Kenya Power in talks for 20pc electricity bill hike

Kenya Power #ticker:KPLC has opened talks with the energy regulator to increase electricity prices by up to a fifth after the State softened its earlier stand against higher tariffs.

The listed utility firm said it was engaging the Energy and Petroleum Regulatory Authority (EPRA) — the electricity sector regulator — on the application it made last year seeking a revision of tariffs.

The Energy ministry is understood to have made a U-turn and is now in agreement that Kenya Power needs more cash to cover the cost of buying wholesale electricity from generators such as KenGen #ticker:KEGN and maintenance of the national grid.

“We are in consultations with EPRA and will provide further information as soon as it is available,” Kenya Power managing director Bernard Ngugi told the Business Daily in an e-mail response.

If implemented, the higher tariffs will hurt household budgets and raise the already high cost of doing business in Kenya.

Kenya Power wants to increase the consumption charge for usage of less than 100 kilowatts per month to Sh12.50 a unit, up from the current Sh10.

The charge for consuming above 100 units will rise to Sh19.53 a unit from the current Sh15.80 in the event that the regulator approves the proposed tariffs.

Kenya Power holds that that the higher tariffs are justified because the present electricity prices lapsed last year.

In 2018, EPRA reduced the retail prices of electricity after an order from President Uhuru Kenyatta in the wake of widespread complaints from domestic customers and small businesses over a costly tariff introduced last July.

The tariff almost doubled the monthly bills 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 kilowatts per month.

The expiry of the temporary tariffs is what is emboldening Kenya Power to push for a review of the tariffs upwards and try to reverse its falling earnings, which has seen it issue a profit warning this year — the third one in a row.

The profit alert means the utility’s net earnings will decline by at least 25 percent of last year’s Sh262 million — which was the worst in 16 years.

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

“Tariff is basically based on the cost of power purchase and distribution so more customers mean the operational costs go up, including the upgrade of substations, all which Kenya Power has done pretty well hence the improved quality of power. The review is being handled by EPRA,” Energy Cabinet Secretary Charles Keter said in an interview.

Mr Keter said the current tariff plan was designed when Kenya Power had about five million customers.

The utility currently has about 7.4 million customers, with the new users coming from rural Kenya where revenues are low on muted demand.

Kenya Power has consistently sought higher tariffs, arguing that it needs them to cover the costs of capital-intensive building and maintaining of the nationwide electricity distribution infrastructure.

The firm spends billions of shillings annually on power lines, transformers and labour operations.

Its transmission and distribution costs increased by 14.1 percent to Sh39.6 billion in the year ended June compared to Sh34.7 billion the year before.

The firm has also been pulled down by the rising cost of buying electricity from power generators such as KenGen that jumped by Sh18 billion last year, blunting the impact of an increase in sales.

Kenya Power says the reduced electricity consumption due to coronavirus control measures has also hit the utility.

Its net profit for the six months to December declined 71.8 percent to Sh693 million, indicating that its troubles started ahead of Kenya announcing its first case of coronavirus on March 13.

The utility firm last paid a dividend in 2017.

If approved, the new prices are likely to derail Kenya’s quest to make energy costs competitive compared with other African nations like Ethiopia, South Africa and Egypt.

The cost of power is a key determinant of new investments.

An increase will hit household budgets hard given that electricity prices are among expenses whose costs have jumped the most under the Jubilee administration since 2013.