Kenya Power in talks to increase electricity prices by 20%

Kenya Power has opened talks with the energy regulator to increase electricity prices by 20% after the state softened its earlier stance against higher tariffs. The move comes as Kenya Power grapples with financial challenges and aims to cover the costs of maintaining its infrastructure and buying wholesale electricity. The proposal has sparked a debate on the potential impact it will have on households and the economy, with experts weighing in on the reasons behind the move and the possible consequences. Ken Gichinga, Chief Economist at Mentoria Economics, shed light on the challenges facing the energy sector in a recent interview on CNBC Africa. Gichinga highlighted that the energy sector has been significantly impacted by the COVID-19 pandemic, with changes in demand for energy sources such as fuel, gas, and cooking gas. He noted that fuel prices plummeted during the early months of the pandemic due to reduced movement and economic activity. However, prices have rebounded in recent weeks, affecting the overall cost structure of energy companies. In terms of gas and cooking gas energy, the introduction of value-added taxes (VATs) has also played a role in price fluctuations, impacting households that rely on these sources for daily cooking. Gichinga emphasized that household incomes have been under pressure, leading to changes in energy consumption patterns. The increase in electricity tariffs proposed by Kenya Power is aimed at addressing the financial challenges facing the company. The Chief Economist explained that Kenya Power has faced a difficult financial situation since 2018, following public outcry over high tariffs. The government intervened to regulate and moderate prices, affecting the company's ability to set rates independently. With the expiration of the regulatory clause, Kenya Power is seeking a tariff increase to align with the wholesale cost of electricity and improve its profitability. The proposed 20% price hike has raised concerns about its impact on households and the cost of doing business in Kenya. Gichinga noted that the country's energy costs remain high compared to regional peers like South Africa and Egypt, hindering the growth of the manufacturing sector. He highlighted the need for a competitive energy sector to drive local manufacturing and reduce reliance on imports, ultimately addressing the country's current account deficits. The debate surrounding Kenya Power's plan to increase electricity prices reflects a broader discussion on the future of the energy sector in the country. As stakeholders assess the implications of the proposed tariff hike, the need for sustainable solutions to balance cost recovery, consumer affordability, and economic competitiveness remains at the forefront of the conversation. With potential changes on the horizon, the energy landscape in Kenya may undergo significant transformation, impacting industries, households, and the overall economic outlook.