Kenya Power has encountered regulatory resistance in its fresh application to raise electricity prices after a temporary reduction of power charges for 5.7 million consumers expired in July.
The Energy and Petroleum Regulatory Authority (EPRA) — the electricity sector regulator — says it has received an application for tariff increases from Kenya Power, adding that the submission would likely be rejected.
However, a Kenya Power director Wednesday said the electricity distributor was only seeking what was taken away from the firm last year and warned that the company would aggressively resist attempts by the regulator to reject the higher tariffs.
This now sets the stage for a confrontation as Kenya seeks to make energy costs competitive compared with other African nations such as Ethiopia, South Africa and Egypt in the quest for new investments.
The energy watchdog last year cut retail electricity prices following an order from President Uhuru Kenyatta after widespread complaints from some domestic customers and small businesses about a costly tariff introduced last July.
The tariff almost doubled the monthly bill 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 kilowatt units per month.
“Our rates were cut last year with the promise they will be increased from July this year. We will aggressively demand for new tariffs because we need money to upgrade the supply network,” said the director who sought anonymity.
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 President Kenyatta order for a reversal.
Kenya Power is now seeking for restoration of the higher tariffs.
On Thursday, the energy regulator said Kenya Power’s higher tariff application would face resistance, adding that the electricity distributor’s bulk power purchase costs from firms like KenGen will fall and lower its operating expenses.
“Yes KPLC has applied for an increase in tariff, but this does not support the Big 4 Agenda since energy has been identified as an enabler,” EPRA director-general Pavel Oimeke told the Business Daily.
“A decision is yet to be made, but there is a high likelihood it will be rejected by the EPRA Board.”
Mr Oimeke noted that KenGen is commissioning a 160MW geothermal power plant, which will result in lower weighted average cost of generation, “which is good for KPLC in the form of lower operating expenses”.
He added that Kenya Power can, from next year, also tap into the 400MW hydropower from Ethiopia, which will further lower cost of bulk power purchase for onward sales to domestic customers and businesses.
However, Mr Oimeke declined to reveal the margins by which Kenya Power is seeking to raise the existing tariffs.
Kenya Power CEO Jared Othieno could not be reached for comment as he is out of the country.
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.
The utility firm spends billions of shillings annually on power lines, transformers and labour operations, among other expenditure items. Its transmission and distribution costs increased 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.
The Auditor-General’s office last year also revealed that the utility firm was engaged in a massive accounting fraud, making it difficult for investors and other stakeholders to gauge its true financial position.
Kenya Power has in addition been unable to reduce its inefficiencies, forcing the company to constantly seek higher tariffs to cover for system losses (loss of electricity through pilferages and dissipation of power in the process of transmission).
“During the year, system losses increased to 20.5 percent, up from 18.9 percent the previous financial year,” the company says in its annual report for the year ended June.
This means that the company is losing a fifth of the revenue it would otherwise have booked.