Kenya Power protests tariff increase freeze

Kenya Power #ticker:KPLC has sent the Energy ministry a letter protesting delays by the energy regulator in reviewing electricity charges to increase prices by up to a fifth.

The listed utility firm has since last year been engaging the Energy and Petroleum Regulatory Authority (EPRA) on the application it made last September seeking a revision of tariffs to cushion it from losses and supplier defaults.

In the protest letter to the Energy ministry, Kenya Power is seeking help in ending the tariff stalemate, review of bulk power purchase agreements and sharing losses with other State firms in the sector such rural electrification agency and the arm in charge of high voltage transmission.

The electricity distributor in the terse 10-page confidential letter reckons that the energy regulator is in breach of the law, which requires that retail power tariffs be reviewed every year.

The firm says it has lost sales of Sh37.3 billion in the year to June due to delays by EPRA in offering the utility higher tariffs, raising the prospect of the company dipping into losses.

“While the policy regarding electricity tariff has been clear about timeline for review, it has been observed that the regulator has not been reviewing the tariffs when due as required by the law,” says Kenya Power in the letter seen by the Business Daily.

“Risk of Kenya Power defaulting on its contractual obligations if no timely and commensurate tariff is not provided.”

Kenya Power owes its key supplier KenGen Sh23.7 billion, pointing to a growing debt distress that exposes the firm to penalties for defaults.

The debt covering the period to June 2020 excludes Sh19.48 billion owed to independent power producers supplying it with electricity and Sh4.67 billion owed to the Kenya Electricity Transmission Company.

The firm recently said it had received a debt relief from 14 foreign-based lenders and had opened talks with five commercial banks to restructure its debt, which stood at Sh68.3 billion in June 2018.

Kenya Power issued a profit warning indicating 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. It last paid a dividend in 2017.

If implemented, the higher tariffs will aid Kenya Power’s turnaround efforts, but 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 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.

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.