[kictanet] KENYA POWER TO 'EXIT' RURAL ELECTRIFICATION MARKET - A CASE OF THE TAIL WAGING THE DOG?

Thu Aug 15 15:16:55 EAT 2013

And why not invest the profits?

On Thu, Aug 15, 2013 at 2:52 PM, James Mbugua <jgmbugua at gmail.com> wrote:

> Ali
>
> Let me weigh in as I represent Kenya Power in Investor Relations.
>
> I was present at the press conference yesterday and suffice it to say,
> Business Daily and Daily Nation grossly misreported the situation. Read the
> Standard and People they seemed to have gotten it.
>
> There are a few things to appreciate about Kenya Power.
>
> 1. Following the multi-sector working group from across the energy sector,
> petroleum industry players and World Bank that was convened in 2001, its
> recommendations on the energy policy were subsequently issued as Sessional
> Paper No 4. on Energy of 2004.
>
> 2. Out of this, The Energy Act of 2006 was enacted that brought into force
> among other things, the Energy Regulatory Commission, the Geothermal
> Development Corporation, the Kenya Electricity Transmission Company Ketraco
> and the Rural Electrification Authority.
>
> 3. To shield consumers from the high capital expenditure of rural
> expansion, the government formed REA to absorb that cost and leave Kenya
> Power to distribute power.
>
> 4. The Energy Act of 2006 also ended Kenya Power's monopoly on
> distribution. So as at now, KPLC is not a monopoly. In fact, the Energy
> Regulatory Commission would license anyone who demonstrates both the
> technical and financial capacity to be a distributor. All, they have to do
> is to sign a power purchase agreement with an Independent Power Producer
> and then negotiate a wheel-in charge for transmission to use either Kenya
> Power's or Ketraco's lines or if they can, put up their own lines, and then
> organize their billing and collections at the other end.
>
> 5. Rural Electrification is done by REA which has been connecting centres,
> hospitals, schools, markets etc while KPLC comes in to metre and switch on
> consumers.
>
> 6. Rural Electricity has always been subsidized by urban consumers. For
> anything less than 50KWh, they are charged Sh2/Kwh while the average cost
> of a Kwh will come to about Sh4. Nairobi/Urban residents typically pay
> around Sh8/Kwh.
>
> 7. Since 2006, the Kenya Government has not subsidized power at generation
> like it used to. Kenya Power purchases the power at cost and has to
> subsequently evacuate, transmit and distribute this power at an additional
> cost.
>
> 8. Since 2002 despite the rise in cost of materials from poles, to cables
> and transformers, KPLC has not increased the price of connecting customers
> until it decided to review that earlier this year.
>
> 9. In the year 2012 alone, Kenya Power added 307,000 new connections at a
> charge it believes is lower than the actual cost of connecting the consumer.
>
> 10. Because of the ever expanding network, and you will see from financial
> reports that the firm books ever bigger figures for depreciation, and newer
> power purchase agreements, it has become necessary for KPLC to spend more
> money on maintenance e.g. After connection, it is the company that repairs
> vandalized wires, transformers etc.
>
> 11. Despite this, the government has (a) Not subsidized power which is
> being supplied to an ever larger number at lower than cost (b) The
> government does not provide guarantees for organizations which are not
> wholly government-owned to access loans or bonds. (c) Between 1991-2007
> there was very little investment in the grid as donors had frozen aid; only
> until the Energy REcovery Strategy Program and the Kenya Electricity
> Expansion Program have we seen significant investment to expand and
> strengthen the grid.
>
> 12. Bear in mind that while constrained as to what it can charge
> consumers, selling power in some cases at below cost, KPLC is expected to
> source funding for investment either from its squeezed margins or from
> financiers without government guarantees while purchasing power at cost and
> taking responsibility for vandalism.
>
> 13. At the end of all this, it has to make its case to shareholders as to
> what kind of returns they should expect.
>
>
> James
>
>
> On Thu, Aug 15, 2013 at 1:57 PM, Ali Hussein <ali at hussein.me.ke> wrote:
>
>>  Listers
>>
>> Kenya Power has announced that they will no longer prioritize Rural
>> Electrification because of what they term unacceptable terms for
>> connectivity. This, even when the Government has offered 2.7B in subsidies
>> to the Monopoly Power company.
>>
>> I don't need to dwell into the myriad of issues this country's consumers
>> have faced at the hands of this monopoly. Now we have a case where the tail
>> is trying to wag the dog..
>>
>>
>> http://www.businessdailyafrica.com/Corporate+News/Kenya+Power+dumps+rural+consumers+in+cost+cutting+plan/-/539550/1948510/-/qbmf1z/-/index.html
>>
>> This level of irresponsibility on a utility solely responsible for
>> electrification in the country is not only unacceptable but bordering on
>> economic sabotage.
>>
>> In defense of Kenya Power, the Ag.CEO did say that they are unable to do
>> this Rural thing because they are subjected to the vagaries of the market
>> as they are a public company quoted on the NSE.
>>
>> I have some questions to the Cabinet Secretary of Energy, the Government
>> at large and listers in general:-
>>
>> 1. Isn't it time to call Kenya Powers bluff and kill this monopoly? You
>> can't at the same time try to protect your monopoly while vomiting on our
>> shoes - read the Kenya People. (sorry but couldn't help the analogy once
>> used by the British Ambassador when he was referring to the Govt accepting
>> grants from the British people and then use the money to buy Chinese
>> vehicles instead of Landrovers! :) what cheek! )
>>
>> 2. There has been discussions on this list about whether the whole Power
>> Sector needs to be liberalists ala the Telkom Sector. Maybe there is an
>> Mpesa waiting to happen there...
>>
>> 3. Should the government empower the Rural Electrification Authority to
>> roll out connections in the counties? Are there synergies between this
>> Authority and the yet to be heard of Universal Access Fund? Can the
>> Government find the strength to break silos and work together in this?
>> After all where power goes internet connectivity should be its bedmate.
>>
>> What's your take?
>>
>> Ali Hussein
>> CEO | 3mice interactive media Ltd
>> Principal | Telemedia Africa Ltd
>>
>> +254 713 601113/ 0770 906375
>>
>> "The future belongs to him who knows how to wait." - Russian Proverb
>>
>> Sent from my iPad
>>
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> The Kenya ICT Action Network (KICTANet) is a multi-stakeholder platform
> for people and institutions interested and involved in ICT policy and
> regulation. The network aims to act as a catalyst for reform in the ICT
> sector in support of the national aim of ICT enabled growth and development.
>
> KICTANetiquette : Adhere to the same standards of acceptable behaviors
> online that you follow in real life: respect people's times and bandwidth,
> share knowledge, don't flame or abuse or personalize, respect privacy, do
> not spam, do not market your wares or qualifications.
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-- 
Regards,

Mark Mwangi

markmwangi.me.ke
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