The IMF and World Bank have disagreed over the push to end Kenya Power’s monopoly on selling electricity to homes and businesses.
The International Monetary Fund wants Kenya to speed up regulations that would allow other companies to sell power in competition with utilities, arguing that the country is behind schedule in liberalizing the electricity market.
But the World Bank warned the government against seeking to end the monopoly, saying that an open market would lead to higher electricity prices, which have risen the most among basic materials over the past five years.
Kenya has published regulations allowing private companies to sell electricity directly to consumers, as the government aims to end the monopoly next year.
The IMF believes Kenya is behind schedule on regulations, the approval of which is part of the conditions attached to a multi-billion-shilling loan from the fund.
“We know that the draft regulations (on open access) are out for public consultation and there is still work in progress. Once the consultations are completed, all the issues are addressed and the regulation is finally approved, we consider this to be a reform,” said Hemanot Tefera, head of the IMF mission to Kenya. It has also been implemented.
IMF financial support is seen as critical for Kenya to overcome its current liquidity challenges, mainly due to high debt interest payments.
The fund agrees with the Kenyan government that exposing Kenya Power to competition will provide choice for homes and businesses, and will ultimately reduce consumers’ electricity bills – which rose to Sh1,278 for 50 units from Sh823 in 2019.
But the World Bank expects chaos and high electricity costs in light of a 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 to pay them Sh117 billion in the year until June 2023. Consumers often complain of exorbitant power bills, which are partly due to idle capacity charges 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 dominant 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 profits of Sh30.08 billion for the year ending June compared to a loss of Sh3.19 billion, allowing it to resume paying dividends after a six-year drought.
It remains to be seen whether the government will push to end Kenya Energy’s monopoly in an economic environment that has seen the influence of the World Bank and International Monetary Fund grow.
The influence of the Bretton Woods institutions over economic policy planning in Kenya has grown to levels that require the government to implement stringent conditions in various sectors.
This is the result of increased loans that the country has recently received from the International Monetary Fund and the World Bank, which until now provided project loans to alleviate poverty, but now provide funds directly to the treasury to support the budget – including paying salaries.
The World Bank is Kenya’s largest foreign lender, with outstanding loans to the institution standing at Sh1.8 trillion from Sh692 billion in 2019.
The IMF’s loan stock rose from Sh57 billion in 2019 to Sh413.5 billion in June, but it is more vocal and poses tougher conditions compared to the World Bank.
“In the context of what we expected to accomplish by this time, not all of them have been completed and that will have to be deferred until the next time when they are completed, we will be able to evaluate them and present them to our board.” Ms. Tefera said, referring to the terms of the loan.
Last month, the IMF’s board approved the seventh and eighth reviews of Kenya’s programme, paving the way for the cash-strapped government to obtain a $606 million (Sh78.2 billion) loan tranche.
Kenya and IMF staff announced an agreement on the seventh review of its $3.6 billion (Sh465.1 billion) program in June, but the completion of the board-level review and subsequent disbursement was disrupted by deadly protests – leading to withdrawal from the Finance Bill 2024.