International lender blocks Kenya from further power price cuts

The International Monetary Fund (IMF) has blocked Kenya from further cuts on electricity prices, citing a potential collapse of Kenya Power which is currently struggling with cash flow problems.

Kenya cut the power tariffs by 15 per cent in January this year in the initial phase of a two-part plan to lower power costs, handing relief to households and firms that have been braving high electricity costs.

The IMF stance could pour cold water on hopes of consumers enjoying even lower electricity prices at a moment when inflation has hit a 58-month high that has seen the cost of commodities such as food and fuel soar through the roof.

“Any future reduction in electricity tariff should be avoided unless fully backed by well-identified and achievable cost-saving measures to prevent deterioration of KPLC’s liquidity and profitability situations,” said IMF.

The government had planned to achieve a further similar power tariff cut by the end of March through renegotiation of power purchase agreements (PPAs) between Kenya Power and power producers to lower its huge annual dues to the power firms.

Independent power producers

However, the second phase of the power cut failed to materialise after the government failed to convince independent power producers (IPPs) to lower their tariffs, effectively pushing the task to the next government after the August 9 General Election.

The IMF has now warned that a further cut to power prices without implementing major reforms at Kenya Power including its financial obligations could sink the company plunging the country into an energy crisis.

“The tariff reduction has aggravated KPLC’s pre-existing liquidity challenges by lowering revenues by an estimated Sh26.3 billion per annum, while additional cost-saving 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,” IMF said.

“Without stronger actions on cost-saving measures KPLC’s liquidity concerns would persist, creating an adverse feedback loop to the rest of the electricity sector and the budget” the lender added.

In a submission to the IMF, Treasury Cabinet Secretary Ukur Yatani said the state would submit a plan for the restructuring of the company to the Cabinet sub-committee on Kenya Power before the end of this month. The Cabinet sub-committee is chaired by Interior Cabinet Secretary Fred Matiang’i.