Ruto stops Kenya Power from raising electricity costs
Deputy President William Ruto during a meeting with senior officials from the Energy sector on Thursday. PPS
What you need to know:
Deputy President William Ruto tells Kenya Power to find alternative sources of revenue as high cost of electricity would hurt consumers.
Mr Ruto’s stand is in line with the Jubilee government’s promise to keep the cost of living down within the shortest time possible.
Analysts, however, criticised the move as political and without insights into the power sector challenges.
Electricity consumers have been spared a steep rise in costs after the government stopped Kenya Power from effecting a tariff increment plan that it has pushed for in the past two years.
Deputy President William Ruto on Thursday said the government had shelved the planned review of tariffs to protect households and businesses from knock on effects of expensive power.
“Kenya Power has to sort out any inefficiencies in its operations as the government will not accept any proposal to increase power tariffs,” Mr Ruto said after meeting top government officials from the Treasury and the Ministry of Energy, the Energy Regulatory Commission (ERC) and Kenya Power.
“There is no justification for this [tariff increases], we cannot subsidise Kenya Power operations forever. Tariff reviews cannot just be upwards but urgently needs to be reviewed downwards,” Mr Ruto said.
The decision presents a mixed bag for Kenya Power and its customers as it could leave the electricity distributor with a severe scarcity for cash causing poor system maintenance and further diluting the quality of power supply.
The power distributor has unsuccessfully pushed for an increase in tariffs to cover for ballooning costs and boost sales. But the government has been reluctant to allow the review fearing its impact on the cost of living countrywide.
Power sector regulations provide a review of electricity tariffs every three years but there has been no review since 2008. A review was last due in July 2011 but the government suspended it for a year citing the then prevailing high level inflation that would only have escalated with the rise in power tariffs.
The review was once again suspended last year coming as it were in the build up to the general election.
Kenya Power was more recently pushing for a 21 per cent rise in the fixed charge and consumption tariff starting March 1 but the Energy Regulatory Commission (ERC) delayed the plans citing need for deeper consideration of stakeholder views.
The power firm had planned to further increase the tariffs by nine per cent in July to cover for rising expenses. The tariffs were to rise further in July 2014 and July 2015 by four and 11 per cent respectively.
These dreams have now been shattered leaving Kenya Power to look for alternative sources of funding or maximise on cost savings to support key operations including expansion and modernization of its distribution system to meet growing demand from both industrial and domestic consumers.
Shareholders in Kenya Power are also headed for tough times ahead as the suspension of tariff increments means the firms revenue growth will remain depressed in the short term slowing down profitability growth ultimately forcing it to cut back on its dividend payout.
Failure to upgrade and expand the transmission system also risks compromising Kenya Power’s operations, dealing a blow to its earnings and the quality of services to consumers.
On Thursday Mr Ruto directed Kenya Power to work out a plan for enhancing an efficient, cheap and effective power supply to Kenyans to avoid the need for tariff increment.
The Deputy President’s stand is in line with the Jubilee government’s promise to keep the cost of living down within the shortest time possible upon taking power. Analysts, however, criticised the move as political and without insights into the power sector challenges.
“The decision is political and may worsen an already bad situation because Kenya Power’s demands are justified,” said an energy consultant who did not want to be named.
The decision also raises questions on the relevance and independence of ERC as the energy sector regulator.
In the six months to December 2012, Kenya Power returned a 35.6 per cent growth in net profit to Sh3.1 billion compared to Sh2.3 billion the year before. This came as sales grew to Sh23.3 billion from Sh22.1 billion the previous year.
The power firm had projected that its profit before tax would to drop 53.4 per cent to Sh3.9 billion in the current year ending June compared to Sh8.5 billion in the same period last year.
The drop in profit was expected to be driven by high operating costs that can only worsen with the delay in the new tariffs. Kenya Power’s sales were projected to rise by 38.9 per cent to Sh62.5 billion in the year to June compared to Sh45 billion a year earlier as transmission and distribution costs rise 28.6 per cent to Sh19.4 billion.
Kenya Power had hoped that its performance would recover in subsequent years, driven by higher electricity tariffs.
The company had projected that its profit before tax would grow 182 per cent from the Sh3.9 billion in the year ending June 2013 to Sh11 billion in the same period next year as sales rise 30 per cent to Sh81.7 billion. Kenya Power’s profit before tax is now expected to stagnate at Sh11 billion in 2014 and 2015.
Consumer lobby groups welcomed the freeze in tariffs but called for long-term solutions to ensure adequate funding for the energy sector.
“It is good news for the consumer that is already hurting but we urge for a more comprehensive solution to the energy sector problems. Consumers could suffer in the short term if Kenya Power does not get money to upgrade its systems to match the growing demand for power,” said Stephen Mutoro, the secretary-general of the Consumer Federation of Kenya (Cofek).
The energy sector, though critical in boosting Kenya’s development, has registered slow growth in the past due to the high initial capital outlay and inability to mobilise adequate financial resources to undertake massive investment.
Lack of sufficient energy has in turn frustrated industrial expansion in Kenya for decades despite the availability of huge energy reserves such as wind and geothermal.
“We know what power does to the competitiveness of our products and we need to reduce the prices so that we can have a fair share of the market in the region and beyond,” Mr Ruto said as he called for exploitation of other sources of energy such as geo thermal.
The government has vowed to open the energy sector to bigger participation by the private sector to help boost the country’s power generation capacity.
“The energy market must be liberalised and opened up to new sources of investment, so that we can expand generating capacity, extend our transmission network, improve the consistency and quality of supply and lower the cost of energy for the Kenyan citizen,” President Uhuru Kenyatta said when he opened the 11th Parliament.
