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Economy

Kenya Power resists looming tariff cuts

Kenya Power Ken Tarus ERC
Kenya Power managing director Ken Tarus (left) with Energy Regulatory Commission director-general Pavel Oimeke when they appeared before Senate Departmental Committee on Energy in May. FILE PHOTO | JEFF ANGOTE | NMG 

Electricity distributor Kenya Power’s #ticker:KPLC opposition to the planned cut in consumer tariffs has prevented release of the proposed charges for public scrutiny, prompting last-minute meetings to save the deal from collapsing.

The Energy Regulatory Commission (ERC) last week promised to slash power costs for homes and businesses by eight per cent from July 1 when a new billing structure comes into force.

The energy regulator followed the promise with a notice in the newspapers last Friday asking Kenyans to peruse the proposed rates it said had been posted on its website and that of Kenya Power. But no copy of the new rates had been published on either website for scrutiny four days later, yesterday.

ERC director-general Pavel Oimeke attributed the delays to several contentious issues that Kenya Power had raised.

“There are contentious things we have to iron out first. Our team is meeting Kenya Power for talks before we come up with a final structure possibly by tomorrow (today),” Mr Oimeke said yesterday.

The ERC director-general had told MPs that the new tariffs would cut power costs by eight per cent from next month. This was despite Kenya Power’s earlier application to have a tariff increase to enable it cover rising operation costs and undertake network upgrade.

Power tariffs currently in place were last reviewed in July 2015.Kenya Power, the Nairobi Securities Exchange-listed electricity distributor, is majority-owned by the government (50.1 per cent stake) — giving the State a big say in its operations.

Reducing the cost of energy has been a key plank of President Uhuru Kenyatta’s economic agenda – given that power is a key ingredient in manufacturing that impacts the competitiveness of locally produced goods in the market and the cost of living for households.

Kenya Power is said to be opposed to the tariff-cut plan for three reasons. The electricity distributor argues that it is carrying a heavier burden of system losses with the recent surge in the number of domestic customers connected to the national grid through extension of low-voltage lines to remote areas. Low voltage lines are fraught with higher power losses — the share of electricity that Kenya Power buys but gets lost during transmission and distribution.

The ERC factors in transmission losses, including leakages and theft, when setting tariffs Kenya Power is allowed to charge consumers.This means should the power company have its way, customers will pay more.

Millions of homes have recently been hooked to the power grid under a government subsidy programme launched in 2015 to speed up electrification.The Last Mile Connectivity Project has expanded Kenya Power’s customer base from about two million in 2013 to 6.7 million currently.

The project has enabled households to get connected at half the previous charges and make payments over a three-year period.Despite the three-fold customer growth, demand has failed to keep pace since most households have low consumption levels, leaving the firm with a burden of distribution losses.

Kenya Power has also argued that it is carrying a heavy load of financing costs for its new lines and substations.

Besides, Kenya Power has anchored its pushback against the proposed lower tariffs on the upsurge in operations and maintenance costs as it undertakes major repair works on the ageing network to reduce outages.

The company also argues that it needs to build a solid cash reserve to comfortably pay for new power generation projects in the pipeline.Kenya Power is bound to buy electricity from the 310-megawatt Lake Turkana Power project, which is complete but awaiting construction of a transmission line linking it to the national grid.

Several new geothermal power plants are also expected to come on stream next year.

Electricity transmission losses stood at 18.8 per cent in the financial year to June 2017, above the ERC’s limit of 15.9 per cent.The losses are the difference between the units of electricity Kenya Power buys from producers and the actual units sold to consumers.

Power losses below the allowable 15.9 per cent translate to efficiency earnings while above the limit amounts to losses that the firm must absorb.

Records show that one percentage point of system losses amounts to sales of Sh1 billion, making its reduction a key determinant of the company’s profitability.Kenya Power’s half-year net profit for the period to December dropped 30 per cent to Sh2.9 billion, dimmed by heavy cost of financing debt.

The company has been keen to boost its earnings through higher tariffs since it does not benefit from monthly adjustment of pass-through costs for fuel and forex. This is because it only collects the revenues from customers for onward remission to power producers, leaving a neutral impact on its revenues.

“They have strongly built a case, which is justified, but the best we can do for them is retain the losses rate at 15.9 per cent,” said Mr Oimeke.

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