was complicated by the existence of parallel negotiating tracks between the International Monetary Fund and the Treasury, and between the World Bank and the MoEP. The agreement imposed conditions in return for meeting the funding needs of the power sector and general budget. Nevertheless, the commitments had been made, were binding, and were necessary if much-needed financial assistance for the sector was to be obtained. Despite continued resistance to reform from some quarters, the first wave of measures was set in motion by the 1996 policy letter. It was succeeded by several other landmark steps that are described below and summarized in table 1.

# **_2.4 1997–1999: Stakeholder behavior takes time to adapt to implementation of structural reforms_**

In the agreement reached at the end of 1996, World Bank funding was made conditional on unbundling the generation segment from KPLC—one of the most politically fraught and strongly resisted reform interventions. The division of assets between KPLC and the future separate generation company was especially sensitive, as well as technically demanding. The World Bank offered support for the process, funding a study by PricewaterhouseCoopers and supporting technical staff within the ministry. Even with this support, the full process of unbundling would take about three years, but the sector needed the pledged World Bank funding immediately. It was thus agreed that the loan would become active once the process of unbundling was initiated—the proof of which was to be the separation of the new generation company and the appointment of its first managing director. The Kenya Power Company (KPC), established in 1954 and hitherto managed by KPLC, was in 1997 vested with ownership and operation of all public sector generation assets. In 1998, it was rebranded as the Kenya Electricity Generating Company (KenGen). Edwin Wasunna, formerly KPLC’s chief manager of project development, was appointed managing director.

In the early years following the unbundling of generation, the line between KenGen and KPLC was far from clear. The KenGen management often looked to the KPLC leadership for guidance on management decisions, and, even though the two companies had separate boards, the KPLC company secretary continued to attend KenGen’s board meetings. In this way, KPLC maintained considerable influence over both utilities—and the subsector as a whole. This may be due in part to the fact that many from within KPLC’s ranks who had transferred to KenGen, had been wary of reforms and were still bound by a sense of loyalty and familiarity to KPLC and its leadership.

In other areas, as well, reforms were enacted, but behavior continued to reflect the status quo. This was certainly the case with the Electricity Regulatory Board (ERB), established under the 1997 Electric Power Act. While the ERB was nominally independent, in reality the legislative framework provided it with little real autonomy or authority. Interestingly, the influence brought to bear on the ERB over the period 1998–2002 did not seem to be in KPLC’s favor, as will be discussed below. This reflected the strong political culture of loyalty and obedience that developed under the then government, which required all decisions to be directly referred to the presidency.<sup>7</sup> In addition to restructuring and reorganizing regulatory functions, KPLC—with support from the World Bank and external consultants—began the first competitive process for tendering and negotiating 20-year IPP contracts.<sup>8</sup> A comparative experiment between private and state-owned

> 7 President Moi infamously used to announce appointments or “disappointments” (termination of appointments) on the 1 o’clock news, to which everyone would listen with a certain trepidation.

> 8 The World Bank provided US$ 600,000 in support of the tender design, model PPAs, and technical support.

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