Power rationing signals fresh rise in cost of consumer goods
Posted Tuesday, July 26 2011 at 00:00
Electricity distributor Kenya Power’s just-announced rationing plan has handed the country’s manufacturing sector its biggest shock this year putting thousands of jobs at risk.
The rationing plan that will see Nairobi’s industrial district go without power for six hours a week leaves the manufacturers with the option of using expensive diesel powered generators to keep their operations going or shut the plants down and shed some jobs.
Using diesel-powered generators bears the risk of significantly increasing production costs and instigating a further rise in the cost of consumer goods while closing down the plants offers the unenviable option of cutting down the number of work shifts and leaving thousands of temporary workers jobless.
Kenya Power announced the rationing programme in a press statement Monday saying it was experiencing serious challenges in meeting demand during the evening peak consumption period.
The power distributor blamed the shortage on delayed installation of new thermal power generators with delayed processing of security guarantees for investors in the energy sector, planned maintenance and breakdowns of generators. The distributor is also short of the contracted 26 megawatts from Mumias Sugar Company that is currently closed for maintenance.
“We are going to see some factories operate at below capacity even as costs such as wages remain constant,” said Jaswinder Bedi, the chairman of the Kenya Association of Manufactures (KMA).
Mr Bedi said such costs will add on to a weak shilling, high commodity prices and high transport costs to erode the competitiveness of Kenya’s industrial products both locally and in key regional markets.
The rationing schedule is expected to be particularly costly for big industrial plants such as steel mills and other 24 hour operators. It is mainly targeted at Nairobi, Thika’s industrial districts, western Kenya and Rift Valley-based manufacturers.
The timing of the power shortage is particularly bad because it comes in the middle of a steady surge in the cost of petroleum products that has seen the price of diesel rise by more than 20 per cent since January.
Diesel prices have risen by 21 per cent in the past six months to Sh102 per litre in Nairobi according to data from the Petroleum Institute of East Africa, helping push inflation to 14.49 per cent from 12.9 per cent in May.
Mabati Rolling Mills (MRM), one of Kenya’s top makers of steel and iron products, said high production costs risk slowing down the volume of exports to the region and piling pressure on the country’s current account balance further weakening the shilling.
The shilling Monday ceded little ground to the dollar exchanging at the rate of Sh90.40 having opened at Sh90.10.
MRM said that even though a power shortage was anticipated the notice period was too short.
“Factories need adequate time to prepare for power rationing, you cannot prepare for a changeover to generators in two days,” said Kaushik Shah, the company’s managing director adding that the firm would be forced to suspend some shifts in its operations.
Unlike medium-sized plants that can run on diesel powered generators, heavy machines used by steel mills have to be switched off in the event of a cut off from the main power grid, he said.
The list of manufacturers that will feel the weight of power cut offs includes Devki Steel Mills, Nation Media Group’s Printing Press, Mabati Rolling Mills, East African Breweries’ Malting plant and a host of Small and Medium-sized Enterprises (SMEs).