The Energy Act, 2019: Opportunities to the Private Sector

Introduction 

For a long time, Kenya Power and Lighting Company (“KPLC”), has monopolized the distribution and retailing of electricity in Kenya. As a result of the inefficiencies arising therefrom, energy sector reforms began in 1997 with the dismantling of the three critical functions of energy generation, transmission and retail then held by KPLC. This led to the creation of Kenya Electricity Generating Company (“KenGen”), the largest power producing company in Kenya producing about 69% of the electricity consumed in the country and the subsequent licensing of twenty independent power producers (IPPs) and Kenya Electricity Transmission Company, (“KETRACO”) a limited liability company which acts as transmission system operator in Kenya. 

The reforms culminated into the enactment of the Energy Act 2019 (the “Act”) which as assented to by on 12th March, 2019 and came into force on 28th March, 2019. The Act, which repeals the Energy Act No. 12 of 2006, establishes the Energy and Petroleum Regulatory Authority (the “Authority”)  formerly known as the Energy Regulatory Authority whose main role is to regulate the day to day activities in the energy sector in Kenya. 

The Act further consolidates all the laws relating to energy sector, provides for national and county government functions in relation to energy and establishes the powers and functions of the energy sector entities. We highlight in this article, salient provisions in the Act. 

Salient Provisions in the Act

Some of the salient provisions in the Act include:

  1. A requirement to put in place energy consumption benchmarks upon which any person or public body shall not be allowed to exceed. The Authority is required to call upon any individual or public body that exceeds the limit to submit to it a report on the same as well as a remedial plan.
  2. Collaboration between the National and County Governments on most matters in the energy sector which is highlighted more prominently through the establishment of energy centers in the counties.
  3. The Act does not affect the right, privilege, obligation or liability acquired by any Licensee or other person in any contract or under any written law prior to the commencement of this Act.
  4. County governments are required to establish a fund for the purpose of promotion of efficient use of energy and its conservation within the county.
  5. Transfer of licenses without the consent of the Authority is prohibited. The Authority must satisfy itself of the legal, financial and technical ability of the transferee. The transferee must be qualified and must undertake in writing to comply with the conditions set out in the license or permit as a condition for consent. The Authority shall not unreasonably withhold any consent to any application of a transfer of a license.
  6. Licensees who shall have outstanding uncollected billings attributable to the National Government, county government or any government agency shall report such billings to the cabinet secretary  for the national treasury who shall in turn ,report the same to parliament for appropriation. This ensures that Licensees are paid.
  7. Section 166 of the Act on the Liability of licensee to compensate for outages is missing.

Opportunities for the Private Sector.

The Act has explicitly provided for various opportunities in the energy sector to private investors. Previously, liberalization removed the transmission and power generation function from KPLC creating opportunity for KenGen and IPPs. Further, due to the massive capital required in transmission, KETRACO has remained the only undertaker in this function. This may however change with global power transmission companies considering the opportunities presented by limited national infrastructure in an economy which is yet to complete its rural electrification program.  Competitors in the distribution and retailing of electric energy will be looking to take advantage of the Government’s confirmed intent to fully liberalize this sector. 

The most significant change introduced by the Act is in distribution of electricity. The ability to sell off grid will introduce new players who will take advantage of the high industrial and institutional demand as well as dissatisfaction with the aging monopoly. Purchase of power, retailing, metering, selling and billing by private power companies, it is expected, will spur massive growth in this industry. These provisions are in line with international industry standards and practices. This will attract more capital from the private sector investors and increase confidence in Kenya’s energy sector as the Act brings with it certainty and modernity. 

 

Authors: Godwin Wangong’u and Kipkurui Cornelius.

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