Kenyan homes and businesses will from Sunday pay 15 percent more for electricity after President William Ruto opted against extending a multibillion-shilling subsidy initiated by his predecessor, Uhuru Kenyatta.
Energy and Petroleum Regulatory Authority (Epra) director-general Daniel Kiptoo said the 15 percent discount would not be extended beyond its expiry date of December 31, setting the stage for costly electricity and pressure on the sky-high inflation.
President Ruto has been against subsidies imposed by Mr Kenyatta on items like petrol and staple maize food, terming them unsustainable.
Some of the key challenges the new president faces include bringing down the high cost of fuel and food that have pushed inflation to a five-year high while grappling with subsidy measures that policymakers warn could empty the country’s coffers.
“When the new government came in, it withdrew the support (subsidy) in August, and thus after the end of December, we will revert to the rates that were in place before January,” Mr Kiptoo told the Business Daily.
The subsidy, whose cost will hit Sh26 billion ($210 million), was meant to ease the cost of living crisis and boost economic growth by making energy costs competitive compared with other African nations such as Ethiopia, South Africa and Egypt.
The Kenyan government has been trying to boost investment in the power-hungry manufacturing sector in recent years. The 15 percent cut implemented in January saw the cost of buying 200 per kilowatt hour (kWh) of electricity a month drop from Sh5,185 ($42) in December to Sh4,373 ($35) in January.
Those consuming 50 units a month and who are subsidised by the State saw the cost drop to Sh796 ($6.45) in January from Sh945 ($7.66) in December, representing a 15.7 percent decline. But the 15 percent discount has since been wiped out by the increase in the foreign exchange and fuel adjustment surcharges on electricity bills.
A wobbly shilling and heavy reliance on diesel-powered generators to produce electricity, due to low water levels in the country’s hydroelectric dams, have been blamed for the rise in fuel surcharge and forex adjustment costs.
A weak shilling means fuel import costs have been rising.
In November, those consuming 50 units a month paid Sh940 ($7.6) while homes and businesses that used 200 units parted with Sh4,948 ($40.1). This means consumers using 50 units a month will pay about Sh140 ($1) more while those on 200 kWh will need an extra Sh740 ($6) for their January power bills.
The increase in the cost of electricity will unleash pricing pressure across the economy as producers of services and goods factor in the higher cost of energy.
This will be a blow to consumers who are also grappling with historically high prices for fuel and food amid the worst drought in 40 years. Inflation eased by 9.4 percent last month after the drought drove up food prices and higher energy costs.
Kenya’s inflation has since June breached the target range of 2.5-7.5 percent, prompting the Central Bank of Kenya’s Monetary Policy Committee (MPC) to raise benchmark interest rates to curb consumer spending.
Since May, the MPC has raised the benchmark interest rate by 175 basis points to 8.75 percent, signalling lenders to raise the cost of borrowing.
The Central Bank of Kenya expects the inflation rate to remain above the government’s target range until early next year and then ease on the back of policy measures.
From the Sh26 billion ($210 million) subsidy, Kenya Power lost an annual revenue of Sh7.8 billion ($63.2 million), Kenya Electricity Generating Company (KenGen) – Sh3.5 billion ($28.3 million), Kenya Electricity Transmission Company Limited Sh500 million ($ 4 million) and Geothermal Development Corporation relinquished Sh346 million ($2.8 million).
This comes as households struggled with costly essential items such as food and easing public anger over the high cost of living.
Policymakers and politicians took notice of the online campaigns by ordinary Kenyans concerned about reduced cash flow, fewer job opportunities, and the rising cost of living as campaigning for the August 9 General Election gathered pace.
Kenyans missed out on the second phase of a 15 percent cut in electricity bills after the pledge from the Uhuru government now shifted to the new administration.
The second tranche was hinged on the ‘big’ independent power producers cutting wholesale power prices and offering Kenya Power room to further lower retail tariffs. The State failed to strike a deal with the power generators for a lower charge.
Delays in negotiations with IPPs and lack of funds or financial commitment from the Treasury to cushion Kenya Power from revenue losses derailed the second cut of 15 percent.
The funds are meant to protect Kenya Power from losses and help maintain the profitability path. Private power producers, mainly owned by foreigners, have opposed the push to lower wholesale tariffs.
OrPower 4 Inc, which files disclosures at the US Securities Exchange and has the largest private geothermal operations in Kenya, says the government had instead decided to review new power purchase deals rather than renegotiate the old ones.
Under a typical power purchase agreement, a power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell it to consumers.