BY JAMES ANYANZWA
Kenya is preparing to cut electricity tariffs by over 33 percent from December 2021 to meet electricity demand and save the ailing energy supplier Kenya Power from the impending collapse.
Lowering consumer tariffs from an average of Ksh 24 ($ 0.21) per kilowatt hour to Ksh 16 ($ 0.14 per kilowatt hour) is part of the recommendations of a 15-strong presidential task force as part of the review effort The cost of electricity in the country has been used to attract Foreign Direct Investment (FDI) and promote industrial growth.
The development comes as the electricity distributor, which is 50.1 percent owned by the state, has gotten into a demand crisis due to its inflated electricity bills, corruption and the increasing shift from households and industry to solar energy.
Last year, the company, which is listed on the Nairobi Securities Exchange, said demand risk was a major concern for its business as large-scale consumers looking for reliable and cheaper supply switch to solar power.
Last year, the total electricity demand fell from 11,620.7 GWh in 2019 to 11,603.6 GWh, while domestic demand fell from 8,854.0 GWh in the same period to 8,796.4 GWh according to the economic report (2021).
Electricity sales to large and medium-sized commercial categories fell 3.6 percent to 4,281 GWh, while transmission and distribution losses amounted to 2,790.7 GWh, or 24.3 percent of total domestic generation in 2020.
KP’s industrial customers – who make up 54.8 percent of sales – are gradually switching to self-generated solar power, which is another blow to the already dwindling finances.
Last week, President Uhuru Kenyatta received the report from the Presidential Taskforce on Review of Power Purchase Agreements, which was constituted on March 29, 2021.
The task force, chaired by John Ngumi, who is also the current chairman of the Industrial and Commercial Development Corporation (ICDC), recommended review and renegotiation with the Independent Power Producers (IPPs) for an immediate reduction in power purchase agreement (PPA) tariffs within Ensure existing contractual agreements and cancel all unfinished negotiations on PPAs and ensure that future PPAs are aligned with the Least Cost Power Development Plan (LCPDP).
It also recommended that Kenya Power take the lead in the formulation and related PPA procurement of the LCPDP and conduct due diligence and contract management frameworks for PPA procurement and monitoring.
Kenya Power is also expected to adopt Standard PPAs and proposed Government Letters of Support (LOS) as drafted by the Task Force and conduct a forensic review of procurement and system losses from the use of heavy fuel oils.
“Consistent with the constitutional requirement of transparency in the public sector, KPLC’s annual report should include the names and beneficial ownership of all IPPs with which it has contractual arrangements,” the taskforce said.
To ensure reforms in the energy sector are implemented, President Kenyatta carried out a cabinet reshuffle that saw former Defense Department cabinet secretary Monica Juma move to the energy list, while Major Secretary General (Rtd) Gordon Kihalangwa from the Department of Public Works to the Department of Energy.
Kenya Power posted a pre-tax loss of Ksh 7.04 billion ($ 64 million) for the fiscal year ended June 30, 2020, compared to a profit of Ksh 334 million ($ 3.03 million) in the previous year.
This was due to impairments for slow and immovable inventories, additional provisions for electricity and other receivables, and unrealized currency losses due to the devaluation of the schilling against major foreign currencies
However, the company returned in the six months ended 31 in the previous year (2019).
In 2018 and 2019, the company’s net income was Ksh 3.26 billion ($ 29.63 million) and Ksh 261.55 million ($ 2.37 million), respectively.
Kenya Power is contracted to carry out the transmission, distribution and retail sale of electricity produced in bulk by Kenya Electricity Generating Company Plc (KenGen), Independent Power Producers (IPPs), Uganda Electricity Transmission Company Limited (UETCL), Ethiopia Electricity Power Company and Tanzania Electric Supply Company Limited (Tanesco).
In July 2020, the government re-formed the Kenya Power Board to streamline its operations, improve power distribution and transmission efficiency, and get the company back on track for profit after a series of scandals by the company’s directors.
In August, however, CEO Bernard Ngugi resigned to shorten his three-year term after the management dispute with the new board of directors under Vivienne Yeda’s president escalated.
Last year, the country’s total electricity generation decreased by 17.1 GWh to 11,603.6 GWh, while thermal electricity generation fell by 42.5 percent to 754.5 GWh due to a significant reduction in KenGen’s thermal electricity generation over the same period.
Wind power generation fell by 14.8 percent to 1,331.4 GWh and geothermal power generation fell by 3.3 percent to 5,059.8 GWh.
However, electricity generation from hydropower rose 32.1 percent to 4,232.7 GWh, mainly due to the favorable rainfall in 2020.
Kenya Power is confronted with high system losses, which have increased from 18.68 percent in the last seven years to 23.46 percent, whereby the company blames the rapid growth of the distribution network without a corresponding increase in electricity demand, which leads to underutilized network systems , which leads to increased technical losses.
For the 12 month period ended June 30 last year, the company had a total debt portfolio of Ksh 118.73 billion ($ 1.07 billion), of which Ksh 65.47 billion ($ 595.18 million) ) in commercial debt and 53 Ksh. 26 billion ($ 484.18 million) in loaned debt.
A World Bank survey of electricity costs and reliability in Africa found utility companies on the continent are running out of cash and deprecating their assets, exacerbating electricity shortages.
The survey, which examined 39 countries five years ago (2016), found that only the utilities in the Seychelles and Uganda were able to fully cover their operating and capital costs and utilities in 19 countries were able to cover their operating costs.
According to the survey, utilities need to focus on achieving acceptable levels of service quality in order to initiate a path to cost recovery from tariff revenues.
“The increase in tariffs with unabated defaults will inevitably lead to a backlash. They could cut costs by reducing operational inefficiencies, taking short-term measures to reduce the duration (if not frequency) of outages, and improving customer service quality in general, ”the survey said.
According to the International Finance Corporation, unreliable utility systems are a major drag on regional growth in Africa, with the cost of inefficiency in Africa’s power and water sectors estimated at $ 4.5 billion annually.
In addition to the financial costs, distribution losses also contribute to higher greenhouse gas emissions and increased water stress in the region.
On average, electrical utilities across the continent lose 23 percent of total energy use due to operational inefficiencies, at a cost of nearly $ 3.3 billion per year compared to a global average of 10 percent.
Africa is grappling with huge operational inefficiencies estimated at more than $ 3 billion annually, which has resulted in the region suffering the highest energy prices in the world with most of its electricity providers barely offsetting what their leeway for reinvestment restrictions.