Consumers affected by the double shock of electricity and fuel prices

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Economy

Consumers affected by the double shock of electricity and fuel prices


Kenya Power workers carry out repair work along Haile Selassie Road, Mombasa, December 5, 2020. PHOTO | KÉVIN ODIT | NMG

The energy regulator has flip-flopped and hiked electricity prices by 15.7%, undoing January budget cuts from the former administration of President Uhuru Kenyatta, dealing a double blow to consumers as a result of rising fuel prices.

The Energy and Petroleum Regulatory Authority (Epra) also quietly increased pass-through costs last week, including fuel, currency and inflation adjustments, pushing the cost of a kilowatt-hour to 25.3 Sh for domestic consumers who use more than 100 units per month. .

This means that with 1,000 shillings, consumers on the tariff above 100 kWh would now get 39.5 units of electricity, down from 45.7 before the review.

Heavier consumers and industries will see their electricity costs increase even more as passed-through costs now account for more than a third of electricity bills.

Invoices sampled by business dailyhow Epra raised the fuel cost charge (FCC) to an all-time high of 6.7 shillings from 4.6 shillings last month, resulting in a 43% jump, preparing consumers for the cost of electricity the highest since December last year.

The FCC is the largest variable cost which is adjusted monthly and collected by Kenya Power on behalf of expensive thermal power generators.

The regulator also almost doubled the exchange fee from 0.7 shillings to 1.3 shillings – a high last seen in January 2021, reflecting the impact of the lower shilling on electricity bills – and has adjusted prices to higher inflation of 0.67 shillings. .

An increase in the fuel and currency surcharge increases the cost of electricity by reducing the number of units consumers get for a similar amount of money.

The record fuel surcharge comes at a time when the government and the International Monetary Fund (IMF) agreed to end fuel subsidies that were dampening consumers.

President William Ruto indicated on Tuesday that he would soon drop the fuel subsidy, forcing Kenyans to face higher transport and production costs.

Lily: Ruto drops fuel cushion in policy shift against subsidies

Dr Ruto said in his inauguration speech that the economy cannot sustain consumer subsidies in the coming months, pointing to a policy shift that could see him let food and fuel prices be determined by market forces of supply and demand.

Energy officials locked themselves in a meeting last night to make a decision on the latest price review, which was the first under the Ruto administration.

Fuel Price Review

Epra delayed announcing new fuel prices after 9 p.m. as the new administration faced a tough decision that ultimately pushed pump prices up by at least 20 shillings per liter more.

The regulator traditionally publishes the notice on new prices before 7 p.m. and last night’s delays highlighted the weight of the key decision which directly hampers President Ruto’s pre-election promise to Kenyans aimed at reducing the cost of living.

A liter of premium petrol jumped 20.18 shillings after Wednesday’s review, which saw the new administration scrap petrol subsidies. It will now retail at 179.3 shillings in Nairobi, 176.9 shillings in Mombasa and 179.5 shillings in Kisumu.

Dr. Ruto retained partial subsidies on diesel and kerosene in an effort to protect the poor and industries. This will see the price of a liter of diesel rise by 25 shillings, after a government subsidy of 20 shillings. Kerosene jumped 20 shillings, after a subsidy of 26.25 shillings.

A liter of diesel now retails for 165.82 shillings in Nairobi, while kerosene has jumped to 147.84 shillings thanks to the phasing out of the fuel stabilization program which is paving the way for a spike in the cost of fuel. life.

Electricity tariffs

An increase in energy prices drives up the cost of production, which results in more expensive consumer goods. Households will need more money to pay for the same number of units of electricity during the month.

The energy regulator did not disclose what prompted the increase in the surcharge, but it was due to the high price of crude oil due to growing demand in the global market.

The law calls for electricity tariffs to be reviewed every three years, but the timing has been irregular as the regulator has often delayed or changed tariffs, partly as the government seeks to ease inflationary pressure on households and Industries.

The tariff takes into account consumption, the fluctuation of world fuel prices and hard currencies against the Kenyan shilling, as well as regulatory, hydroelectric and rural electrification levies and taxes.

Electricity tariffs were reviewed in January to effect a 15% reduction by the Kenyatta administration to reduce the cost of living.

The state had aimed to cut electricity bills by 33% by December 2021, but abandoned the plan and opted to cut costs in two 15% tranches following opposition from power producers (IPP) which supply electricity to Kenya Power.

The IPPs argued that Kenya does not have the unilateral right to change contract capacity and payments, instead arguing that the state must protect PPAs – some of whom have 20-year protected contracts.

The government suspended the second tranche of power cuts after the IMF protested, citing a potential collapse of Kenya Power, which is currently struggling with cash flow problems.

The Fund said the tariff cut compounded Kenya Power’s pre-existing liquidity problems by reducing revenue by around 26.3 billion shillings a year.

The additional cost reduction measures currently identified across the electricity supply and distribution chain would only yield benefits over time and are not sufficient to fully offset this revenue impact.

The multilateral lender has gained influence over Kenyan politics since granting the country 270.2 billion shillings ($2.34 billion) in loans in return for a reform package that includes eliminating subsidies on fuels and taxes to improve revenue collection.

High costs

The IMF has also introduced a new condition as part of its 38-month program requiring the government to remove the subsidy that has held down gasoline prices by October.

Since April last year, Kenya has spent an average of 9 billion shillings on subsidizing diesel, super petrol and kerosene – costs which have averaged 12 billion shillings in the last four months alone – underlining the negative impact of the intervention on the country’s income.

Rising electricity prices coupled with an increase in fuel prices are expected to cause cascading price increases across the economy on rising production costs, including transportation and inputs.

Consumers are already burdened with the biggest rise in the cost of living in more than five years in August, amid a failed cornmeal subsidy, rising fuel costs and weakening of the shilling.

Inflation, a measure of the cost of living, hit a 62-month high of 8.5% from 8.3% the previous month.

The shilling is currently at an all-time high of 120.4 against the dollar, raising the cost of imports of a wide variety of goods, including petroleum products, wheat, second-hand clothing, motor vehicles, vegetable oils and industrial machinery.

Kenyans on social media have recently raised concerns about shrinking cash flow, shrinking job opportunities and rising public debt, prompting a petition to the IMF to stop granting more loans to the country.

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