Investors have been offered a low power tariff of Sh5 per kilowatt-hour(kWh) to set up factories in the Special Economic Zone (SEZ) in Olkaria, Naivasha, as the government takes tangible steps to grow the country’s manufacturing base and create more jobs.
The Energy and Petroleum Regulatory Authority (EPRA) said it had approved the sweetheart tariff deal for the large industries that will set up base in the special zone.
“The Energy and Petroleum Regulatory Authority has approved the applicable tariff of Sh5.00/kWh for the Olkaria-Kedong Special Economic Zone in Naivasha,” EPRA director- general Pavel Oimeke said in a gazette notice on Friday.
The latest incentive for industrialists come at a time when observers have raised concerns that Kenya is falling behind other countries like Ethiopia and Rwanda in winning investment from companies moving supply chains out of China to escape higher tariffs amid the US-China trade war. Kenya is East Africa’s largest economy and is also strategically located for both international trade due to the Mombasa port and the fact that Nairobi is an air travel hub in the region. More than 100 local and foreign investors have expressed interest in setting up shop at the planned Naivasha industrial park where 9,000 acres have been set aside for SEZ factories’ development.
Market data shows the Sh5kWh tariff is about half what is charged on large-scale commercial consumers who pay between Sh10.10-12/kWh during peak hours.
The sweetheart tariff will place Kenya closer to its regional economic rivals that offer large industries concessional tariffs to attract investments. Kenya’s industrial power costs are higher than those of its African competitors, blunting the country’s competitive edge, according to the Kenya Association of Manufacturers (KAM) – a lobby for industrialists.
Large industries in Ethiopia’s pay about Sh3.11 per unit of power compared to Sh5.19 in Uganda and Sh6.22 in Burundi. Besides high tariffs, local manufacturers also shoulder the burden of erratic power supply, which stalls production and saps employee morale.
Sources said the new electricity tariff is based on lower evacuation costs from geothermal generating plant located within Naivasha. KenGen recently moved to diversify its revenue streams by inviting investors to set up export-only textile and apparels plants on the 309-acre industrial zone in Naivasha.
The KenGen Green Energy Industrial Park, which has four zones, is connected to Mombasa port via the standard gauge railway (SGR) line and offers prospective companies direct connection to cheap electricity.
KenGen said the Olkaria property is divided into four plots: Site A (70 acres), Site B (82 acres), Site C (100 acres) and 57 acres reserved for Site D.
“Under the lease, the manufacturing/processing firms (locators) will be supplied with utilities such as geothermal steam and brine (hot water) as well as raw water,” said the electricity producer. Factories around the SEZ will also be served by the just completed Naivasha-Nairobi-Mombasa Standard Gauge Railway (SGR), easing connectivity.
This will enable them to import raw materials which will be delivered directly to their factories and later have manufactured products exported to other countries like Europe and the Americas with ease due to access to the Jomo Kenyatta International Airport as well as the Port of Mombasa.
Among the targeted companies are the labour intensive export-only textile and apparels plants. Kenya has been expanding and simplifying the tax incentives it offers for investment in special economic zones in a bid to attract investment into those zones.
In July 2019, the government designated 9,000 acres of land in Naivasha, Mombasa and Machakos as SEZs in efforts to boost manufacturing. The SEZs are designated areas aimed at promoting and facilitating export-oriented investments. Kenya recently improved its global ranking among the world’s largest geothermal powerhouses after it completed the testing of the first unit of the Olkaria V project.
The 82.7 megawatts project pushed Kenya above Iceland to position eight in the global rankings as the country continues its advancement towards green energy. “We are delighted to announce the completion of the first unit of Olkaria V geothermal power plant and subsequently injecting 79 megawatts to the national grid,” said KenGen Managing Director Rebecca Miano last year.
“This brings to 612 megawatts the total amount of installed geothermal power capacity by KenGen and will be significant in ensuring that our country’s power needs are met through the continuous use of green energy solutions.” Local and foreign investors have been seeking licences to put up 100 SEZs, according to the Industrialisation Ninistry. The ministry earlier said the applications are being scrutinised, with priority given to those eyeing production with locally-sourced raw materials. According to newly-proposed draft rules, SEZ enterprises shall not be subject to minimum export requirements, minimum quotas or minimum quantitative restrictions when selling goods originating in the areas, whether to other areas outside or within the customs territory. Manufacturing’s contribution to Kenya’s gross domestic product (GDP) has averaged 11 per cent in the past 10 years showing a general stagnation of the sector.