The World Bank has warned the Kenyan government as it seeks to end Kenya Power’s monopoly on selling electricity to homes and businesses, saying exposing the utilities to competition would lead to higher electricity prices.
Bretton Woods believes allowing other companies to sell power also risks the Nairobi Stock Exchange-listed utility being crippled by the long-term wholesale electricity deals it has signed with generators such as KenGen, Lake Turkana Wind and OrPower4.
The warning was delivered to Kenya via the International Monetary Fund (IMF) at a meeting in Washington DC with senior treasury officials before approving a Sh78.3 billion loan to the country.
Kenya has published regulations allowing private companies to sell electricity directly to consumers, with the aim of ending the monopoly of state-run Kenya Power Corporation in the first quarter of 2025.
The government believes the move will provide choice to homes and businesses, and will ultimately lower consumers’ energy bills – which rose to Sh1,278 for 50 units from Sh823 in 2019.
Electricity prices were the highest among basic materials during the past five years.
But the World Bank expects chaos and high electricity costs in light of the liberalized market.
“For individual consumers who may face higher tariffs due to the potential termination of cross-subsidies if larger and more profitable customers leave Kenya Power,” the IMF said, referring to the World Bank’s concerns.
“With regard to the draft open access regulation, the World Bank warned that this could have macro-financial implications especially for Kenya Power which already has long-term, fixed power purchase agreements with several independent power producers.”
Kenya Power has signed power purchase agreements with 27 companies, paying them Sh117 billion per year until June 2023.
Consumers often complain about high energy bills, which are due in part to idle capacity fees that compensate power generators for electricity that is generated but never used.
Under a typical power purchase agreement, the power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell to consumers for reasons including overproduction.
The World Bank warns that the contracts are long-term, with a term of up to 25 years, and the migration of large retail customers to new entrants could make it difficult for Kenya Power to meet its obligations.
Commercial and industrial customers account for about 51.2 percent of Kenya Power’s sales revenue, making them the main profit driver.
Larger, wealthier customers pay more for a unit of electricity, allowing Kenya Power to use it to subsidize some local consumers.
The World Bank believes that domestic consumers may have to pay more if large consumers migrate to new entrants.
The monopoly controversy comes days after Kenya Power reported a profit of Sh30.08 billion for the year ending June 2024 compared to a loss of Sh3.19 billion for the year ending June 2024, allowing it to resume paying dividends after a six-year drought. .
It remains to be seen whether the government will press ahead with its attempt to end Kenya Power’s monopoly in an economic environment that has seen the World Bank’s influence grow.
The World Bank’s influence over economic policy planning in Kenya has increased to levels that require the government to implement stringent conditions in various sectors.
This is the result of Kenya’s recent increased loans from the World Bank, which until now provided loans for poverty alleviation projects, but now provides funds directly to the treasury to support the budget – including paying salaries.
It is Kenya’s largest foreign lender, with the institution’s outstanding loans standing at Sh1.8 trillion from Sh692 billion in 2019.
“We are accelerating it to ensure our open access to our transmission and distribution networks to deepen our country’s supply and electric power markets within the East African Power Pool (EAPP). Trading within the EAPP is expected to commence in the first quarter of 2025.” Daily chores Before the IMF meeting.
“Epra (Energy and Petroleum Regulatory Authority) has just presented a revised version and transition plan to the country’s energy market. Electricity market regulations will increase the degrees of freedom in energy provision for large consumers.
The proposed regulations would open up cross-border energy trade within the seven-nation East African Community bloc, enabling economies with excess capacity to offload it through the regional energy market. Kenya currently exploits surplus hydropower from Ethiopia and Uganda.
Once gazetted, private companies will generate, transmit, distribute, export and import electricity, enabling them to supply it in bulk to retailers who will deliver the electricity and issue bills to consumers.
This is expected to expand options for energy distributors, likely creating competition for wholesale tariffs, the ripple effect of which consumers will feel through lower bills.
Frequent outages amid sky-high bills have prompted a number of businesses and households to opt for alternative sources of electricity, including solar, biomass and captive power.
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