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30th July 2008
PRESS STATEMENT
POWER TARIFFS
On June 26th 2008, the Energy Regulatory Commission (ERC), which is charged with the responsibility of tariff setting among other responsibilities, announced new electricity tariffs to be charged to all categories of customers on bills dated from July 1st2008. Subsequently, the Kenya Power and Lighting Company (KPLC) effected the new tariffs.
Since then, there have been various public comments and queries regarding the new tariffs and I now wish to shed some light on these issues by explaining some aspects of the electricity bill.
On average, the increase in electricity tariffs (price), which is the money charged for the amount (units or kWh) of electricity used, which is indicated as basic consumption in the electricity bill, is in the range of 21 percent to 33 percent, depending on the tariff.
The tariff rate does not include the cost for the amount of fuel oil used in generation of electricity from thermal power stations, which is shown separately as Fuel Cost Charge in the power bill.
Indeed, about 70 to75 per cent of this amount does not constitute income to KPLC, as it is paid to the generators of electricity who include KenGen, the Independent Power Producers (Tsavo Power, OrPower 4, IberAfrica) and the Emergency Power Producer (Aggreko) as payment for the respective amounts of electricity they generate and sell to KPLC. KPLC retains the balance of about 25 to 30 percent for its operations.
Electricity sold to customers by KPLC is generated from either hydro (water), fossil fuel (thermal) and geothermal, while an insignificant proportion is generated from wind.
The cost of fuel used in thermal generation is paid for directly but proportionally by customers. The amount appearing in the bills under Fuel Cost Charge is collected by KPLC and passed on in totality to electricity generators proportionate to the units of electricity generated and sold to KPLC, who in turn pay fuel suppliers.
Other items in the electricity bill include ERC levy, Rural Electrification Levy and Value Added Tax, all of which are statutory and are also only collected by KPLC on behalf of the government and other corporate entities charged with various roles in the electricity sub-sector, and which together with Fuel Cost Charge constitute about 55 percent of the total amount billed to customers.
The increase in Fuel Cost Charge should be seen in light of a number of reasons. It is important to point out that under normal rainfall conditions KPLC buys as much hydro power as there is enough water to sustain maximum generation, this being the cheapest source of electricity in Kenya.
During times of good rains, hydro electricity may constitute up to 60 percent of electricity sold to customers, while thermal is at about 24 per cent, and geothermal at 16 per cent.
As you are all aware, the short rains last year and the long rains this year failed, and so the hydro dams were not adequately replenished. Consequently, power generation from the dams has been reduced from about 58 percent in December 2007, to approximately 47 percent in June 2008, in order to conserve water; while thermal generation increased from 25 percent in December 2007, to approximately 36 percent in June 2008.
The increase in thermal generation during this period when there is inadequate water in the dams coupled with the high cost of fuel on the world market has resulted in the higher Fuel
Cost Charge, which we are witnessing in our bills currently (at Shs.6.49 per unit compared to Shs.2.74 per unit in December 2007), and which as I have pointed out, is not revenue for KPLC but a cost which is passed on to power generators.
Once the hydro conditions improve and there is adequate water in the dams, hydro electricity will be increased and customers will experience some relief in their bills as a consequence of reduced thermal generation.
Eng.Joseph Njoroge
KPLC Managing Director & CEO
July 30th 2008