Power utilities in the East African region are recording rising system losses, while a mix of government directives and expensive thermal power is quickly worsening their financial positions. 

Overall, system losses in Kenya, Uganda and Tanzania are way above the global average of 10 per cent, a situation that has left the power utilities Kenya Power, Umeme and Tanesco, grappling with spiralling operating costs that are passed on to consumers, making power more expensive in the region.

In Kenya, increased customer connections have put pressure on the country’s utility, with system losses rising from 16 per cent in 2010 to 17.3 per cent in 2012. Kenya Power is also having to subsidise new connections, which it says has eroded its cash position and impacted negatively on its investment plans.

Mid May, the government rejected a proposal by Kenya Power to increase electricity tariffs. Kenya last reviewed electricity tariffs in July 2008, and Kenya Power was hoping the next adjustment would cover the period to 2016.

In Tanzania, a government directive granting Tanesco the right to effect only a 40 per cent tariff increment compared with the 155 per cent increment sought by the utility has left the firm unable to raise enough cash to cover its costs, pay its suppliers on time and finance infrastructure projects that could help it lower its system losses, currently estimated at 24.3 per cent.

The World Bank estimates that the total arrears owed by Tanesco will have risen from $250 million as at the end of December to about $500 million by the end of this month.  The company is also said to lose another $25-$30 million every month due to technical reasons.

In Uganda, although system losses have dropped from a high of 35 per cent in 2005 to about 27.3 per cent last year, the utility firm Umeme continues to face infrastructure constraints, especially in its medium voltage power distribution lines. Data shows some are as long as 200 kilometres, effectively contributing to higher transmission losses.

Umeme in its latest report said that it spent $36 million on capital investments, taking the total cumulative investment to $166 million and the under-appreciated asset base to $125 million.

READ: Sparks fly over Umeme’s failure to supply power to businesses

Rwanda is racing to scale up its power output as it seeks to meet a target of supplying 70 per cent of the population with power.

Through the Energy, Water and Sanitation Authority (Ewasa) the country last year embarked on a seven-year plan to develop new hydropower and geothermal and methane gas sources.

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As regional utilities continue to under-perform and electricity supply becomes ever dearer and less reliable, companies across the region are looking for alternatives to cut dependence on expensive grid power.

“The cost of power is a major concern; there is no question about that. We have to consider alternatives,” said Allan Walmsley, managing director of Sameer Africa which has disclosed in the latest company annual report that the group is looking into either solar or coal to power its plant.

Access to electricity is generally low in East Africa. According to the World Bank, only 15 per cent of households in the region are connected to national grids. Tanzania has the highest number of households without electricity at 7.2 million, followed by Kenya at 6.2 million, Uganda at 5.5 million, Rwanda at 1.7 million and Burundi at 1.4 million.

Tanesco’s growing arrears can also be partly explained by the country’s high dependence on thermal power.

Felchesmi Mramba, Tanesco’s acting managing director estimates that the company spends an average of Tsh5.4 billion ($3.3 million) a day on fuel to produce 365 megawatts of electricity from emergency power plants. The company’s total daily revenue is just Tsh2.34 billion ($1.4 million).

“We buy this emergency thermal power at 40-50 US cents per kilowatt hour, yet we sell the same at 12 US cents. This means we basically make a loss on this power, and thus the rising arrears. A shift to gas powered plants will help us turn our fortunes around,” said Mr Mramba.

Tanesco’s loss making streak is expected to reverse with the coming into operation of the $1.2 billion gas pipeline that will allow the country to increase the contribution of its gas powered plants to the national power grid.

The company expects to start constructing four power plants by the end of the year at a total cost of about $1.5 billion, which are expected to add 990 MW by the end next year.

“This will reverse our fortunes, since we will replace the expensive thermal power with the gas-powered plants for which we shall pay about 6-8 US cents per kilowatt hour,” said Mr Mramba.

According to Sospeter Muhongo, minister for Energy and Minerals, his ministry would spend about 90 per cent of the Tsh1.1 trillion ($689.2 million) allocated to it in the 2013/14 budget on development projects.

He further revealed that the government will spend $500 million (Tsh797.9 billion) on transforming Tanesco. This will start with collecting views from stakeholders, Tanesco workers and board members on the envisaged transformation.

READ: Tanzania to unveil plan to save Tanesco

Of this amount, $300 million will come from the World Bank through a loan and the rest will be a grant worth $200 million from the African Development Bank.

The growing Tanesco arrears — estimated at about 1.5 per cent of GDP – have put pressure on Tanzania’s fiscal position, with the government having to tweak the national budget to accommodate the new spending demands from the utility.

The government injected $300 million during the current financial year into Tanesco.

For Kenya Power, the biggest challenge has been the high cost of connecting consumers.

Whereas the firm has been charging Ksh35,000 ($415) and Ksh49,000 ($574) to connect single and double phase customers (a cost last set in in 2004), the actual cost has doubled in the past five years.

Last month, the government allowed the firm to charge the actual cost of connection which is about Ksh70,000 ($824.4) for a single phase.

According to the utility firm, the cost of raw materials had risen significantly. For example the prices of diesel, poles and transformers have risen 47, 45 and 100 per cent respectively, over the past five years, meaning that the utility firm was having to bridge the difference.

“The growing difference in actual cost and customer contributions has been met by Kenya Power.

This cost to Kenya Power has risen from Ksh1.05 billion ($11.8 million) in 2007/08 to Ksh7.5 billion ($88 million) in 2011/12,” says Kenya Power in its annual report.

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The Ksh7.5 billion ($88 million) was significantly more than the Ksh3.1 billion ($36.6 million) the company made in net earnings last year.

The firm says subsidising the connections had eroded its cash position, forcing it to turn to expensive corporate loans.

As a result of the increase in customer connections, Kenya Power says it has been forced to divert funds borrowed or raised for critical capital projects meant to improve the quality of power supply.

“Some of the funds utilised included medium term loans of Ksh7 billion ($82 million) and Ksh10 billion ($118 million) in 2011. Currently, the company is sustaining its operations with overdraft/short term facilities from banks, which amount to about Ksh5.3 billion ($62.7 million),” added the utility firm in a presentation to regulators.

In addition, Kenya Power has fallen back on payments to material suppliers amounting to Ksh2.1 billion ($24.8 million) and has delayed payments to power suppliers by over 10 days beyond the contractual credit period.

Additional reporting by Joseph Mwamunyange and Isaac Khisa