The Nation (Nairobi)
Kennedy Senelwa
4 July 2009
Nairobi — The cost of doing business is likely to go up as Kenya steps up thermal electricity generation using diesel and fuel oil to meet rising demand.
This will effectively lead to a rise in the cost of locally manufactured products as companies pass over the extra burden to consumers. Matters can only worsen if fuel prices on the international market go up.
Hydro generation of electricity at the Seven Forks complex along Tana River has been affected by reduced water levels due to poor rains in Mount Kenya catchment area. Low levels led to closure of the 40 megawatts Masinga Dam.
According to Hydrocarbons Management Consultants, a sustained upward surge in diesel and fuel oil prices will lead to thermal power increasing the cost of manufacturing goods and providing services.
"Prices of diesel and fuel oil have sustained an upward momentum in the last one month. Electricity will be more expensive if the trend continues," said Hydrocarbon's lead consultant Robert Shisoka.
The price of refined fuel oil to be used by the proposed 40 megawatts Longonot emergency power plant in Naivasha rose by $100 to stand at $377 per metric ton on June 30.
Cost of refined diesel to be used to fire the proposed 40 MW Embakasi emergency plant in Nairobi also rose to $546 per metric ton on the same date this year from $527 MT at the beginning of the month.
Kenya Electricity Generating Company (KenGen) has already floated a tender for companies to install two emergency power plants each generating 40 MW at Embakasi and Longonot respectively.
Mr Shisoka said consumers should brace for higher bills from the Kenya Power and Lighting Company (KPLC) reflecting fuel cost and forex adjustments related to the fossil fuels used for thermal generation.
Borne by consumers
Costs related to thermal generation fossil fuels have to be borne by consumers due to being pass through items for KPLC as the firm's mandate is to transit, distribute and supply electricity.
The government in October 2007 through KenGen extended the contract of Aggreko's rental generating plants at Embakasi and Eldoret injecting 150 MW to the national grid.
Kenya has also mandated KPLC to pre-qualify investors to build three heavy fuel oil plants of 60 to 80 MW with a total combined capacity of 240 megawatts to meet demand in the medium term.
The power distributor's company secretary Laurencia Njagi said the plants to be put up on build own operate (BOO) arrangements in Nairobi and its environs have to be operational by next year.
"The Ministry of Energy, KPLC and the Energy Regulatory Commission carried out projections and identified capacity enhancement requirements to meet growing power demand in the medium term," she said.
The project involves installing of medium diesel plants under 20 to 25 years build own operate arrangement, building a fuel storage facility on site and interconnecting the electricity line to the national grid.
KPLC is also looking for independent power producers. KenGen is schedule to open bids from companies interested in setting up the Embakasi and Longonot emergency plants on July 21.
"The tender document may be collected upon payment of a non-refundable fee of Sh3,000 paid in cash or bankers cheque," said KenGen's supply chain manager Patrick Kimemia.
He said bidders who downloaded tender documents from the website will be required to show evidence of payment of a reduced fee of Sh2,000 when submitting their papers.
KenGen plans to build Kipevu III thermal power plant in Mombasa subject to National Environment Management Authority granting approval. The company has submitted to Nema an environmental impact assessment (EIA) study report on the proposed 90 to 120 megawatts plant.
Nema's director of compliance Malwa Langwen said submission of the report on diesel driven power plant was in compliance with rule 21 of environmental (impact assessment and audit) regulations.
"KenGen wants to build at Kipevu in Mombasa seven engine generator units, power house, engine cooling system, switch gear and transmission among requisite facilities," he said.
Oil pollution is among possible impacts of the thermal plant and KenGen will install oil separators besides collecting waste in metal containers as mitigation measures to protect the environment.
Mr Langwen said water contamination is also a possible impact of a thermal plant and KenGen will have to install oil separators in all storm water drainages besides proper handling of petroleum products.
He said solid wastes accumulated in fire proof containers are to be disposed to registered recyclers, areas cleared of vegetation rehabilitated and discharge of waste water to Makupa Creek banned.
KenGen will be obliged to maintain the proposed power plant in good running condition and use low sulphur diesel, monitor emissions to maintain air quality as well as provide sanitary conveniences.
The company will provide protective gear to members of staff, post warning signs, install fire detection and suppression systems among others to enhance occupational health and safety.
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