Kenya consumers hit by twin electricity and fuel price shocks

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