By Otiato Guguyu, NAIROBI
Kenya
The energy regulator has made a U-turn and increased electricity prices by 15.7 percent, reversing the January cuts by the former President Uhuru Kenyatta administration, in what has handed consumers a twin blow in the wake of higher fuel prices.
The Energy and Petroleum
Regulatory Authority (Epra) also quietly hiked pass-through costs last week,
including fuel, forex and inflation adjustments, pushing the cost of a kilowatt
hour unit to Sh25.3 for domestic consumers who use more than 100 units a month.
This means that with Sh1,000,
consumers on the over 100kWh tariff would now get 39.5 units of power,
down from the 45.7 before the review.
The heavier consumers and
industries will see their power costs rise even higher since the pass-through
costs now account for more than a third of power bills.
Bills sampled by Business
Daily show Epra increased fuel cost charge (FCC) to a historic high of
Sh6.7 from Sh4.6 last month, translating to a 43 percent jump, setting
consumers up for the highest cost of power since December last year.
The FCC is the single-biggest
variable cost that is adjusted monthly and is collected by Kenya Power on
behalf of the expensive thermal power generators.
The regulator has also almost
doubled the forex charge from Sh0.7 to Sh1.3 -- a high last seen in January
2021, reflecting the impact of the shilling decline on power bills -- and
adjusted the pricing to higher inflation of Sh0.67.
A rise in the fuel and
currency surcharge increases the cost of power by reducing the number of units
consumers get for a similar amount of money.
The record-high fuel surcharge
comes at a time when the government and the International Monetary Fund (IMF)
have agreed to end the fuel subsidies that have been cushioning consumers.
President William Ruto indicated
on Tuesday he will imminently drop the fuel subsidy, setting up Kenyans for
higher transportation and production costs.
Ruto said in his inauguration speech that the economy cannot sustain consumption subsidies in the coming months, pointing to a policy shift that may see him leave the prices of food and fuel to be determined by the market forces of supply and demand.
Last night, energy officials
were holed up in a meeting to make a decision on the latest price review, which
was the first under the Ruto administration.
Epra delayed the announcement
of the new fuel prices past 9 pm as the new administration faced a tough
decision that eventually pushed pump prices by at least Sh20 more per litre.
The
regulator traditionally issues the notice on new prices before 7 pm and
last night’s delays highlighted the weight of the key decision that directly
hampers the pre-election pledge that President Ruto made to Kenyans in a bid to
lower the cost of living.
A litre of super petrol shot
up by Sh20.18 after Wednesday’s review, which saw the new administration scrap
subsidies on petrol. It will now retail at Sh179.3 in Nairobi, Sh176.9 in
Mombasa and Sh179.5 in Kisumu.
Dr Ruto retained partial
subsidies on diesel and kerosene in an attempt to protect the poor and
industries. This will see the price of a litre of diesel go up by Sh25, after a
government subsidy of Sh20. Kerosene has shot up by Sh20, after a subsidy of
Sh26.25.
A litre of diesel is now
retailing at Sh165.82 in Nairobi, while kerosene jumped to Sh147.84 on the
gradual removal of the fuel stabilisation scheme that sets the stage for a
spike in the cost of living.
An increase in energy prices
pushes up the cost of production, translating to more expensive consumer goods.
Households will require more money to pay for the same number of electricity
units during the month.
The energy regulator did not
disclose what prompted the increase in the surcharge, but it comes on the back
of costly crude oil due to demand growth in the global market.
The law provides that
electricity tariffs be reviewed every three years, but the timetable has been
erratic as the regulator has often delayed or amended the rates, partly due to
the government seeking to ease inflationary pressure on households and industries.
The tariff factors in
consumption, fluctuation in global fuel prices and hard currencies against the
Kenyan shilling as well as regulatory, hydropower, rural electrification levies
and taxes.
Electricity tariffs were
reviewed in January to effect a 15 percent reduction by the Kenyatta
administration to ease the cost of living.
The State had targeted
slashing electricity bills 33 percent by December 2021 but dropped the plan and
opted to reduce the costs in two tranches of 15 percent following opposition
from independent power producers (IPPs) who supply electricity to Kenya Power.
The IPPs argued that Kenya has
no unilateral right to alter the contracted capacity and payments, saying
instead that the State has to protect PPAs — some of who have 20-year protected
contracts.
The government shelved the
second tranche of the electricity cuts after the IMF protested, citing a
potential collapse of Kenya Power which is currently struggling with cash flow
problems.
The Fund said the tariff
reduction aggravated Kenya Power’s pre-existing liquidity challenges by
lowering revenues by an estimated Sh26.3 billion per annum.
The additional cost-saving
measures currently identified across the electricity supply and distribution
chain would only yield benefits over time and are not sufficient to fully
offset this revenue impact.
The multilateral lender has
gained influence over Kenyan policy since it gave the country Sh270.2 billion
($2.34 billion) in loans in exchange for a reform package that includes
eliminating fuel and tax subsidies to improve revenue collection.
The IMF has also introduced a new condition under its the 38-month programme requiring the government to scrap the subsidy that has kept petrol prices by October.
Kenya has since April last
year spent an average of Sh9 billion to subsidise diesel, super petrol and
kerosene— costs which rose to an average of Sh12 billion in the last four
months alone— highlighting the adverse impact of the intervention on the
country’s revenue.
Higher electricity prices
coupled with a jump in fuel is set to cascade price hikes throughout the
economy on increased costs of production, including transport and inputs.
Consumers are already burdened
with the sharpest rise in the cost of living in more than five years in August,
amid a failed maize flour subsidy, rising fuel costs and a weakening shilling.
Inflation, a measure of the
cost of living, climbed to a 62-month high of 8.5 percent from 8.3 percent the
prior month.
The shilling is currently at
an all-time high of 120.4 against the dollar, raising the cost of imports of a
wide variety of goods, including petroleum products, wheat, second-hand
clothes, motor vehicles, vegetable oils and industrial machinery.
Kenyans on social media have
recently raised concerns over reduced cash flow, fewer employment opportunities
and mounting public debt, which triggered a petition to the IMF to stop giving
the country more loans. - BusinessDaily
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