Effectiveness of independent power producers as a strategic choice for financing electricity Generation in the Kenyan electricity market
Abstract
The power sector in Kenya has undergone major strategy and structural changes over the
last fifteen years. The Government of Kenya commenced comprehensive reforms in the
electricity sub-sector in the mid 1990s, to among others enhance operational efficiency,
attract private sector investment in power generation to complement the government's
investment, expand the transmission capacity, accelerate development of geothermal
resources and increase electricity access in the country. Initial reforms were achieved
through enactment of the Electric Power Act 1997, which saw the unbundling of the
generation business from transmission and distribution businesses. This led to the
emergence of Independent Power Producers to compete with the then wholly government
owned Kenya Electricity Generating Company Limited (KenGen). The need for further
reforms in the sector have seen the Electric Power Act, 1997 repealed and replaced with
Energy Act, 2006 leading to the establishment of additional players in the sector.On the
onset, it would appear that these reforms were driven by the long term plan by the
government to improve efficiency and service delivery in the sector. This can only be
partially true. On the contrary, the reforms were a strategic response to changes in both
the internal and external environment. The internal forces included the need for long
term strategies that would improve efficiency and result in the long term sustainability of
the sector. In the period 1991-1995, multilateral agencies and other development partners
froze development aid to the Government of Kenya because of their concerns on
governance issues and poor macro-economic performance. During this period, most of
the projects in the electricity sector were being funded by multilateral and bilateral
agencies. The freezing of aid was also linked to the end of the cold war, following which
multilateral donors who were greatly influenced by the American and European
governments diverted funding to Eastern Europe, resulting in competition for the scarce
resources. This study sought to investigate the effectiveness of Independent Power
Producers as a strategic choice for financing electricity generation in the Kenyan
electricity market. The study used a cross-sectional survey research design focussing on
the four Independent Power Producers that are fully commissioned and are in operation
in the country. The results indicate that the strategy has been effective on the basis of the
operational, contractual, policy and regulatory indicators. This is in contrast to the
experience in most developing countries where Independent Power Producers failed soon
after their introduction. Despite this success, the study established that there are areas of
concern including high costs, governance issues and negative publicity that need to be
addressed by the stakeholders in the sector. This will see Independent Power Producers
continue to playa major role in meeting the country's future energy needs.
Citation
Master of Business AdministrationPublisher
Unversity of Nairobi