Kenya Power received an operational subsidy last year, the first time in the history of the utility firm, the World Bank has said, underlining the burden on the company.
This has seen the World Bank back Kenya’s move to unbundle the low-cost power tariff, saying its impact in terms of increasing the poverty rate is almost negligible.
In April, the Energy and Petroleum Regulatory Authority (Epra) published revised power tariffs through which it unbundled the low-cost tariff from the previous monthly consumption of zero to 100 kilowatt-hours to the new zero to 30 kilowatt-hours.
“In 2022, the first time in recent history, KPLC received operational subsidies other than for last mile connections,” says the World Bank.
“Tariff shortfalls have led to large arrears and years of underinvestment in maintenance and capital expenditure, which is now manifesting itself in deteriorating supply quality and reliability as well as persistently high levels of system losses,” the lender notes.
This adjustment in the country’s lifeline tariff implied that 1.9 million customers of Kenya Power were knocked off the low-cost tariff with the total number of beneficiaries falling from 8.2 million to 6.3 million customers.
“The increase in tariffs for households consuming between 30–100 kWh per month negatively affects the purchasing power of poor households that fall within this bracket. This effect however applies to only 4 percent of poor households,” the World Bank states.
“On the other hand, the decrease in tariffs for households consuming less than 30 kWh per month (the new lifeline) increases real incomes, cancelling out, at the aggregate level, the poverty impact of the overall reform.”
Energy sector stakeholders called for the unbundling of Kenya’s lifeline tariff as approved by Epra, citing the need to ensure sustainability where the revenue generated will cater for both cost-of-service provisions as well as re-investment into the infrastructure of the sector.
The Bretton Woods lender says that the new tariff structure which took effect on April 1 should allow the sole electricity distributor to generate adequate revenue and stave off the need for capital injection from the Exchequer.
This comes at a time consumers are decrying a spike in the cost of electricity, a development that the government attributes to adverse weather that necessitated the use of the more expensive electricity early in the year.
Energy Cabinet Secretary Davis Chirchir has, however, allayed fears that the standard rating of Value Added Tax on petroleum products will trigger a further rise in the cost of electricity.
“Value Added Tax in electricity pricing is computed on the total sum of demand charge, the fuel cost charge and the non-fuel energy cost consumption charge. The impact of the rise in Value Added Tax on the cost of electricity is expected to be minimal given that only the 56MW Muhoroni Gas Turbine uses dual purpose kerosene and will be affected. Muhoroni dispatches only 0.27 percent of the total power generation,” Mr Chirchir told the National Assembly Energy Committee on July 10.
