A study on the true cost of electricity in Kenya most important and urgent

Tuesday May 21 2013


By JAINDI KISERO [email protected]

It looks like the new administration will not allow an increase in electricity tariffs in the near future. They don’t want to spoil the party in the middle of their honeymoon. 

If you go back to the statements they made during the campaign period, and you track the broad thinking in their manifesto, power tariff increases are out of the question right now, the economic merits and demerits notwithstanding.

I gather that the administration has appointed an inter-ministerial committee of top officials from both the Ministry of Energy and the national Treasury and asked them to come up with ways of avoiding an increase in electricity charges.

Several options are on the table for consideration. First, whether the government should give Kenya Power budgetary support to mitigate the impact of the freeze on tariff increases on its revenues.

Mark you, throughout the administration of President Kibaki, the tariff was adjusted upwards only once — in 2008.

The second option being considered is how to expand the so-called Stima Loan arrangement where Equity Bank and the National Bank of Kenya have been giving loans to individuals seeking new connections.

Third, that a study be urgently conducted to determine the true cost of electricity. I gather that the French Development Agency has offered to finance the study, but of all the options being considered, the study on the true cost of providing electricity is the most vital.

I want to see numbers detailing the level of inefficiency in all institutions involved in the power sector — Kenya Power, KenGen, Geothermal Development Corporation, the Kenya Electricity Transmission Company, Rural Electrification Authority and the Energy Regulatory Commission.

I want to see the size of the staff complement in each of these institutions and what the numbers look like when viewed against the more efficient utility companies in the developed World.

Kenya Power has been complaining about the high cost of materials used in connecting new customers — cables, electricity poles, transportation and logistics.

Can this new study scrutinise the company’s procurement systems and compare the prices at which it buys poles, cables, conductors and transformers with what other utilities pay?

Are delays in procurement a cost-driver and how does it play on consumer prices? How many procurement cases are stuck in the public procurement appeals system?

Is the electricity consumer being made to pay for inefficiencies in the procurement systems?

The Geothermal Development Corporation has been buying drilling rigs from China. At the same time, KenGen has also been buying rigs from China. These massive rigs cost billions of shillings.

The study must give us actual numbers so that we can see what duplication of roles and functional overlaps between state-supported institutions in the sector is exerting pressure on electricity prices.

What is the cost of electricity in Kenya compared to its major trading partners within either the Comesa trading bloc or the East African Community?

I have seen many comparisons, but most of these studies only give you aggregated numbers.

What is the point in figures which tell you that power is cheaper in that country than it is in Kenya when that country suffers way more load-shedding than Kenya?

Cheap can be expensive. When making comparisons, what is being revealed is the economic cost of electricity. And, you must compare like with like.

On the face of it, electricity is twice as expensive in Kenya as it is in Egypt, which is our most formidable trading partner under Comesa.

Yet, there the State absorbs all development costs. It is not all passed to the consumer. Utilities in that country are heavily subsidised. Egypt sits on large natural gas resources.

And as we gradually shift to cheaper, renewable energy sources — geothermal, wind, biomass and coal — we must ensure we do not get stuck with the expensive diesel generators we have been contracting IPPs.