Lower electricity tariffs to stimulate growth

NAIROBI: President Uhuru Kenyatta’s intervention to lower electricity tariffs couldn’t have come at a better time. On Wednesday, the President ordered the legal termination of lopsided contracts with Independent Power Producers (IPPs) that have largely been contributed to the high cost of electricity.

With commodity prices shooting through the roof due to the high cost of production and frequent hikes in fuel prices, the cost of living has been rising steeply. Consumers have been forced to dig deeper into their pockets, reducing their spending power and stagnating growth.

Skewed arrangements with IPPs that use thermal power plants have worked against efforts to reduce electricity tariffs. Data from the Energy Regulatory Commission (ERC) indicates that the country has signed seven 20-year contracts with IPPs operating thermal generators. Under this arrangement, the country has had to pay their maintenance fees at a time most nations are moving towards renewable sources of energy, which are not only cheaper, but also friendly to the environment.

Historically, Kenya has mostly relied on hydro-power generation, but in recent years, geothermal power and other green and renewable energy projects have been loading more electricity to the national grid. However, electricity tariffs in homes and industries have not dropped significantly. This means a huge part of the population still cannot afford to have electricity in their homes.

Manufacturers have not enjoyed a meaningful drop in the cost of power to lower the prices of goods. And yet, the cost of generating electricity has become cheaper. The Olkaria geothermal power plant has injected some 409 megawatts to the national grid, while the Menengai geothermal plant has shed some 105 megawatts in addition to loads from other renewable energy projects in Ngong, Kinangop and Turkana.

The impact of high tariffs is immediate — the boomerang effect means very few new jobs can be created. The Government, through the Ministry of Energy, must be more deliberate in efforts to support the lowering of manufacturing costs. Cheaper production costs will empower local entrepreneurs and attract foreign investors trooping into countries with more attractive electricity tariff structures. India, China and Pakistan have constantly sought to lower the cost of production in the manufacturing with consequent benefit of job creation. Their economies have rode on the attractiveness of their manufacturing industries.