Blow to struggling Kenya Power as Keter rules out increase in cost of electricity

Energy Secretary Charles Keter has rejected Kenya Power’s bid to increase electricity tariffs, a move than now offers relief to consumers but deals a blow to the utility company that was betting on new prices to reverse profit drops.

Mr Keter Wednesday said the injection of cheaper electricity from sources like geothermal and wind will lower the cost of wholesale power, which is the basis for Kenya Power’s demand for the tariff increment. Kenya Power has been seeking new tariffs after a temporary reduction of power charges for 5.7 million consumers expired in July.

The firm has hinged the recovery of its earnings on the new tariffs after issuing a profit warning for the second year in a row.

“We will not increase any tariff, what we are going to do is to work on methods of mitigating that, but as you are aware we have new, cheaper power plants like Turkana wind,” Mr Keter said.

“A company can issue profit warning depending on its financial position. As a government we are okay with it (profit warning),” he said.

The law provides that electricity tariffs be reviewed every three years but the timetable has been erratic because the regulator has often delayed or amended the rates, partly due to the government seeking to ease inflationary pressure on households and industries.

The energy watchdog last year cut retail electricity prices following an order from President Uhuru Kenyatta after widespread complaints from some domestic customers and small businesses about a costly three-year tariff introduced last July.

The tariff almost doubled the monthly bill for higher-income households, triggering complaints that forced EPRA to cut the tariff from November 2018 to July 2019 to Sh10 per kilowatt hour from Sh15.80 for customers who use below 100 kilowatt units per month. The tariff did not apply last month.

Electricity prices for low-income earners who consume 50 units increased to Sh1,063 in August last year after the July 2018 tariff increase from Sh695 a month earlier, but dropped to Sh757 after President Kenyatta ordered for a reversal.

Kenya Power is now seeking for restoration of the higher tariffs. The firm has consistently sought higher tariffs, arguing that it needs them to cover the capital-intensive nature of building and maintaining a nationwide electricity distribution infrastructure as well as the costs of buying bulk power form firms like KenGen. It blames the rising costs for the significant drop in profits for the second year running.

The utility last week issued a profit warning, saying that earnings for the year ending June 2019 will be more than 25 percent lower than the Sh1.92 billion after-tax profit posted in the financial year ended June 2018. This means Kenya Power expects to post a net profit of Sh1.44 billion at most for the full year to June 2019.