Electricity consumers seeking supply under Kenya Power’s Last Mile project will be spared upfront payment of connection fees, newly published proposals say.
Ben Chumo, the Kenya Power managing director, said that applicants to the project that seeks to take electricity to more than 300,000 customers, mostly living in rural areas, will instead get connected and the cost recovered through their monthly bills within three to five years.
Removing the initial cost to consumers, said Dr Chumo, should enable the company to connect all willing customers in the targeted areas thereby allowing it to enjoy economies of scale and speed up connectivity in rural areas.
“We will not wait for applications but will connect all homes and businesses who have applied to be connected within a locality and recover the money later,” said Dr Chumo.
“The bulk of connections, if not all, will not be based on upfront payment. Recovery of the lower connection charges will be staggered over a period of between three and five years.”
The connection fee, which is traditionally paid before power is supplied to a customer, has been one of the major obstacles to growing the number of consumers connected to the grid, especially in rural areas.
Dr Chumo said the changes are being introduced as part of the Sh34 billion Last Mile initiative that seeks to connect more than 300,000 customers, mostly living in the rural areas near the existing 40,000 transformers.
The project is funded under the Kenya Electrification Fund that is backed by Sh13.5 billion each from the World Bank and African Development Bank (AfDB). The French Development Agency has also committed Sh7 billion to the initiative.
Kenya Power had until last year been charging a standard Sh35,000 connection fee for a single-phase line but is now asking customers to pay a market price of about Sh70,000 for every pole used in Last Mile connection, an amount that is beyond the reach of many Kenyans and has more recently slowed down the rate at which the power distributor is connecting new customers.
Besides the fee, customers are also expected to have wired their homes or buildings before they are connected, a requirement that adds to the overall cost.
Kenya Power said deployment of new, cheaper technology dubbed Single Wire Earth Return (SWER) in the Last Mile project promises customers lower connection charges.
SWER technology uses a single, thinner and lighter cable as opposed to the current system that uses two or four cables to connect households to the nearest electricity pole.
The power distributor is yet to announce the standard charge which is believed to be around Sh30,000 or less. A connection cost of Sh30,000 would mean customers who repay the amount in five years will have an extra Sh500 loaded to their monthly electricity bill.
“The longer recovery is meant to ease the repayments burden that is expected to be not more than Sh500 monthly,” Dr Chumo added.
Inability to raise the Sh35,000 connection fee has previously meant that the uptake remains constrained even in places where Kenya Power has installed a transformer. It has also forced Kenya Power’s workers to make numerous field trips to connect one or few customers who manage to raise the amount —a costly exercise that is lacking in economies of scale.
Under the new model, contractors will be able to connect entire villages before moving on to another rather than making periodic trips to connect a handful of customers who have raised the connection fees.
The recovery of the cost through monthly bills should also be much cheaper compared to the Stima Loan facility that Kenya Power has been offering those unable to raise the connection fee upfront.
Stima loan is available to applicants at a five per cent interest rate. Applicants pay 20 per cent of the total loan value upfront and payment of the balance is spread out over a period of 24 months. This means customers pay nearly Sh1,200 every month under the Stima Loan facility.
The Last Mile project, which had been scheduled to start this month, has been delayed and is now expected to start in September. It has been split into 10 lots to be handled by different contractors as Kenya Power looks to accelerate connection of rural households to the power grid.
Kenya Power also plans to cut costs using smaller poles that are spaced 100 metres apart instead of the current 50 metres a desing Dr Chumo said is popular in rural areas.
“Overall, the cost of connectivity in rural areas will be reduced given the amount of material that is going to be used in the SWER design,” he said.
SWER can only be used for single-phase connections, making it ideal for rural areas targeted under the Last Mile project. Only a limited number of customers will get three-phase connections under the Last Mile project.
Kenya Power last week floated the bids for 10 contractors interested in building the new power networks while one extra contractor will supply energy meters to the rest.
The contractors will bear all costs upfront, including labour, transport, setting up poles and cables, and get paid upon completion. Kenya Power will play an oversight role.
“The project… entails 12,000 meters of low voltage distribution lines; the installation of equipment for the connection of 284,200 residential customers and 30,000 commercial customers,” said the bid invitation documents. This translates to an additional 1.57 million people accessing electricity.
Most of the counties, including those in the northern Kenya like Marsabit, Mandera, Wajir and Turkana, are covered by the project.
Currently, 37 per cent of Kenya’s population is connected to the power grid and Kenya Power is targeting a connection rate of 77 per cent by December 2016.
An estimated 3.2 million homes are connected to the grid but Kenya Power is in a race to more than double the number in the next couple of years as it looks to create demand for an extra 5,000 megawatts that will be injected into the grid by 2017.
The new customers are expected to help the listed utility firm grow its profits which have already benefited from a recent tariff review. Kenya Power’s net profit for six months to December 2014 rose by 38.5 per cent to Sh4.17 billion.
Its sales grew 40 per cent to Sh37.6 billion despite the units of electricity consumed by households and businesses going up by a smaller 5.5 per cent margin — reflecting that the higher earnings were driven by increased power prices.
Another project to grow the number of homes connected to the grid is the slum electrification project that was launched at the beginning of the year.
The project allows residents to pay a minimal charge of Sh1,160 per connection with the amount recovered in 12 months from the customer’s purchase of prepaid tokens.