Kenya smallholder tea farmers earn Sh63.6 billion from tea exports
President Uhuru Kenyatta’s government must fix energy sector to attain double digit economic growth
Written by Today Financial News Monday, 29 April 2013 09:52
By TF News Team
President Uhuru Kenyatta government must address the high cost of electricity that remains the biggest challenge facing the manufacturing sector in the country today.
The pending tariff review by the utility provider Kenya Power and Lighting Company (KPLC) to the Energy Regulatory Commission (ERC) seeking to increase the costs further can only make it harder for the under performing sector.
In 2011, the sector grew by a mere 3.3 per cent. The slow performance was mainly attributed to contractions in the food processing, leather and footwear, paper and paper products, rubber products and electrical machineries sub-sectors.
The current effective energy cost of about Sh16.62 per Kwh will increase by eight per cent to Sh17.98 in 2012/2013 financial year
It will increase by seven per cent to Sh19.17 in 2013/14
It will be reduced by 20 per cent to Sh15.38 in 2014/15 and by further three per cent to Sh14.85 in 2015/2016
The value of manufacturing output rose by 19.8 per cent from Sh842.5 billion in 2010 to Sh1, 000 billion in 2011. Sales from Export Processing Zones rose by 21.6 per cent from Sh32.3 billion in 2010 to Sh39.3 billion.
The sector consumes 60 per cent of the power distributed by the KPLC and an increase in the cost will negatively affect the sector.
“The issue of improving global competitiveness of our locally manufactured products always comes to mind when these power increases are mooted,” says Ms Betty Maina, Chief Executive Officer at the Kenya Association of Manufacturers (KAM).
“It would be foolhardy to think that when Kenyan products are failing to compete at the current rates, there would be any positive change if power tariffs are increased and yet we still continue to shoot ourselves in the foot.”
However, this has not stopped KPLC from applying for a tariff review arguing that they needed more money to invest in power generation in order to meet the increasing demand.
“The application filed by KPLC in February 2011 at the end of the tariff review period of three years was in line with the tariff setting policy of the ERC, but was deferred because the power projects which would have necessitated the increase had just be tendered for, and therefore their revenues were not immediately required,” argues Eng Joseph Njoroge, CEO KPLC.
“In the absence of the required revenues to meet the financial obligations for the additional capacity necessary to meet the demand to 2016, the economy would suffer a loss of 84 US cents-US$1 per kwh, being the cost of not supplying electricity to the economy.”
He says these power projects which form part of the country’s Least Cost Power Development Plan with an aggregate capacity of 1,248MW are being developed by Independent Power Producers and the Kenya Electricity Generating Company (KenGen).
He says they are at advanced stages of implementation and some will come into operation in March and May this year, while the rest will be commissioned in early 2014 and 2015.
Njoroge argues that the country has suffered perennial power capacity shortfalls for many years due to delays and lack of investment and development of generation capacity in accordance with the generation plan.
“Already, the current demand is suppressed by about 200MW, while the system has 120MW emergency power capacity which needs to be replaced with cheaper plants,” he says.
However, the manufacturers say the managers in the energy sector had failed to utilize the money accrued from the 2008 tariff review as agreed with the stakeholders.
“The increase was granted on the understanding that the company wanted to embark on new projects that would result in system efficiency to avoid outage and to reduce system losses to no more than 15 per cent,” says Ms Maina.
“The promises of 2008 have not been fulfilled and they are projecting a gloomier picture of an even higher system loss and one wonders whether the power authority is operating in a globalised economy or sitting on an island of pragmatism and competency in managing resources do not exist.”
The KPLC, however, defends itself saying the corporation had undertaken mechanization and automation of its operations in order to become more efficient.
“A project to automate the power distribution network has been completed in Mombasa and will be commissioned in Nairobi in the course of this year,” says Njoroge.
“Plans are at advanced stage to underground the distribution network in Upper Hill, Lavington and Kilimani, Westlands, Parklands and Ngara areas of Nairobi; and the central business districts of Kisumu and Mombasa. Undergoing reduces maintenance costs and system breakdowns as well as vandalism.”
Eng Njoroge says the company will invest Sh45 billion (US$530 million) in the next five years in the system to improve the quality of power supply that has come under close scrutiny and especially due to frequent outages.
The newly appointed Energy and Petroleum cabinet secretary David Chirchir agrees that the local manufacturers cannot compete in a globalised economy with such a high cost of electricity and Kenyans will be watching how he handles the thorny issue.