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The middle class pays 2.7 billion shekels a month for energy
Monday, March 27, 2023
Kenya’s middle-class households and small commercial energy consumers will spend at least Sh2.7 billion on energy each month. file image | Clash
Kenya’s middle-class households and small commercial energy consumers are set from next week to spend at least Sh2.7 billion more on energy each month, having taken the biggest hit from new electricity charges that also eliminated subsidies.
The Energy and Petroleum Regulatory Authority (Epra) on Friday approved new tariffs to protect Kenya Power from financial hardship, hitting the middle class, which consumes 31 units and above with the biggest price jump along with smaller commercial consumers.
The new charges will see electricity prices increase by an average of 15 percent to 20 percent from next week, driving up prices of manufactured goods for consumers.
Altogether, the new tariffs would see consumers pay at least NIS 32.43 billion more in excise duty alone in a year based on a conservative monthly average rate of 596.46 million units.
Epra also increased its basic consumption charge to Sh12.22 per unit of Sh10 for Lifeline customers, who consume 30 units or less per month.
The new tariffs, which contradict an earlier promise by President William Ruto that energy prices would not rise this year, will remain in place for three years, through June 2026.
Epra has also reduced the range of lifeline consumption for both commercial and small domestic customers to 30 kilowatt-hours from 100 kilowatt-hours (kWh) per month.
The objective of the fiscal policy is to ensure the short and long term financial viability of the sector’s facilities. The goal is to ensure facilities are running without distress and provide them with the capacity to meet growing energy demand, said Daniel Kipto, Ibra’s general manager.
Kenya Power will receive at least 10 percent of the additional billions each year, helping the utility expand its network and renew its aging transmission line.
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Other utilities in the energy sector such as the Kenya Electricity Transmission Company (Ketraco) and the Rural Electrification and Renewable Energy Corporation (Rerec) will share billions for their capital expenditures and operations.
Small and medium businesses consuming between 31kWh and 100kWh took the biggest hit with their tariffs increasing by 19 per cent to Sh26.10 per unit and Sh26.22 per unit respectively.
But big business and industries got a cut of 1.15 shillings per unit in the new tariffs, with Epra saying this cut, albeit marginal, would protect Kenya from further losing its competitiveness in terms of energy costs.
Kenya Power does not retain surcharges such as foreign adjustment and fuel cost fees, but instead uses them to offset hard currency losses and pay thermal power producers.
Kenya Power extracts electricity from thermal plants to meet peak demand and also to fill a deficit when the share of energy from hydro sources decreases due to low water levels.
The new tariffs are slightly lower than the rates Kenya Power submitted to Epra for approval.
Kenya Power’s request would have seen electricity prices jump by up to 78 percent, but the tariff approved by Ibra will instead see electricity prices jump by up to 63 percent.
Power sector utilities through Kenya Power submitted the proposed tariffs to Ibra in October last year.
The law mandates a review of electricity tariffs every three years, but this has been erratic, with Ibra instead delaying or lowering prices in line with the state’s efforts to ease inflationary pressure on consumers.
This is the second electricity tariff revision Epra has approved in five years, the most recent in 2018.
The 2018 tariff review saw Kenya Power lose Sh6.438 billion in revenue each year, denting efforts by the state-owned power distributor to renew its aging lines and undertake other projects while exacerbating the financial problems of other power utilities.
The new tariffs will add to the woes of many households battling hyperinflation, which rose to 9.2 per cent last month from 9.0 per cent in January – the first rise since October last year.
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The cost of electricity is a major factor in determining the country’s inflation rate because manufacturers use electricity for production.
They pass on additional energy costs to consumers through higher prices for their goods.
Tariffs are expected to gradually decrease from July 2024, which should help ease pressure on households and businesses as well as boost business competitiveness in Kenya.
“Tariffs will start to decrease in the second period of the control period because by then, Kenya Power and other utilities will no longer be facing capital-intensive projects that need huge financing and we expect customers to increase,” Ibra said.
Kenya Power had 9.01 million customers as of December last year and aims to expand the base in the coming years.
The extra billions would be a reprieve for the state-owned electricity distribution company as it battles losses blamed on a weak shilling and a 15 per cent tariff cut gazetted in January last year.
Kenya Power reported a net loss of Sh1.1 billion for the six months ending last December, down from a net profit of Sh3.82 billion in a similar period in 2021.
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