Goods produced locally should cost less

Sunday January 31 2016

Kenya Association of Manufacturers chief executive Phyllis Wakiaga at a meeting with Ministry of Industrialization and Enterprise Development on January 24, 2016. Manufacturers have failed to lower cost of goods produced locally despite government having reduced the cost of power. PHOTO | LINUS OMBETTE | NATION MEDIA GROUP

Kenya Association of Manufacturers chief executive Phyllis Wakiaga at a meeting with Ministry of Industrialization and Enterprise Development on January 24, 2016. Manufacturers have failed to lower cost of goods produced locally despite government having reduced the cost of power. PHOTO | LINUS OMBETTE | NATION MEDIA GROUP 

By WANJOHI GITHAE
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Manufacturers are on the spot after failing to lower cost of goods made in Kenya despite the government having reduced the cost of power.

A scrutiny by Sunday Nation showed that companies are now saving millions of shillings per month but this relief has not been passed on to end-user customers.

Since August 2014, fuel cost charges on electricity bills have dropped sharply from a high of Sh7.22 to a low of Sh2.31 per kilowatt hour, but this has not been passed on to consumers.

Overall the bills have reduced by between 24 per cent to 30 per cent for various categories of customers.

For example a cement manufacturing company saved Sh46 million in December last year compared to what it paid Kenya Power in August 2014 in reduced power bill, but the same company has not passed the benefits to cement buyers.

In March 2013, then President-elect Uhuru Kenyatta met Kenya Private Sector Alliance (Kepsa) members in Nairobi who said the cost of doing business was high because of high cost of power.

The government then identified Independent Power Producers (Thermal producers) as the biggest cause of high power bills since they ran on expensive fuel whose price was passed onto consumers.

The government stepped up efforts of installing alternative power generators like geothermal power to minimise use of IPPs.

Today, IPPs of thermal power account for a paltry 8 per cent of power to the national grid.

Hydropower generators produce 38 per cent and geothermal power now accounts for 50 per cent with wind, biomass and the rest topping up the rest.

GENERATOR FUEL

According to Energy Principal Secretary Joseph Njoroge, heavy fuel used in the generators contributes to high cost of power together with diesel, which is used in off-grid areas.

These two contribute to the fuel cost charge in the bills shared by all consumers.

“Diesel power generators are to be found in off-grid areas of the country, however we can’t burden the consumers in those areas with high costs alone and therefore government takes all consumed units and divides amongst all consumers. This contributes to social equity in the electricity service to all domestic consumers all over the country,” said Eng Njoroge.

The PS said with geothermal power, which uses natural steam being the biggest contributor of power to the national grid, then the cost of power was bound to go down, as more geothermal power is injected into the grid.

ELECTRICITY SUPPLY

Recently commissioned geothermal power costs seven US cents per kilowatt hour while hydropower generator’s cost is 3.4 US cents per kilowatt hour, thermal power has a fixed rate cost of 3 to 4 US cents per kilowatt hour and fuel cost of 12-16 US cents per kilowatt hour depending on cost of fuel.

He said Kenya already has 30 per cent oversupply of electricity as a result of the ambitious programme by the government.

Currently the country uses about 1,600 megawatts at the high peak hours yet the entire power production chain of geothermal, hydro, thermal and others have a capacity to produce 2,282 megawatts at peak hours.

“We cannot force independent manufacturers to cut their prices but the statistics are evident to all. Cost of power has come down,” he said.

Kenya Association of Manufacturers chief executive Phyllis Wakiaga however said power outages continue to affect their production lines which end up contributing to the price of the end product.

Ms Wakiaga added that the decreased cost of power as touted by the ministry of Energy is not the only determinant of the price of products.