Consumers to pay more as Kenya Power ends connection subsidies

Electricity distributor Kenya Power will next month stop charging the subsidised connection fees that the Jubilee government ordered upon coming to power — setting new electricity consumers up for higher charges.

The power firm yesterday said the Sh35,000 connection fee that applicants, whose buildings are located within 600 metres of a transformer, have been paying will cease to apply from April 3 when the subsidy is expected to come to a close.

“The old power connection scheme of Sh35,000 will be retired on April 3,” Kenya Power managing director Ben Chumo told Parliament’s Energy Committee, adding that the actual market rates will kick in on that date.

Small rural homes will, however, start enjoying a lower connection fee of Sh15,000 under the Last Mile Connectivity Project (LMCP) that aims to remove darkness from villages and trigger economic activity.

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Dr Chumo said the real cost of a single-phase connection stands at Sh100,000, meaning the cost of getting electricity to new buildings will more than triple beginning next month.

The higher charges are set to further make home ownership an expensive affair, especially in towns where construction of large units attracts multiple regulatory levies.

Kenya Power has been charging the Sh35,000 fixed charge for electricity connections as per the rates introduced 12 years ago to deepen access to electricity.

In 2013, the utility firm unsuccessfully sought to double the connection fee to Sh70,000 for those living within 600 metres of a transformer but the newly elected Jubilee government stopped the plan.

Sh2.7 billion subsidy

Kenya Power has argued that the cost of materials, labour and transport has significantly increased since the current fees were set in 2004, necessitating an increment.

Government officials, however, declined to approve the fee increase on grounds that it would lock out homes and businesses from accessing electricity and dampen growth.

The Treasury, in return, offered Kenya Power a Sh2.7 billion subsidy to retain the connection fee at Sh35,000 but the cash supply would soon be cut off, leaving the utility firm with the burden of carrying the rising costs.

While it lasted, the subsidy had also made it possible for Kenya Power to retain the fee for a three-phased electricity connection within a radius of 600 metres from the nearest transformer at Sh45,000.

The removal of the connection subsidy, however, promises to remove budgetary pressure on the utility firm which booked a 16.4 per cent drop in its half-year net profit to Sh3.7 billion.

Currently, homes and businesses outside the 600-metre radius of a transformer are charged at market rates that run into hundreds of thousands of shillings for a single-phase connection.

The government-owned utility firm plans to grow its network of transformers by over 1,000 units from the current 53,000 to support the Last Mile project that aims to light up villages.

Dr Chumo said the cut-price under the project, to be rolled out in phases, will be limited to rural folks with single dwelling houses.

“The lower charges will not apply to applicants in urban areas or those in rural areas who build big homes of three kVA (kilovolt-amps) and above,” he said.

The government reckons that the Last Mile project will remove a major hurdle to acceleration of rural electrification and spur village economies as residents open up businesses like welding, barber shops, hotels and cyber cafés.

President Uhuru Kenyatta launched the project in May 2015 but it has since faced implementation delays.

Dr Chumo yesterday told MPs that the utility firm will, starting April 3, connect rural homes to the national grid at a cost of Sh15,000, down from Sh35,000 previously, and allow those connected to pay the fee over 36 months.

This follows the award of contracts to 11 firms last December for the construction of the new power lines and installation of transformers.

Kenya Power is adopting a low-cost connection model that uses single, thinner and lighter cables as well as smaller poles to lower the connection cost by more than half.

Unlike in the past when home owners had to make applications for connection, Kenya Power will now approach potential customers in neighbourhoods with transformers and offer to hook them to the grid.

Dr Chumo said that the removal of upfront costs will enable the company to connect all willing customers in the targeted areas thereby allowing it to enjoy economies of scale and speed up connectivity.

Contractors will connect entire villages before moving on to another instead of making periodic trips to connect a handful of customers who have paid the connection fees.

The government hopes to use the scheme to double the number of connected homes to 70 per cent by next year, up from the current 53 per cent.

It plans to connect all Kenyans to the national grid by 2020, a decade earlier than the country’s envisaged entry to the club of industrialised economies.

Kenya Power hopes to connect 314,200 homes by next year in the first phase of the Last Mile project and a similar number in the second phase, bringing the total to 814,000.

The low-cost connectivity brings relief to thousands of rural consumers who could not afford the more than Sh70,000 fee that Kenya Power has been charging for homes located outside the 600 metres radius of a transformer.

The number of customers connected to the power grid stands at 4.3 million from one million in 2010.

The increased connection comes as the country races to boost its power capacity to more than 6,000 megawatts by 2017, mainly from geothermal and wind sources, up from the current 2,294 megawatts.

The Last Mile project is financed by a mix of loans amounting to Sh43.5 billion from the African Development Bank and the World Bank.

Dr Chumo said that 9,000 people that had applied for connection at Sh35,000 and are yet to be hooked to the grid will be given first priority under the new scheme.