Kenya Power #ticker:KPLC has made an application to increase electricity prices by up to a fifth in a review that if implemented will hurt household budgets and raise the already high cost of doing business in Kenya.
The listed utility firm has sought approval from the Energy and Petroleum Regulatory Authority (EPRA) — the electricity sector regulator — for the raising of tariffs to reverse its reducing profitability and review the temporary reduction of power charges that expired in July.
Kenya Power wants to increase the consumption charge for those consuming less than 100 kilowatts per month to Sh12.50 a unit, up from the current Sh10.
This will see the bills of homes consuming 50 units monthly increase to Sh961 from the current Sh816, representing a 17.8 percent jump when other charges like taxes, inflation and fuel and forex levies are incorporated.
Households consuming 200 units will get a bill of Sh5,477 from the current Sh4,612, reflecting a 18.8 percent rise, given their consumption charge will rise to Sh19.53 per unit from the current Sh15.80 in the event that the regulator approves the proposed tariff.
Yesterday, EPRA softened its earlier stand to reject plans to raise the tariffs and said it was reviewing Kenya Power’s application.
“The tariff application is still under review by EPRA and stakeholder consultations will be held before any determination is made,” EPRA Director-General Pavel Oimeke told the Business Daily in an interview.
If approved, the new prices are likely to derail Kenya’s quest to make energy costs competitive compared with other African nations like Ethiopia, South Africa and Egypt. The cost of power is a key determinant of new investments. An increase will hit household budgets hard given that electricity prices are among expenses whose costs have jumped the most under the Jubilee administration, in government since 2013.
Households consuming 50 kilowatt hours (kWh) paid Sh816 last month compared to Sh556 in May 2013, reflecting a 47 percent increase despite billions of shillings of investments in cheaper renewable sources of power like wind, solar and geothermal.
Last year, EPRA reduced the retail prices of electricity after an order from President Uhuru Kenyatta in the wake of widespread complaints from domestic customers and small businesses over a costly tariff introduced last July. The tariff almost doubled the monthly bills for higher income households, triggering complaints that forced EPRA to cut the tariff from November 2018 to July 2019 to Sh10 per kilowatt hour from Sh15.80 for customers who use below 100 kilowatts per month.
The expiry of the temporary tariffs is what is emboldening Kenya Power to push for a review of the tariffs upwards and reverse its falling earnings, which has seen it issue a profit warning this year—the second alert in a row.
“Kenya Power assumes that the Retail Tariffs Application to adjust non-fuel base tariffs shall be approved in its entirety as the company may face operational challenges if review is not granted,’’ Kenya Power wrote to the regulator in the application. “The company may become financially unviable since its required continued improvement in service needs substantial investment.”
The law provides that electricity tariffs be reviewed every three years, but the timetable has been erratic as the regulator has often delayed or amended the rates, partly due to the government seeking to ease inflationary pressure on households and industries.
Electricity prices for low-income earners who consume 50 units increased to Sh1,063 in August last year after the July 2018 tariff increase, from Sh695 a month earlier, but dropped to Sh757 after Mr Kenyatta ordered for a reversal.
Small businesses like barber shops and welders will be the hardest hit by the initial review. The micro businesses consuming 200 units will see their bill rise to Sh5,435 from the current Sh4,565, reflecting a 19.1 percent rise.
Kenya Power has consistently sought higher tariffs, arguing that it needs them to cover the capital-intensive nature of building and maintaining a nationwide electricity distribution infrastructure. he firm spends billions of shillings annually on power lines, transformers and labour operations. Its transmission and distribution costs increased by 14.1 percent to Sh39.6 billion in the year ended June compared to Sh34.7 billion the year before.
The company’s aggressive spending has come under scrutiny after its previous management team was charged with fraudulent procurement. The senior managers, including former CEO Ken Tarus, were charged in connection with the supply of faulty transformers that have allegedly seen the utility firm incur a loss of some Sh408 million. The charges stated that they allegedly conspired to commit an economic crime on diverse dates between August 3, 2013 and June 12, 2018 when they procured the transformers from Muwa Trading.