Kenya Power spares users fresh increase in charges
Kenya Power staff carry out maintenance on a power line at Kariobangi in Nairobi. Kenya Power has postponed its plan to raise electricity tariffs in July due to tough economic conditions facing consumers, the firm said on Thursday. File
The review of retail electricity tariffs that were to take effect today have been suspended to cushion Kenyans from the rising cost of living in what could hurt Kenya Power earnings outlook.
The power distributor had sought to increase monthly electricity bills by an average of 26 per cent to cover rising operational costs and pay for the expected rise in bulk power purchase and transmission costs.
But Thursday, the electricity distributor said that it had agreed with the Energy Regulatory Commission (ERC) — which must approve all tariffs —to postpone the review until the run-away prices of basic commodities stabilise.
Consumers’ purchasing power has been deeply eroded in recent months with the steep rise in the prices of basic commodities such as food and fuel, which pushed inflation to a 19-month high of 14.49 per cent last month.
“KPLC applied to the ERC for the review of the power tariffs this year to meet the June 30, 2011 deadline,” said the power firm in a statement Thursday. “However, cognizant of the current serious unfavourable social and economic circumstances in the country…Kenya Power in consultation with Ministry of Energy and the ERC requested for postponement of the application for a tariff review.”
Sources at the ERC say the review will take effect in the fourth quarter when prices of commodities such as maize, maize flour and vegetables will fall due to increased supply.
“It has been pushed forward due to the cost of living concerns and the fact that ERC was not through with the KPLC application before the 30th (Thursday) deadline,” said Mr Kaburu Mwirichia, the director general of the ERC.
Analysts say the move that will prompt investors —who had factored an increment of about 20 per cent from July 1—to downgrade the power firm’s growth outlook.
“Overall, we view the bid to suspend the review process as slightly negative for Kenya Power,” says Renaissance Capital in a brief to investors.
Retail electricity tariffs are reviewed every three years — save for periodic adjustments on the fuel cost, foreign exchange and inflation that are passed on to the end user and have a neutral impact on Kenya Power’s revenue.
Kenya Power’s profits were expected to rise by up to half of 2010’s this year under the new tariffs echoing the 64 per cent jump in profits that the company realised in 2009 after review of tariffs in 2008. The firm’s net profits stood at Sh3.7 billion in the year to June 2010 compared to Sh3.2 billion a year earlier but this could slowdown should because of rising capital expenditure should the proposed tariff increments be frozen.
“Overall, we view the bid to suspend the review process as slightly negative for Kenya Power,” says Renaissance Capital in a brief to investors.
“We believe the stock offers significant upside potential, even factoring in the tariff review risks,” added Renaissance Capital in reference to its share price at the Nairobi Stock Exchange (NSE).
The Kenya Power application seen by the Business Daily show that it is seeking to increase the tariff for lowest segment of the consumer market by up to 22 per cent and raise the charge for the middle and high-end residential consumers by an average of 25.5 per cent.
The power firm is seeking the Energy Regulatory Commission’s authority to increase the monthly fixed charge — meant to recover costs related to meter reading, billing and accounting — from Sh120 to Sh160 and to increase to Sh3.70 the charge per kilowatt hour (kwh) on domestic consumers for the first 50 units up from the current rate of Sh2 per kilowatt-hour.
If allowed, these adjustments could wipe out the State subsidy that has been in place since the current tariffs came into force to help cushion low income households from the full impact of energy cost inflation.
Under the proposed tariff regime, households consuming between 51 units and 1,500 units will pay Sh11.79 per Kwh from Sh8.10 per Kwh while those consuming above 1,500 units will pay Sh22 per unit from Sh18.75.
This means that consumers who this month paid about Sh633 for 50 units of power will add an average of Sh140 to their monthly bill, reflecting an increment of 22 per cent while middle income homes that consume about 150 units could see their monthly bill rise from Sh2,373 to Sh2,980 or 25.5 per cent increase.
