Alphonce Shiundu
3 September 2008
Nairobi — A new round of power price increases could be in the offing following a battle between the power generator and distributor over the sharing of revenue from bulk sales.
Consumers ranging from small households to giant industries are already reeling under electricity bills that have shot up by up to 100 percent after a tariff review earlier this year was compounded by a crippling increase in international oil prices.
The Kenya Electricity Generating Company (KenGen) has petitioned the Energy Tribunal to make the Kenya Power and Lighting Company to pay the generator more for power sold for onward distribution to consumers.
Recent increase
Up to this point, the arguments are about how to share the recent increase in consumer power tariffs which has seen the power bills of individuals and companies rise by more than 50 per cent in some cases.
But this could change if KPLC decided to apply to the Energy Regulatory Commission for new higher tariffs for consumers to maintain its margins.
Ms Catherine Kola, representing the Energy Regulatory Commission (ERC) at the hearing on Wednesday said if the tribunal acceded to KenGen demands, it would be setting a dangerous trend as far consumer interests go.
KenGen in turn is warning that if its application is not granted, its generation capacity would be damaged and the cost of repairing it would ultimately be passed on to the consumer.
The tribunal, chaired by Mr Njuguna Mbage will make a ruling on notice after KenGen, KPLC and ERC completed their submissions during hearings at the Reinsurance Plaza.
KengGen told the arbitration tribunal that its business would no longer be viable following a new tariff structure.
The power producer asked the tribunal to reverse the agreement which came into force in July, and reinstate the earlier interim power purchase agreement.
Impact on users
The move was opposed by both the Kenya Power and the ERC, who said KenGen's move was aimed at "frustrating" the new tariffs.
The dispute is about bulk tariffs paid to KenGen, rather than the retail or consumer prices raised in July, but it could ultimately impact on the users if Kenya Power applies to the commission for a tariff review, based on the ruling that the tribunal would deliver.
"Our application is driven by the need for equity," said KenGen legal manager Denis Onwonga. It says its only customer, distributor Kenya Power, is paying it too little for power supplied.
KenGen is challenging the legality of the regulatory commission's decision to formulate the new tariffs.
Interruptions
The power generating firm wants Kenya Power to pay a specific Sh2.36 per every unit of power (Kilowatt hour) supplied as per the interim agreement pushed by the Government.
In the new tariff structure the 'capacity charge rate regime', Kenya Power would pay 80 per cent of the amount based on "contracted capacity" and then negotiate the remainder with KenGen based on power outages and "other interruptions" to power generation.
This, KPLC's lead counsel Laurentia Njagi told the tribunal, would make the cost per unit of power consumed irrelevant.
KenGen claimed a draft power purchase agreement had been imposed on them by the Energy Regulatory Commission without consultation. It said the power distributor could afford the Sh2.36 per unit, since it had already raised consumer tariffs.
Under the interim agreement, KenGen received Sh1.76 from Kenya Power plus 60 cents subsidy from the Government.
The issue now is the sharing of the additional revenue following the rise in consumer price for electricity between KenGen and the Kenya Power and Lighting Company.
Ms Kola representing the commission, termed KenGen a "virtual monopoly" and dismissed the claims that the power regulator had acted unilaterally.
She says the consultations were indeed widespread and with all stakeholders. "There was widespread consultation," she said of the tariff fixing process.
KenGen has named the commission as first respondent while distributor KPLC is the second respondent.
According to KPLC, since the new tariffs came into play last July, it owes KenGen Sh2.29 billion, an amount which is slightly less than KenGen's figure of Sh2.3 billion.
KenGen maintained that a shift to the new payment regime would cause "irreparable damage" which would require substantial amounts of money to turnaround.
The damage, KenGen's counsel said, would affect KPLC and this may force the cost of turning around the power generation plant to be passed to the consumer.
Credit support
The tribunal heard that an estimated 75 per cent of Kenya Power and Lighting Company electricity was supplied by KenGen.
The electricity generating company warned that "crucial" credit support from development partners would be withdrawn if it did not generate enough revenues.
It accuses ERC of trying to cover its mistakes by forcing KenGen to sign a defective agreement.
While it does not envisage any short-term impact on retail prices, it says the long-term picture is bleak as it is unable to invest in generation plants.
Already it claimed, financiers are asking questions regarding its future revenue streams.
Mabati Rolling Mills (Mariakani) general manager in-charge of operations Suryia Naryana said the firm was now paying Sh53 million for electricity, up from Sh40 million - a 32 per cent increase.
But it is supermarket chain Nakumatt which has recorded the highest percentage increase.
Operations director Ramamurthy Thiagarajan said the supermarket chain was paying Sh43 million, up from Sh25 million. This is a 72 per cent rise.
According to Synresins Limited's managing director Devani Aruni, the firm was settling a bill of Sh2.7 million compared to Sh1 million previously.
And Egerton University vice-chancellor James Tuitoek said the institution's bill had shot up from Sh8 million to Sh13 million, while Bidco managing director Vimal Shah said the firm's bill was now Sh12 million, from Sh7 million.
Nairobi Water and Sewerage Company managing director Francis Mugo said his firm's expenditure on electricity was now Sh15 million, Sh4 million more than the previous one.
Athi River Mining's electricity costs have risen by 28 per cent.
Managing director Pradeep Paunrana said the company's power bill was now Sh27 million, up from Sh21 million.
A director of a textile mill who sought anonymity said they used to pay Sh2.4 million but they were now paying Sh2.6 million.
"The implication is that our clients will have to bear some of the electricity costs because we did not imagine that the rise was going to be that much," he said.
Manufacturers and institutions fear that a further surge in electricity costs could be passed on to the consumers.
In Kisumu, a spokesman at foodstuff manufacturer Swan Industries said they had received bills which had increased by as much as 25 per cent.
Thr managing director, Mr Sunil Shah, said the increases would work against the company.
Lake Basin Development Authority chief executive Joseph Khaemba said milling charges were set to increase and this would directly affect the cost of rice in the market.
"We are currently paying too much for electricity and definitely further hikes by KenGen to Kenya Power and Lightning Company will mean that KPLC transfer the charges to consumers," said Mr Khaemba.
Mr James Waliaula from Eldoret, said he used to pay an average of Sh300 per month but his bill has tripled in the last two months.
Lucas Barasa, Peter Ngetich and Maureen Ongwae
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