Cost of power to go up as IMF opposes extension of subsidy

Kenya Power and Lighting Company technicians replace a transformer valued at Sh0.5million that was vandalized by unknown people. [Mose Sammy, Standard]

The International Monetary Fund (IMF) has opposed further extension of the cheap Kenya Power electricity subsidy that cost the taxpayers Sh26 billion over a one-year period since January.

This comes as President William Ruto faces the dilemma of whether to retain the cheap electricity subsidy placed by his predecessor Uhuru Kenyatta that expires at the end of this month.

"The January tariff cut has had a significant negative impact on the company's liquidity position, resulting in an annual loss in revenue of Sh26.3 billion," said the IMF.

"The tariff cut is set to expire at the end of December 2022, and if implemented, KPLC's liquidity situation will drastically improve, to a point where the government of Kenya support may no longer be necessary."

The cheap power plan saw power utilities and Treasury under former President Kenyatta's regime contribute Sh26 billion to shield Kenyans from the high cost of power.

Ruto's administration continues to argue against subsidies, an indicator that a 12 per cent tariff hike sought by Kenya Power could sail through even as power consumers continue to bear the brunt of higher oil prices and a weak shilling.

The former administration placed the cushion programme amid social tension and pressure following a cost-of-living crisis that continues unabated to date.

Similar pressure is facing Ruto, who was elected on a platform of addressing the runaway cost of living.

"The government contributed Sh14 billion and the sector players contributed Sh12 billion to cushion Kenyans,"

Kenya Power acting Chief Executive Geoffrey Muli revealed recently, underlining the financial burden of shouldering the electricity cuts by the energy utilities and the National treasury.

The 15 per cent electricity cut from January to December was based on a subsidy by the State and contributions by energy sector players - Kenya Power, Geothermal Development Company, Kenya Electricity Transmission Company, and Kenya Electricity Generating Company.

The cash-strapped energy utilities are also against the idea of extending the subsidy as they fear further straining their finances at a time the National Treasury had adopted a similar stance against subsidies.

The IMF, which is pushing for reforms at the State-owned electricity utility, wants the plan scrapped so that Kenya Power can recoup its financial stability.

"The 15 per cent base tariff reduction of January 2022 has had a significant negative impact on KPLC's liquidity position, while the restoration of monthly adjustments in pass-through of variable electricity costs...beginning in September 2022 will help cashflows somewhat," said the IMF.

The IMF added "well-identified and achievable cost-saving measures are needed" to address Kenya Power's liquidity and profitability situations, and tariff decisions are under evaluation.

"The authorities have committed to submit to Cabinet a draft action plan on addressing KPLC's liquidity gap and restoring medium-term profitability," it said.

Kenya Power remains in the red with negative working capital, with liabilities at Sh110.43 billion, exceeding its current assets at Sh54.69 billion over the year to June 2022.