into by the KPLC;
- probing the compliance of the PPAs and all associated agreements with Government policies, legislation and regulations and identify what appropriate actions should be taken, including the termination or renegotiation of the PPAs;
- reviewing the sustainability and viability of all independent power generation projects that have been proposed, are under implementation, or in operation, and making appropriate recommendations;
- reviewing the allocation of risk between the independent power producers (IPPs) and KPLC under the PPAs, and making appropriate recommendations;
- reviewing the take-or-pay approach applied under the PPA structure and recommending a viable pay-when-taken (merchant plant) approach, or any other viable payment structure, for use in independent power generation projects;
- developing a suitable strategy for engagement with the IPPs and lenders, in order to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector;
- reviewing the current methods for sourcing of IPPs and recommending appropriate alternative sourcing frameworks, including energy auctions;
- recommending legislative, regulatory, policy or administrative interventions for the implementation of the recommendations and strategies of the Taskforce;
- developing a detailed action plan for implementing the recommendations made by the Taskforce; and
- performing any other function or tasks as the Taskforce may find necessary in order to deliver on its mandate.
The Gazette Notice provides that pending the completion of the review exercise by the Taskforce, a moratorium has been placed on:
- all PPAs not concluded as at 29 March 2021, including any related letters of support and legal opinions pending issuance by the Attorney-General; and
- the renewal of any PPA whose renewal would occur during the pendency of the Taskforce, with the exception of those that shall receive approval by the Board of Directors of KPLC for the purposes of renegotiation but, at all times, subject to ratification by the Cabinet Sub-committee on KPLC.
This means that any ongoing negotiations between IPPs and KPLC for PPAs that have not been concluded as at the date of the Gazette Notice would have to be suspended for a period of 6 months or longer if the Taskforce’s tenure is extended. The Gazette Notice is not clear on whether the moratorium extends to any new expressions of interest applications and other related approvals. It is likely that the review process may stagnate the issuance of any new expression of interest approvals and other related approvals due to the uncertainty with respect to the conclusion of the pending PPAs. In addition, the Gazette Notice is not clear on the criteria of PPAs that are exempt from the moratorium and are legible for renewal following approval by the KPLC’s Board of Directors and ratification by the Cabinet Sub-committee on KPLC.
We expect that the outcome of the Taskforce will have a great impact on the existing framework relating to PPAs as the review by the Taskforce includes a review of key issues such as the tariff structure, procurement methods and risk allocation.
We are following this matter closely and will keep you updated on any developments. Please do not hesitate to contact Amyn Mussa to discuss this matter or if you have any questions.
Should you have any questions regarding the information in this legal alert, please do not hesitate to contact Amyn Mussa.
ALN Kenya | Anjarwalla & Khanna