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Kenya Power drops push to increase bills

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Kenya Power chief executive Bernard Ngugi. FILE PHOTO | NMG

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Summary

  • The electricity distributor reckons it has identified a reduction of capacity charges – paid to power firms regardless of generation – as one of the key actions that will pull it out of deep losses and bring down electricity bills.
  • This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.
  • The company also plans to step up crackdowns on illegal connections to the national grid that are depriving it of revenue and recover billions of shillings in unpaid bills from individuals and institutions in order to improve its future earnings.

Kenya Power #ticker:KPLC has dropped the push to increase bills by up to a fifth, shifting its focus to lowering costs, curbing electricity theft and recovery of unpaid bills amounting to over Sh27 billion.

The electricity distributor reckons it has identified a reduction of capacity charges – paid to power firms regardless of generation – as one of the key actions that will pull it out of deep losses and bring down electricity bills.

This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.

The company also plans to step up crackdowns on illegal connections to the national grid that are depriving it of revenue and recover billions of shillings in unpaid bills from individuals and institutions in order to improve its future earnings.

“It is the board’s view that as long as we continue on this path of effective management of costs and most importantly, all our customers pay their bills on time, there will be no urgent need for a tariff increase,” Vivienne Yeda, the Kenya Power chair, said at the firm’s virtual AGM.

“Kenyans have enough financial burdens on them today and so we have no intention of adding to their burdens.”

The change in tune comes days after President Uhuru Kenyatta set up a team to review power purchase agreements signed over the years by Kenya Power, which has been making losses in the recent past.

Electricity consumers in Kenya often complain of high bills, with some of the costs being attributed to idle capacity charges to compensate power generators for units produced but ultimately not used.

The review team will carry out its work over six months and no new contracts will be entered into during that period.

Kenya Power swung into a pre-tax loss of Sh7.04 billion for its financial year to the end of last June.

The firm paid capacity charges totalling Sh47.4 billion, representing more than half of the company’s cost of sales of Sh87.4 billion.

It buys power from 20 generators, but KenGen, OrPower and Lake Turkana Wind Power account for 79 percent of the firm’s bulk electricity purchase costs.

Under a typical power purchase agreement, a power producer gets paid for any electricity generated, even if it is impossible for Kenya Power to sell it to consumers due to excess capacity and other reasons.

Now, the utility hopes the reduced bill it will pay generators will offer it room to cut electricity prices while making returns to its shareholders.

The wholesale power producers, including Gulf Power, Iberafrica, Tsavo Power last year, have protested plans by Kenya Power to review bulk electricity prices citing low demand in the wake of Covid-19 pandemic.

Kenya Power reckons that time has come for the generators to cut their appetite for higher profits.

A cut in electricity prices is set to boost Kenya’s quest to make energy costs competitive compared with other African nations like Ethiopia, South Africa and Egypt.

The cost of power is a key determinant of new investments.

Reduced bills will ease pressure on household budgets given that electricity is among services whose costs have jumped the most under President Uhuru Kenyatta’s administration since 2013.

Kenya Power has hired eight debt collectors to help recover outstanding bills running into billions of shillings and improve its cash position.

The State monopoly says it is also installing smart meters for its customers around the country to improve billing and curb the power theft menace.

The company has fired scores of workers recently due to fraud and illegal connections to the grid carried out by people suspected to be its employees.

Hundreds people have been arrested and prosecuted for various crimes relating to electricity theft and fraud.