24 May 2013 – Kenya’s newly elected government has indicated it will not allow for a tariff increase in the price of electricity. Kenya Power and Lighting company (KPLC) has been requesting a tariff increase plan for two years, but the country’s deputy president William Ruto has instead said that the utility must instead sort out inefficiencies in its operations and that the government will not accept any proposal to increase electricity tariffs.
In February 2013 Kenya’s national power supplier sent its electricity review proposal to the Energy Regulatory Commission (ERC) on grounds that the existing tariffs were not sustainable in view of an ambitious capacity expansion and operating costs.
The implications of a politically motivated decision to deny the KPLC request could reduce its ability to maintain its system and improve the quality of power supply, as well as to meet the cost of commissioning 1,250 MW of new power projects by 2015. Power sector regulations in Kenya provide for a review of electricity tariffs every three years but there has been no review since 2008. A review was last due in July 2011 but the government suspended it for a year citing the then prevailing high level inflation that would only have escalated with the rise in power tariffs.
The review was once again suspended in 2012 in the build-up to the country’s general election. KPLC was more recently pushing for a 21% rise in the fixed charge and consumption tariff starting in March 2013 but the ERC delayed the plans citing need for deeper consideration of stakeholder views.
The stock exchange listed utility had planned to further increase the tariffs by 9% in July 2013 to cover for rising expenses. The tariffs were to rise further in July 2014 and July 2015 by 4% and 11% respectively.
The political decision to avoid increases that were seen as justified by analysts within the sector means KPLC will have to find alternative sources of funding or maximise on cost savings to support key operations including expansion and modernisation of its distribution system.
The decision by government also sends a mixed message as it has said it wishes to open the energy sector to bigger participation by the private sector to help boost the country’s power generation capacity.