Manufacturers have opened talks with the government aimed at dropping the previous administration’s tough conditions on electricity consumption levels for factories to benefit from discounted night-time power tariffs.
The talks, which are at a preliminary stage, are in line with President William Ruto’s plan to triple the contribution of the manufacturing sector to economic output in eight years.
The Kenya Association of Manufacturers (KAM) says the rule requiring firms to exceed their average monthly power consumption over the past six months to qualify for off-peak tariffs has made it difficult for factories to benefit from cheaper night-time power charges.
“The conversation we have started is … about having a night (power) tariff. What we are looking at is having a different tariff at night and then people can operate 24 hours so that half the time power is a bit more affordable,” KAM chief executive Antony Mwangi said. “That will not make us competitive, but it will help us start to move in the right direction.”
The discussions involve the Energy and Petroleum Regulatory Authority (Epra) as well as the ministries of Energy and of Trade, Investments and Industry, among other stakeholders, according to KAM.
The previous regime of President Uhuru Kenyatta introduced the Time of Use (ToU) tariff in December 2017, offering industrial and commercial power users a discount of 50 per cent for use of electricity during off-peak hours between 10 pm and 6 am during weekdays.
The off-peak hours run between midnight and 8 am on Saturdays and public holidays, and throughout the day on Sundays under the incentive aimed at lowering the cost of energy for Kenyan factories.
The factories were, however, required to exceed their normal power consumption to benefit from the cheaper rates, a move aimed at encouraging increased manufacturing and raising the productive use of electricity.
If a firm, for instance, has been consuming 1,000-kilowatt hours (kWh) per day, it has to exceed the 1,000 units, with the additional units attracting a 50 per cent discount.
This means firms have to increase their production above day-time capacity to pay power bills at half the normal rates to prevent a mass shift to night-time operations by manufacturers.
"The conditions that were put on what you need to consume meant that there was no incentive for industries to use the night tariff because the threshold was so high," Mr Mwangi said.
"We should be able to allow industries to operate the way they operate and then continue the way they are operating at night because it serves them as well in terms of scaling."
When he was Energy Principal Secretary Joseph Njoroge defended the condition on power consumption as aimed at preventing a repeat of an imbalance in electricity demand in 1999 when the government first tried to implement the off-peak billing programme.
The imbalance at that time led to the scrapping of the subsidised night-time tariffs barely months after it started.
KAM, the sector’s lobby, says the proposed review of the off-peak tariff plan will be key to achieving Dr Ruto’s ‘20 by 30’ manufacturing agenda which is largely dependent on factories running on a 24-hour economy.
The strategy targets to increase the contribution of the struggling manufacturing sector to the gross domestic product from 7.2 per cent in 2021 to 20 per cent in 2030 by reducing the cost of production and enforcing a predictable tax regime.
Manufacturers have over the years blamed costly power for the low competitiveness of Kenya-made products globally and the relocation of factories to other countries such as Ethiopia, hurting the creation of jobs for skilled youth.
Research by Strathmore University and global business management software firm, Syspro, suggested in July 2019 that more than half of Kenyan factories operate less than eight hours a day.
About 54 per cent of the 100 manufacturers in the survey cited the cost of energy as a damper to optimal business operations, while 43 per cent cited high taxes and cheap imports (40 per cent).
Some manufacturers also cited higher labour costs for sub-optimal production because they will need to hire workers in three shifts to operate 24 hours a day.
The sector’s share of the GDP has steadily dropped from 10.7 per cent in 2013 to 8.7 per cent in 2017 and 7.2 per cent in 2021, according to KNBS.
