Residents living in nine slums within Nairobi are for the first time set to buy electricity from private distributors after Kenya Power moved to delegate its power distribution role, five months after the energy regulator allowed such an arrangement for the first time.
Kenya Power has invited private firms to build and maintain medium and low voltage power distribution networks in Mukuru, Mathare, Kibera, Kibagare, Deep Sea, Mji wa Huruma, Githogoro, Kiambiu and Kamukunji.
The combined customer base of these areas possibly runs into more than a half a million households and small business that currently form part of Kenya Power’s customer base of about 9 million customers.
The firms will buy electricity from the utility in bulk at discounted tariffs and will resell it to customers in these areas. This means that the private power distributors will be tasked with installing their own meters and sub-meters at the premises of their customers and charge for the power at a profit.
It is the first ever move in Kenya Power’s history in what will for the first time allow the utility to gradually move away from retail customers and largely focus on its commercial customers who are its bread and butter despite forming a smaller share of its customer base.
“In pursuit of its vision to deliver excellent services to all the sectors of the economy and to differentiate its offerings, Kenya Power is exploring innovative retailing models for electricity within designated high density settlement areas who have hitherto not been adequately served,” said the utility in an Expression of Interest (EoI) notice.
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Kenya Power says the new model will enable it enhance power supply to highly populated urban areas that are currently underserved and improve the safety of electricity supply.
But crucially, besides commercial customers, retail customers residing in the aforementioned slums are among the most notorious for electricity theft which bleeds the utility billions of shillings annually despite numerous crackdowns which have failed to stamp out the vice.
“The intended model will primarily operate within regulated tariffs, prescribed network standards and within the provisions of the Energy Act, 2019. The model will see introduction of electricity retail entities/agencies within the identified settlement areas. The expected benefits, among others, [are] improved service delivery and public safety within the selected areas,” it said.
Kenya Power has also asked the prospective power distributors to specify their preferred mode of compensation, which is buying power from the utility in bulk and reselling it at a profit or being paid through commissions on energy sales.
“They must have in their employment relevant and demonstrable experience in design, implementation and maintenance of medium and low voltage power distribution network,” said the company.
In Mukuru slums, the targeted areas include Mukuru kwa Njenga, Mukuru kwa Reuben, Sinai, Lunga Lunga, Shimo la Tewa, Masai, Fuata Nyayo, Moto Moto, Wape Wape, Vietnam, Riara, Crescent, Sisal, Zone 48, Kingstone and Jamaica.
In Kibera, the areas include Gatwekera, Soweto, Lindi, Laini Saba, Makina, Silanga, Raila, Kianda, Kisumu Ndogo, Kambi Muru and Mashimoni while in Kamukunji it includes Kamukunji Jua Kali, Muthurwa Market and Biafra.
In Mathare, some of the areas that will be served by the private distributors are Ngomongo, Mathare 4B, Korogocho, Gitathuru, Kosovo and Gitari Marigu.
Interested developers have been given until October 18, 2023 to express their interest.
Kenya Power already owns and maintains electricity distribution infrastructure in these areas, and it is so far unclear whether the utility will lease this infrastructure to the private developers or will operate in parallel with them.
In the spots where the utility had not yet set up distribution networks, it is expected that the developers will erect their own lines and equipment, including transformers and poles, in an undertaking that will likely run into billions of shillings.
This comes nearly six months after the Energy and Petroleum Regulatory Authority (Epra) approved new power tariffs that took effect on April 1 including bulk tariffs that were introduced to effect Section 163 of the Energy Act, 2019.
“We have also approved the bulk tariffs in furtherance of the provisions of Section 163 of the Energy Act, 2019. This will allow large consumers to buy power at bulk from Kenya Power and to retail the same to their end user customers,” said Epra.
In the new tariffs, large customers of category CI5 will buy power at a bulk base tariff of Sh11.98 in the current financial year ending June 2024, Sh11.40 in FY2024/25 and Sh11.16 in FY2025/26.
In comparison, unsubsidised domestic consumers will buy the same electricity from Kenya Power at a base tariff of Sh20.58 in FY2023/24, Sh19.08 and Sh18.57 per unit over the next two years respectively.
The move will also see the utility partially offset its commercial losses – which stood at 22.43 percent in the year to June 2022 – nearly half of which were commercial losses.
During that period, the utility was allowed by Epra to pass on 19.9 percent of these losses to consumers, while the remainder is shouldered by the company.
Kenya Power estimates that for every 1 percent loss, it incurs about Sh800 million which translates to a total loss of Sh2 billion which the company incurred from the system losses in that year.