Drought shock adds new twist to Kenya’s economic outlook

The weatherman’s warning of a looming drought in most parts of the country has cast a heavy cloud of uncertainty over Kenya’s economic outlook that got a fresh dose of optimism only five days ago when the National Economic Social Council predicted a doubling of the rate of growth to 5.2 per cent by end of year.

The drought, which the weathermen expect to start in earnest next month and last till mid next year, removes any prospects of a decline in the cost of electricity in the medium term, even as it raises the possibility of a new round of water rationing in major cities like Nairobi – and its negative impact on industrial production.

Low rainfall means that Kenya’s ability to generate electricity from the less expensive hydro sources will diminish, forcing the country to rely more on the expensive thermal power to meet consumer demand.

It also points to a looming replay of the acute water shortages that persisted in most Kenyan towns since late 2008 and only ended with the heavy rains in March and April.

Water consumers pay state-owned suppliers Sh20 per 1000 litres of water supplied, a much lower charge compared to Sh500 that water vendors charge for a similar quantity.

Such levels of pricing mean that utilities will join expensive food in driving up the cost of living measure or inflation — that remains the Achilles heel of Kenya’s recovering economy.

That leaves the Kenya Power and Lighting Company (KPLC) with the option of stepping up its uptake of thermal power to meet electricity demand that has been rising in recent months with increased economic activity.

Poor weather means consumers will pay more in the form of high fuel cost charges — an item on the power bills linked to the amount of electricity generated from fossil fuels.

Eddy Njoroge, the managing director of KenGen, on Wednesday said that the power generator will step up supply from the diesel generators in an effort to conserve water in the dams.

“We are balancing the supply from hydro with thermal to ensure that we also meet peak demand that has grown to 1120 megawatts from 1070 in March,” said Mr Njoroge.

Last month, for instance, increased demand for power saw KenGen and the Independent Power Producers (IPPs) such as Aggeko and Tsavo step up their thermal supply by 11 million KWhs to 174 million KWhs.

That forced KPLC to increase the fuel cost adjustment charge for bills settled last month from Sh3.18 in July to Sh3.49.

At Sh3.49 though, the fuel cost charge is still much lower than the record Sh7.83 it clocked in January.

But the Energy Regulatory Commission (ERC) says it expects the prolonged dry weather forecast to push the fuel cost charge to above Sh5 per unit by December.