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Ministry of Energy and Petroleum (MOEP) wants the government and Independent Power Producers (IPPs) to jointly use one importer to bring into the country Heavy Fuel Oil (HFO) in order to lower the cost of power in the country.

In a presentation made before MPs, Kenya Power said that the ministry had engaged the various stakeholders in the sector including Thermal Generators (KenGen and IPPS), Fuel suppliers, the ministry itself, Energy and Petroleum Regulatory Authority (Epra) and KPLC where they proposed that the HFO be done through Open Tender System (OTS) which will allow the consolidation of HFO requirements and sourcing of one importer.

HFO is a residual fuel incurred during the distillation of crude oil. It is used to generate motion and/or heat that have a particularly high viscosity and density.

Economies of scale

Reads the presentation signed by the Kenya Power Managing Director Joseph Siror: “This will help the country attain lower prices through lower freight and premiums on account of economies of scale and that the generators will access the product at uniform price. This is now in the implementation stage.”

Siror (pictured) who had appeared before the committee on Implementation to give the status of implementation regarding the inquiry into operation of Kenya power as asked by Laikipia Woman Representative Jane Kagiri, explained that during the Power Purchase Agreement (PPA) meetings with power producers, stakeholders agreed on adoption of an Open Tender System (OTS) for HFO procurement by power producers be done in Kenya Shillings.

He also told the MPs that the OTS procurement process that will be run through monthly tender entails sourcing of HFO predominantly from the spot market without any prior contracts.

To this end, he said the ministry, following a meeting between power plant operators, oil marketing companies, logistics companies, and industry regulators created two working groups to consider issues required to be addressed to facilitate shift to OTS.

The two working groups, he said, finalised on the unified HFO specifications and made recommendations on transition to OTS to the PS State Department for Petroleum who through a letter dated May 14 2024 recommended the use of OTS and a reconstitution of an HFO OTS Committee which is currently ongoing.

He said: “KPLC detailed to MOEP the required PPA amendments required to implement the HFO procurement through OTS including harmonization of HFO specifications, PPA provisions on HFO procurement, the party to procure HFO and review of risk allocations in the PPAs. This was to aid in the development of the necessary legal and regulatory framework to enable implementation of the HFO OTS process.

In the brief, Siror explained that to further reduce the cost of power, MOEP has further held engagements with sector stakeholders including the IPPS that has seen renegotiations of the Power Purchase Agreements (PPAs).

Completed construction

To this end, MOEP constituted a joint PPA negotiations committee to handle the renegotiations of the PPAs with priority focus being on renegotiation of projects signed with PPAs but which had not commenced construction and those projects that had completed construction but had lapsed PPAS.

The focus on the PPA renegotiations included the removal of Deemed Generated Energy (DGE) to transition to Take and Pay in place of Take or Pay, Currency of invoice settlement, review of escalation factors by using the Consumer Price Index (CPI), deal with credit period for payment of billed energy, deal with default rate as well as PPA term.