State’s Sh51bn loan to stop rise in power connection charges

Kenya Power workers inspect a transmission line. FILE

By David Herbling, hdavid@ke.nationmedia.com

IN SUMMARY
The government will advance Kenya Power the cash as a grant to top up customers’ payments over the next five years.
    

The government is seeking a $600 million (Sh51 billion) loan from the African Development Bank (AfDB) for Kenya Power to prevent the firm from doubling the cost of connecting new customers to the grid.

The State will advance Kenya Power the cash as a grant to top up customers’ payments over the next five years.

The power distributor was planning to raise connection charges to Sh70,000 from Sh34,980 for domestic consumers to cover cost but was stopped by the Cabinet which feared it would slow down uptake of power.

Commercial consumers were to pay Sh85,000 from Sh49,080. The Sh51 billion facility will cover the Sh35,000 increment in connection charges.

Energy PS Joseph Njoroge on Wednesday said the long-term credit will be received by March 2014 and would enable Kenya Power to add new customers without hurting its earnings.

“We have already engaged AfDB to provide a long-term loan to deal with connectivity because we want to retain the cost of connection to encourage more Kenyans to get connected to the grid,” said Mr Njoroge.

“They have actually factored it in their next dispatch so we are sure that we will get the funds early next year.” The Sh51 billion subsidy can fund the connection of up to 1.4 million customers.

Access to electricity currently stands at about 30 per cent, with the government having an ambitious plan to have a country-wide coverage in the medium term.

Kenya Power added 292,337 customers in the 12 months to June, raising its customer base to 2.3 million. The utility earlier in the year received a Sh3.3 billion loan from French Development Agency (AfD) to partly finance connection of at least 300,000 new households.

The cash will be used for advancing Stima Loans to new customers who would otherwise not afford upfront payment of the connection charges.

The subsidy deal means the outcome of an on-going study into the actual cost of adding new power users will have no bearing on consumers but will give insights into the required subsidy levels.

“Even when the study comes out we want to make sure that we do not change the connectivity rates,” said Mr Njoroge, formerly the Kenya Power CEO.

Following the freeze in connection charges, the government in August gave Kenya Power a Sh2.7 billion grant, allowing the firm to continue with connections at the old rate up to this month.

The current connection rates were introduced in 2004 as a strategy to deepen access to electricity and the low-pricing regime has helped to more than double the number of power users to 2.3 million from 1.06 million in 2008.

Kenya Power argues that since the rates were set, the cost of copper and aluminium cables have more than tripled and transformer prices doubled. It added that fuel costs are also up 47 per cent and pole prices have risen 45 per cent.