Is Kenya Power set for eternal monopoly despite change of law?

When President Uhuru Kenyatta put pen to paper on the Energy Act in March 2019, the long wait for a law that would allow for liberation of the electricity supply market was finally over.

Among provisions in the Act was the leeway to have an alternative electricity distributor and end the close to a century of Kenya Power monopoly that many saw as an unfair favour on the utility service provider who has never imagined of a competitor.

The Energy Act 2019 was even more generous; It allowed any interested company to apply for retail licences, meter and sell electricity to customers within a defined location.

Section 140 of the law compels Kenya Power to ‘provide non-discriminatory open access to its distribution system for use by any licensee, retailer or eligible consumer,’ but is silent on what charges it can levy for the same.

A year later, regulations that would guide how much one would pay to use the Kenya Power distribution infrastructure are yet to be developed and not a single application to compete the monopoly has been received by the energy regulator.

Most viable business

Energy Cabinet Secretary Charles Keter said although the Kenyan electricity distribution market was open to other players, the most viable business was in the far-flung areas and new distributors would require investments in infrastructure which may prove counterproductive in regions already being supplied.

“Competition in the electricity distribution market provides alternatives for power supply to consumers especially in far flung areas that have not been accessed by the grid. The electricity distribution market in Kenya is currently open to any player as long as they meet the licensing requirements as outlined by the Energy and Petroleum Regulatory Authority (EPRA) and are in line with the provisions of the Energy Act 2019. A new power distributor would require new assets and thus there may be expensive duplication of roles,” CS Keter wrote in response to Smart Business adding that the government had given priority to mainstreaming efficiency across the sector instead of pushing for competition to Kenya Power.

After a rigorous vetting by the energy regulator, a new licensee for electricity distribution would then have to sit with Kenya power and negotiate fees to be paid to use its line to supply power and compete it.

Kenya power would be very generous to offer rates that would allow the new competitor to supply power to new customers and still make a profit.

The other alternative would be to build new lines. Here, wayleave constraints, the muscle to battle power theft cartel which has been a huge loophole in the commercial losses being recorded by Kenya power and the technical capacity to keep power flowing may prove unfriendly for business. Leaving the question, will Kenya Power ever get a competitor?

With more than nine decades presence in the market as a monopoly strongly supported by the government, the law may have given by one hand and taken by the other in purporting to open the industry for competition.

Kenya power has had multiple support schemes including the Last Mile Connectivity funded by the World Bank and the Africa Development Bank, pushing its customer reach to almost 7.5 million.

The firm has also built over 200,000 of transmission lines across the country with 150,000 being low voltage lines to customer premises making reliance on their infrastructure almost inevitable for a new licensee.

The company also has also built 70,000 secondary substations within the network, an immense capital investment that a new entrant may not want to venture into in what now entrenches the power distributor’s monopoly status.

Interested third parties

Kenya Power Managing Director Bernard Ngugi did not directly respond to queries on whether the utility firm was considering to hire its infrastructure for interested third parties for use in the distribution of electricity. The MD insisted his priority was to improve the existing lines to tame outages and system losses instead.

“We are continuously reviewing our business strategy to meet emerging market needs and enhance access to electricity. Our present focus is on investing in the distribution network to attain quality and reliable power supply,” Mr Ngugi said.

The law also specifies that the distribution lines will remain property of Kenya Power even after a licensee pays fees to the firm to use the infrastructure in what makes new players underdogs in the market where they are expected to compete Kenya Power.

The delayed set up of the regulations to guide how new licensees will be charged to use the existing infrastructure may also be a sign that the government may not be ready to introduce a competitor to Kenya Power especially now that the firm is reeling under financial constraints.

Last year, the Kenya Electricity Generating Company bid to start distributing part of its produced electricity was frozen by State officials arguing that the two public owned entities would not be allowed to compete. KenGen’s had hinted at a plan that would involve supply of power to upcoming industrial park in Olkaria, Naivasha and then scale it up to some unnamed parts of the country.

The move started in November 2018 when KenGen termed Kenya Power’s monopoly as a business risk after the utility firm delayed payment for electricity

Energy Cabinet Secretary Charles Keter then told Smart Business that the move was not possible since KenGen has no distribution licence allowing it to sell power directly.

The CS said all power plants currently being set up and those operated by KenGen started are on the basis of a power purchase deal with Kenya Power hence it would be hard for the firm to sell the same to another entity.

“Unless they have a new plant outside the existing power purchase agreements, I don’t think it is possible. Funding for a new plant, which has no PPA, will also be difficult since generation plants are expensive to run and they would have to get funding. KenGen is also a government-owned firm, so there is a limit to what they can do,” Mr Keter said.

In its annual report, the power producer had announced plans to generate money from its Olkaria Industrial Park through ‘direct sale of electricity’, among other ways.

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