Ali

Let me weigh in as I represent Kenya Power in Investor Relations.

I was present at the press conference yesterday and suffice it to say, Business Daily and Daily Nation grossly misreported the situation. Read the Standard and People they seemed to have gotten it.

There are a few things to appreciate about Kenya Power.

1. Following the multi-sector working group from across the energy sector, petroleum industry players and World Bank that was convened in 2001, its recommendations on the energy policy were subsequently issued as Sessional Paper No 4. on Energy of 2004. 

2. Out of this, The Energy Act of 2006 was enacted that brought into force among other things, the Energy Regulatory Commission, the Geothermal Development Corporation, the Kenya Electricity Transmission Company Ketraco and the Rural Electrification Authority.

3. To shield consumers from the high capital expenditure of rural expansion, the government formed REA to absorb that cost and leave Kenya Power to distribute power.

4. The Energy Act of 2006 also ended Kenya Power's monopoly on distribution. So as at now, KPLC is not a monopoly. In fact, the Energy Regulatory Commission would license anyone who demonstrates both the technical and financial capacity to be a distributor. All, they have to do is to sign a power purchase agreement with an Independent Power Producer and then negotiate a wheel-in charge for transmission to use either Kenya Power's or Ketraco's lines or if they can, put up their own lines, and then organize their billing and collections at the other end.

5. Rural Electrification is done by REA which has been connecting centres, hospitals, schools, markets etc while KPLC comes in to metre and switch on consumers.

6. Rural Electricity has always been subsidized by urban consumers. For anything less than 50KWh, they are charged Sh2/Kwh while the average cost of a Kwh will come to about Sh4. Nairobi/Urban residents typically pay around Sh8/Kwh.

7. Since 2006, the Kenya Government has not subsidized power at generation like it used to. Kenya Power purchases the power at cost and has to subsequently evacuate, transmit and distribute this power at an additional cost.

8. Since 2002 despite the rise in cost of materials from poles, to cables and transformers, KPLC has not increased the price of connecting customers until it decided to review that earlier this year.

9. In the year 2012 alone, Kenya Power added 307,000 new connections at a charge it believes is lower than the actual cost of connecting the consumer.

10. Because of the ever expanding network, and you will see from financial reports that the firm books ever bigger figures for depreciation, and newer power purchase agreements, it has become necessary for KPLC to spend more money on maintenance e.g. After connection, it is the company that repairs vandalized wires, transformers etc.

11. Despite this, the government has (a) Not subsidized power which is being supplied to an ever larger number at lower than cost (b) The government does not provide guarantees for organizations which are not wholly government-owned to access loans or bonds. (c) Between 1991-2007 there was very little investment in the grid as donors had frozen aid; only until the Energy REcovery Strategy Program and the Kenya Electricity Expansion Program have we seen significant investment to expand and strengthen the grid.

12. Bear in mind that while constrained as to what it can charge consumers, selling power in some cases at below cost, KPLC is expected to source funding for investment either from its squeezed margins or from financiers without government guarantees while purchasing power at cost and taking responsibility for vandalism.

13. At the end of all this, it has to make its case to shareholders as to what kind of returns they should expect.

James

On Thu, Aug 15, 2013 at 1:57 PM, Ali Hussein <ali@hussein.me.ke> wrote:

Listers

Kenya Power has announced that they will no longer prioritize Rural Electrification because of what they term unacceptable terms for connectivity. This, even when the Government has offered 2.7B in subsidies to the Monopoly Power company.

I don't need to dwell into the myriad of issues this country's consumers have faced at the hands of this monopoly. Now we have a case where the tail is trying to wag the dog..

http://www.businessdailyafrica.com/Corporate+News/Kenya+Power+dumps+rural+consumers+in+cost+cutting+plan/-/539550/1948510/-/qbmf1z/-/index.html

This level of irresponsibility on a utility solely responsible for electrification in the country is not only unacceptable but bordering on economic sabotage. 

In defense of Kenya Power, the Ag.CEO did say that they are unable to do this Rural thing because they are subjected to the vagaries of the market as they are a public company quoted on the NSE.

I have some questions to the Cabinet Secretary of Energy, the Government at large and listers in general:-

1. Isn't it time to call Kenya Powers bluff and kill this monopoly? You can't at the same time try to protect your monopoly while vomiting on our shoes - read the Kenya People. (sorry but couldn't help the analogy once used by the British Ambassador when he was referring to the Govt accepting grants from the British people and then use the money to buy Chinese vehicles instead of Landrovers! :) what cheek! ) 

2. There has been discussions on this list about whether the whole Power Sector needs to be liberalists ala the Telkom Sector. Maybe there is an Mpesa waiting to happen there...

3. Should the government empower the Rural Electrification Authority to roll out connections in the counties? Are there synergies between this Authority and the yet to be heard of Universal Access Fund? Can the Government find the strength to break silos and work together in this? After all where power goes internet connectivity should be its bedmate.

What's your take? 

Ali Hussein

CEO | 3mice interactive media Ltd

Principal | Telemedia Africa Ltd

+254 713 601113/ 0770 906375

"The future belongs to him who knows how to wait." - Russian Proverb

Sent from my iPad

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KICTANetiquette : Adhere to the same standards of acceptable behaviors online that you follow in real life: respect people's times and bandwidth, share knowledge, don't flame or abuse or personalize, respect privacy, do not spam, do not market your wares or qualifications.