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Kenya Power company now freezes new power connections

kplcElectricity distributor Kenya Power has stopped connecting new customers to its grid, putting on hold billions of shillings worth of investments countrywide.

The company, which connected more consumers on its grid in the past 10 years than it did since Independence, said a recent freeze in tariff increment plans had left it without the money it needs to connect new customers.

Consumers told the Business Daily that the power firm suspended connections in January and has since stopped accepting payments even from applicants it had given quotations.

The government last month rejected Kenya Power’s bid to double connection charges to Sh70,000 from Sh34,980 and the freeze is seen as giving the company a window to hold onto the applications in the hope that it will be allowed to levy the new charges.

The Sh70,000 price tag is for single-phase applicants who are located within a 600-metre radius of a transformer. A three-phase connection costs Sh49,080.

The freeze means that newly-constructed homes and business premises will remain without electricity in the near term or their owners will incur heavy expenses on diesel-powered generators or solar power kits.

Kaburu Mwirichia, the director general of the Energy Regulatory Commission, said he was not aware of the freeze but added there was need to establish the actual cost of electricity connection.

“We want to do a study to establish the connection cost because the current figure was set long ago and is now outdated,” said Mr Mwirichia in an interview.

“We have already developed the terms of reference and the next stage is tendering for a consultant,” he said, adding that the report should be ready in two months.

Efforts to reach Kenya Power managing director Joseph Njoroge were unsuccessful as he did not reply to our queries by the time we went to press. The prevailing subsidised connection charges were introduced in 2004 as a strategy to deepen access to electricity.

With only one in every four Kenyans having access to electricity, the suspension risks derailing the government’s target of raising access rate to 40 per cent of the population by 2020.

Kenya Power adds an average of 25,000 users to the grid every month, and currently has 2.1 million customers in its books. In the 12 months to June last year, the power firm added 307,101 new consumers to its network.

Consumer lobby Cofek has opposed the freeze, terming it “outrageous” and “insensitive.”

“We have received reports from all over the country that Kenya Power is not making new connections, pending the revision of rates,” said Stephen Mutoro, the secretary-general of the Consumer Federation of Kenya (Cofek).

“You cannot withhold a service from a consumer because you are waiting for prices to go up,” he said.

A trader from Kiambu County who only identified herself as Wanjiru said she had applied for meter separation more than a month ago, but Kenya Power staff informed her that they were not receiving applications.

A businessman from Chuka, Tharaka Nithi County, who declined to be named for fear of reprisals , said he had applied for electricity connection for his new building in April but is yet to be connected.

“When I visited the Kenya Power office in Chuka, they told me to keep waiting until the head office in Nairobi issues a directive on new connections,” he said.

Owners of buildings offering office space, go-downs and manufacturing premises will be hardest hit by the hitch as they cannot get tenants for their properties.

Two weeks ago, Deputy President William Ruto stopped Kenya Power from raising electricity costs, calling on the firm to sort out operational inefficiencies and power losses.

(Read: Ruto stops Kenya Power from raising electricity costs)

Kenya Power wanted to more than double electricity charges for domestic users consuming less than 50 kilowatts per month, who were to pay Sh5.10 per kilowatt-hour from the current Sh2.00 per kilowatt hour. It also wanted to increase the monthly fixed charge to Sh250 from Sh120.

Households consuming between 50 and 1,500Kwh would see their energy costs rise to Sh11.90 from the current Sh8.10 for each unit of power consumed.

The electricity distributor last reviewed power tariffs in July 2008 and had applied to the ERC for approval to raise the rates in June 2011 but later re-launched the bid in February this year.

The power distributor argues in its application that the amount set in 2004 is no longer viable due to the increase in costs of connection.

“Since then, the cost of materials, labour and transport have significantly increased,” Kenya Power said in its application to ERC.

“Kenya Power proposes that this deficit is partly raised through a charge to electricity consumers of Sh0.70 per KWh and upward adjustment of the connection fees.”

The utility firm argues that since the installation charges were set nine years ago, the cost of copper and aluminium cables have more than tripled and transformer prices doubled while fuel costs are up 47 per cent and pole prices are up by 45 per cent.

As a result, Kenya Power has been left to absorb the difference in connection costs and actual costs that grew threefold in the past three years to Sh7.5 billion in the year to June 2012.

The ballooning deficit is likely to take a heavy toll on the firm’s bottom line. Kenya Power expects its pre-tax profits to drop 53.4 per cent to Sh3.9 billion in the current year ending June compared to Sh8.5 billion in a similar period last year if the tariff reviews are blocked.

(Read: Kenya Power sees fall in profit ahead of tariffs increase)

In the half-year period ended December 2012, Kenya Power grew its net profits by a third to Sh3.1 billion compared to Sh2.3 billion a year earlier, helped by increased electricity sales.

The company’s income from connection and reconnection charges dipped by 41 per cent to Sh202.2 million last year compared to Sh342.4 million in 2011 reflecting a slowdown in rate at which it brought new customers on board.

With the tariff increment now in limbo, the power firm has to look for alternative sources of funding or maximise on cost savings to support key operations including expansion and modernisation of its distribution system to meet growing demand from both industrial and domestic consumers.

Failure to upgrade and expand the transmission system risks compromising Kenya Power’s operations, dealing a blow to its earnings and the quality of services to consumers.

Kenya Power has received a Sh5.04 billion ($60 million) loan from Rand Merchant Bank, the investment banking division of South African lender FirstRand Bank, to set up more substations.

It is also negotiating a Sh29.3 billion loan from the Chinese government to finance the conversion of its overhead cables to underground lines.

The energy sector, though critical to Kenya’s development has, in the past, expanded minimally due to the high initial capital outlay and inability to mobilise adequate financial resources to undertake massive investment.

Lack of sufficient energy has in turn frustrated industrial expansion for decades despite the availability of huge energy reserves from sources such as geothermal, wind, coal and solar.

-Business Daily

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