Electricity supply companies in East Africa have started raising funds to finance more consumer connections and boost supply. The fundraising is likely to see shareholders and users dig deeper into their pockets.

In the past one month, utility firms in Kenya, Uganda and Tanzania have announced plans to increase power production and the number of households connected.  

The new investments, which will see the cost of power increase in the short run, aim to bring down the cost of connections in the next five to 10 years, enabling more households to access electricity.

Last week, Kenya Power announced a 16 per cent increase in the cost of electricity this week, as the company seeks to service its mounting loans.  

Kenya Power tripled the foreign exchange levy from 76 cents to Ksh2.80, and increased the fuel levy by 27 cents to Ksh5.66 per unit.

These are the two variable components of the monthly bill that the power distributor is allowed to adjust every month to take into account changes in international prices of crude oil and in the value of the local currency against the dollar.

On Wednesday, Kenya Power said it will cost $1.17 billion to connect its next one million customers. The adjustment in  tariffs is likely to strain household and business budgets.

The cost of connecting an additional consumer has gone up from $823 to $1,176.

“The cost of connection per household will be higher because we are required to invest in new transmission infrastructure. So we will spend much more than we spent to connect the previous batch of one million,” said Joseph Njoroge, the managing director of Kenya Power.  

He said the company will use long term loans and funds raised from capital markets to finance new connections. 

Uganda’s Umeme is planning to raise money through an initial public offering. The company hopes to raise part of $400 million required to connect more than 550,000 new customers, extend its network and improve its quality of supply.

Tanzania Electric Supply Company (Tanesco) has resorted to debt collection to recover at least $190.5 million to stabilise its accounts, and raise funds to meet the rising demand for new connections.

Tanesco requires $635 million to become financially stable and finance new large scale connections, says a report by the company to the Energy and Water Utilities Regulatory Authority (Ewura).

Rwanda is also trying to bridge its widening energy deficit, which is putting pressure on its economy.

Rwanda’s installed capacity is 64.55MW (local) and it imports 14.5MW. The cost of energy in the landlocked country has risen to $0.22 kilowatt per hour (KWh), compared with $0.08 to $0.10 in the rest of the region, according to World Bank figures.

Demand for new connections is driven by the country’s growing economy, resulting in a middle class that is spending more, and an expanding informal business sector.

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. This is followed by Kenya at 6.2 million, Uganda at 5.5 million, Rwanda at 1.7 million and Burundi at 1.4 million.

A recent study by the Lighting Africa programme of the World Bank shows that Rwanda experiences the highest number of power outages, with an average of 14 blackouts per month, followed by Burundi and Tanzania both with 12.

Ugandans expect 11 blackouts a month. Kenya’s power grid is more reliable, but still experiences an average of seven blackouts a month.

As a result, some 56 per cent of mid to large-sized firms in the region rely on generators for part of their production process, pushing up the cost of doing business.

Over-reliance on hydroelectricity has led to a fall in distribution during the dry season. Kenya, Uganda and Tanzania have rationed power several times this year, hurting manufacturers.

Uganda and Tanzania will prolong the rationing as their governments repay loans to independent power producers, acquire new generators or build new power infrastructure.

In January, Tanzania raised its electricity tariffs by 18 per cent, even as the Confederation of Tanzanian Industries said 50 companies had closed shop last year due to high energy costs. More companies are expected to close this year, CTI said.  

Earlier this year, Uganda increased electricity tariffs by 40 per cent by halting power subsidies, giving the country an additional $200 million every year to finance investments in the power sector.

While electricity supply in Uganda has improved this year, the need for a wider distribution network and concern over a new pricing regime are affecting consumers.

Consumers in Uganda pay $0.212KWh for domestic consumption and $0.198KWh for commercial use.

Domestic and commercial users in Rwanda pay $0.186KWh, compared with Kenyans who are charged $0.215KWh for domestic consumption and $0.225KWh for commercial consumption.

In spite of increased power supply from the newly completed 250 megawatt Bujagali dam, access to electricity remains low at around 10 per cent of the population.

Figures from Umeme indicate that the total customer base rose by 13 per cent to 458,000 in 2011. 

However, the new power pricing regime has rattled manufacturers. “Pegging electricity prices to movements in inflation and exchange rates is going to cause uncertainty in local businesses.

It is hard to project one’s costs and revenues in such a short period of time,” said Deo Kayemba, chief executive of East African Roofing Systems.

Kenya Power achieved a 35 per cent connection rate in May, with the number of households accessing electricity at 2.1 million, of an estimated six million.

The company has been connecting 20,000 households every year, but fewer will be connected in the period going forward because of the time it will take to set up the new transmission.

READ: Kenya to link to SA power grid by 2015

Tanzania is currently benefiting from financing from the Millennium Challenge Account facility of $206.5 million, which is being used to finance Zanzibar Interconnector, Malagarasi Hydropower and Kigoma Distribution, among other projects.

By Steve Mbogo and Bernard Busuulwa