Kenya: Cut Electricity Charges By Half, Manufacturers Urge the Government

5 October 2021

Manufacturers in the country have welcomed recommendations by the Presidential Taskforce on review of power purchase agreements, to reduce electricity charges for consumers and enterprises.

They, however, called for further reduction of electricity tariffs for enterprises beyond the recommended 33 percent, to at least half the current costs. Kenya Association of Manufacturers (KAM) says current charges have been detrimental to the sector and are the most expensive in the region.

"In this spirit, it is imperative that there is new focus on reviewing the taxes, levies, and charges on power bills for manufacturers to reduce the overall cost of power," said KAM Chairman, Muchai Kunyiha, arguing that this was the only businesses in the sector could compete with others in the region and preserve the country's edge as an investor-attractive destination.

He noted that in comparison to other countries in Africa, manufacturers in the country have been paying up to more than four times for electricity, a factor that has highly increased the cost of production and denied Kenya-made products competitiveness.

"Presently, the tariff for industrial consumers stands at US cts 18/kWh, compared to Ethiopia at US cts 4/kWh, Egypt US cts 6/kWh, Uganda US cts 12/kWh, Tanzania cts 7/kWh and South Africa US cts 9/kWh," Mr Kunyiha said in a statement Friday.

End-user tariff

The association added it advocates for the need for reduced end-user tariff, stability and reliability of the grid, planning with end-user tariff in focus, Kenya Power's sustainability, net metering and fast-tracking of infrastructure projects during its engagement with the taskforce, as some of the ways to reduce power costs.

The taskforce was formed following a directive by President Uhuru Kenyatta in March, to undertake a comprehensive review and analysis of the terms of all Power Purchase Agreements (PPAs) entered into by Kenya Power and develop a suitable strategy for engagement with the Independent Power Producers (IPPs) and lenders, the aim to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector.

It handed over its report to the President on Wednesday, revealing that most of the PPAs had been skewed through exaggeration of prices for the deals with some IPPs, to the detriment of power consumers.

"The President has considered the Report of the Taskforce and notes that the key findings were: the vast differential between KenGen and IPP tariffs and electricity dispatch allocations, the lack of proper demand forecasting and planning, leading to irreconcilable projections as against demand, the existing risk allocation imbalances between KPLC and IPPs further exacerbated by poor contract management frameworks and an uncoordinated institutional architecture that inadvertently contributes to enhanced operational costs passed on to consumers," a press statement by the Presidency stated.

The taskforce recommended that there be established a path towards the reduction of the cost of electricity in the country by over 33 percent within four months. Manufacturers now say the only way the sector can regain its energy and operate competitively and cost effectively will be by reducing current electricity charges by half.

This is amid concerns from the sector that high power charges have been preventing potential investors, who would have catalysed economic development in the country, from setting up base in Kenya.

Consumer tariffs

"The consequence of the proposed interventions is that a consumer who previously spent Sh500 per month on electricity shall by December 31, 2021 pay Sh330 per month. This cost reduction will be achieved through the reduction of the consumer tariffs from an average of Sh24 per kilowatt hour to Sh16 per kilowatt hour, which is about two thirds of the current tariff," the statement partly read.

Manufacturers termed the decision "a positive and encouraging move for industry, and a significant milestone in the long-standing efforts towards the reduction of power costs to boost local manufacturing and investment in the sector."

They said the decision would be a favourable boost for the sector as businesses recover from impacts of the Covid-19 pandemic.

"The recommendations provided will play a critical role in lowering the overall cost of electricity, particularly in reducing system losses and aligning Power Purchase Agreements to the Least Cost Power Development Plan," Mr Muchai added.

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