World Bank, IMF caution against power expansion plan

Money Markets

 

Dr Samuel Nyandemo (pictured), a senior economics lecturer at the University of Nairobi said the projects were feasible in the long term. Photo/FILE 

By GEOFFREY IRUNGU

In Summary

• IMF, World Bank want Kenya to put on hold the energy and technology projects scheduled for implementation in the second phase of Vision 2030 which runs to 2018.
• They said bringing onstream 5,000 megawatts of power within five years will see supply outstrip demand.
• Failure to recoup generation costs would lead to higher tariffs.

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International lenders have cautioned Kenya against a power expansion programme that they say will cost consumers more in tariffs as well as taxes.

The International Monetary Fund (IMF) and the World Bank want Kenya to put on hold the energy and technology projects scheduled for implementation in the second phase of Vision 2030 which runs to 2018.

They said bringing onstream 5,000 megawatts of power within five years will see supply outstrip demand. Failure to recoup generation costs would lead to higher tariffs.

The government could also be forced to give subsidies to the generating firm to recover their costs.

“If flagship industrial projects are delayed and newly created generation capacity outstrips demand for an extended period, the costs of investments in generation capacity will have to be recovered through higher tariffs or government subsidies,” said the Kenya Poverty Reduction Strategy Paper: Joint Staff Advisory Note, dated March 2014.

The paper has been placed before the boards of directors of the two institutions for discussion, informing a decision on whether to lend.

READ: Experts warn of Sh50bn burden in State energy plan

Kenya has received between Sh25 billion and Sh76 billion annually from the World Bank in the past five years. The IMF, as a balance of payment donor, has lent the country Sh65 billion in the past three years to increase its foreign exchange reserves.

Other projects that the staff want put at the tail end of the Vision 2030 blueprint that is meant to transform Kenya into a newly industrialised country are a nanotechnology institute, a space science agency, and a centre for nuclear research and science and technology issues.

Samuel Nyandemo, a senior economics lecturer at the University of Nairobi, however, said the projects were feasible in the long term.

“We should not think about nuclear energy unless we have disaster mitigation plans. We must eventually start somewhere with some of these projects, but we should think about the associated costs,” said Dr Nyandemo.

The donors said technology and innovation should be linked to industrial needs.

“Public actions to this end should be linked to policies to develop industry/manufacturing. It may be more effective if resources for science and technology are aligned with the needs of Kenya’s industry,” says the paper.

They said the second phase of Vision 2030 should be harmonised with a three-year spending plan that informs the budget. They said Kenya faces the challenge of funding new investments in the face of a rising wage bill and social protection needs.