Proposed law seeks to end Kenya Power market monopoly

Politics and policy

Kenya Power employees do maintenance work on transmission lines in Nyeri town. PHOTO | FILE 

By KIARIE NJOROGE, gkiarie@ke.nationmedia.com

In Summary

• Private operators could be licensed to compete with utility firm if Parliament passes proposed law.
• Licensed distributors will build supply power lines from sub-stations to homes but another entity (a retailer) will sell, meter and bill customers, according to the proposed law.
• The Bill also provides for sector regulators to set the minimum capital required to enter the power distribution and retail business.

Kenya Power is likely to lose its stranglehold on electricity distribution and retail if a new Bill seeking to open the business to private utility providers is passed into law.

The Bill, currently with the Commission for the Implementation of the Constitution (CIC) for review ahead of its tabling in Parliament, proposes the licensing of other electricity distributors and retailers, promising consumers choice and better quality of service.

Licensed distributors will build supply power lines from sub-stations to homes but another entity (a retailer) will sell, meter and bill customers, according to the proposed law.

The retailers will buy power from different sources and pay the distribution company a fee for using their network to connect customers.

The Energy Bill, 2015 says that customers will only turn to a power distributor for supply if there is no registered retailer in their locality or if they require medium to high voltage power.

“A person requiring supply of electrical energy shall apply to the duly authorised retailer, but where there is no such retailer, to the distribution licensee,” the Bill says.

The changes are meant to create room for new players in the electricity sub-sector where Kenya Power continues to operate as a monopoly.

The Bill also provides for sector regulators to set the minimum capital required to enter the power distribution and retail business. The plan is to restrict retail licensees to a particular area or areas stated in the licence.

It is not clear from the Bill whether Kenya Power will be allowed to continue as a player in the retail market although the utility firm is expected to remain the biggest distributor in the new dispensation given its extensive distribution network.

If Kenya Power’s business is split between distribution and retail, two separate entities would be created to handle the different segments as was previously done with the separation of high voltage transmission which went to the Kenya Electricity Transmission Company (Ketraco) from distribution and retail, which remained with Kenya Power.

Such unbundling, however, exposes the listed company to a possible loss of a chunk of its revenues associated with the retail business.

As a retailer, Kenya Power has recently taken advantage of an increase in tariffs to grow its profits. The utility company’s net profit for the six months to December 2014 rose 38.5 per cent to Sh4.17 billion.

READ: Higher tariffs lift Kenya Power profit 38pc

Its sales grew 40 per cent to Sh37.6 billion despite the units of electricity consumed by households and businesses going up by a marginal 5.5 per cent — meaning the higher earnings were driven by the increase in power tariffs.

More recently, the positive financial results have seen Kenya Power continue to outperform other energy stocks at the Nairobi Securities Exchange, driven by sustained demand from foreign investors.