Kenya Power MD Joseph Njoroge (right) addresses the press after officially commissioning the Obote Road sub-station in Kisumu Wednesday. Mr Njoroge said the delay in review of tariffs has affected the firm’s earnings. JACOB OWITI
Kenya Power has received support from the government to increase prices from July to boost the electricity distributor’s cash flow and finance its network upgrade.
The firm had last May sought for a 25 per cent adjustment in tariffs from June 2011, but the government suspended the application to cushion Kenyans because at the time, the cost of food and energy was high.
The Treasury expects Kenya Power to grow its revenues to Sh113.7 billion in the year to June 2013 from this year’s Sh86.6 billion, reflecting an increase of 31 per cent for the company whose sales have risen by between eight and 12 per cent in the in the past three years.
“There could be an element of a rate increment within the financial year,” said Joseph Kinyua, the permanent secretary at Treasury.
The electricity distributor says time is ripe to review the suspended application even as Energy Regulatory Commission (ERC) says it’s yet to receive a fresh application for the increment from Kenya Power.
“We want to start the process (tariff review) to get funds for development of quality electricity supply and boost the confidence of multilateral lenders like the World Bank,” Kenya Power CEO Joseph Njoroge told the Business Daily earlier.
“The delay has affected our earnings. As you know, the last review was more than three years ago, but the timing was wrong then,” he said.
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 effect on Kenya Power’s revenue.
Sources at ERC say the firm could target to have the new tariffs from July 1 and that it’s likely to forward its application by May 30.
This comes amid fears that politicians might hijack the process in an election year to strike populist chord with voters.
The proposed tariff structure seen by the Business Daily is expected to hit low and middle-income households that consume between 50 and 150 units of power per month hardest.
Under the proposed tariffs, 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.
It’s seeking 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. It is also looking to increase the monthly fixed charge—meant to recover costs related to meter reading, billing and accounting—from Sh120 to Sh160.
The proposed tariff review is critical to Kenya Power’s future financial health that is hinged on proper management of operational costs and ability to pay for the expected rise in bulk power purchase and transmission costs.
The cost of purchase of bulk power from generators is expected to increase in the next three years as the utility firm buys more electricity, especially from private producers whose bulk tariffs are higher than State owned KenGen.
Kenya will add between 1913 megawatts and 2213 to the national grid in the next three years. Kenya Power also needs to upgrade its ageing network to boost supply and secure healthy cash flow to remain attractive to lenders.
Sh28.4 billion for upgrade
Treasury estimates expect Kenya Power to spend Sh28.4 billion in upgrading its networks to ease the rising incidence of power blackouts. This will be raised through internally generated funds of Sh9.9 billion, borrowings (Sh13 billion) and grants from development institutions (Sh5.3 billion)
It also needs to boost its earnings since it does not benefit from periodic review of prices, making the tariff review critical to its future profitability.
The firm’s net profits stood at Sh2.28 billion in the six months to December compared to Sh2.22 billion, a 2.7 per cent growth that highlighted the impact of the stagnant tariffs amid rising operational costs.
