Industry warns high fuel costs could wipe out power price cuts

Manufacturers say they have benefited from lower cost of electricity following the 15 per cent reduction in January, but warn that higher fuel prices present a risk that could erode the gains made.

The Kenya Association of Manufacturers (KAM) said most industries saw a reduction in power costs by more than the promised 15 per cent, with some firms reporting a drop of as much as 18.25 per cent.

“From the analysis of the bills, all tariff categories benefited from the revised tariff structure. The minimum effect with the implementation of 15 per cent tariff reduction was 14.9 per cent and a maximum of 18.25 per cent,” said KAM in the findings of a survey on the impact of the tariff cut.

Its members are now paying between Sh15.82 per kilowatt hour (kWh) and Sh17.15 under the new tariff, compared to the earlier Sh18.66 and Sh20.96 per unit.

The manufacturers are, however, jittery about the fuel cost charge (FCC), which they said had gone up significantly in the months before the Energy and Petroleum Regulatory Authority (Epra) published the new tariff that reduced power costs by 15 per cent.

Various factors are piling pressure on the FCC including the increased reliance on thermal power plants due to the ongoing drought.

There has also been an increase in the cost of petroleum products in the recent past due to a mix of factors including Russia's invasion of Ukraine.

Fuel cost charge is levied on consumers to compensate firms that run thermal plants for expenses incurred when buying the fuel.

The FCC component of the power bill has remained at Sh4.63 per kWh since January when Epra published the new tariff but had been on a rally before that, rising from Sh2.54 in January 2021 to Sh3.79 in November and Sh4.21 in December.

KAM said a hike on FCC might wipe out the benefits of reduced power costs even before industries can fully enjoy them.

“Between October and November 2021, there was an 11.1 per cent increase in the fuel cost charge, with a further increase of 10 per cent between November and December,” said KAM.

“Volatility in fuel costs remains a key concern to manufacturers…if fuel costs continue to rise further, the benefits of reduction in power tariffs may no longer be felt.”

The January power cut followed a directive by President Uhuru Kenyatta to the Energy ministry to reduce the cost of electricity by 30 per cent.

This was to be done in two tranches, the first that took place in January, while the other tranche of 15 per cent is expected before end of this month.

In the first phase, big power consumers such as manufacturers appear to have gotten the better deal, especially those in the Consumer Industrial One (CI1) category who got a reduction of 18.2 per cent. Their cost of power per unit went down to Sh17.15 from Sh20.96.

Commercial industrial consumers are categorised from CI1 to CI5, depending on their size and consumption. The CI5 category is made up of a few but very heavy users and their costs went down 15.2 per cent to Sh15.82 per unit from Sh18.66.

The reduction for some of the industries was higher when compared to domestic consumers.

Consumers under the Domestic Lifeline category, who use up to 100kWh per month, got a reduction of 15.73 per cent, with the unit cost dropping to Sh15.94 from Sh18.91.

This category of consumers is subsidised and, according to Epra, accounts for 60 per cent of Kenya Power customers.

Other domestic consumers using more than 100 units per month got a 15.67 per cent cut to Sh21.87 per unit in January after the tariff review, from Sh25.93 per unit.