The committee has two sub-committees namely Energy and Physical Infrastructure.
1) The Energy Sub-committee gives leadership to KAM’s advocacy on the cost, quality and availability of energy. It brings together the Association of Large Electricity Consumers (AOLEC) under the leadership of KAM Board for strategic policy direction.
Position on Impact of Electricity Cost on Productivity: Electricity is a major factor input into manufacturing, accounting for 40 per cent of total production cost for some companies. However, following fuel cost adjustments made over the past one year, some companies are recording as high as 100 per cent increase in electricity cost on average, making the cost of power one of the top three constraints to doing business in Kenya.
A comparison between Kenya and her competitor countries indicates that Kenya is very uncompetitive when it comes to the cost and provision of power. The fact that over 60% of the country’s electric power is hydro-generated exposes the country to power shortages during dry seasons. This makes Kenya’s power supply highly vulnerable to weather conditions. On the other hand, fuel generated electricity is becoming too costly particularly with international oil prices having nearly doubled in the last half year.
The Kenya Power and Lighting Company is on record for being inefficient with its distribution of power. Statistics show that power shortages resulting from these internal inefficiencies through loss of transmission and distribution average around 21 percent of the total energy that is produced. That is high wastage.
Unfortunately, the manufacturing sector has to bear the brunt of such transmission and distribution inefficiencies through uncompetitive power charges. This has resulted in the country’s manufactured products being more costly to produce, and consequently more priced than those from competing countries.
In addition to increased costs, electricity supply is also erratic, resulting in lost production time and consequently lower productivity of enterprises. This also results in equipment damage and wastage as businesses invest in stand-by generators.
When indirect costs associated with brownouts, blackouts, power surges, damage to equipment, back-up and emergency electrical power sources are factored into the nominal cost of electricity off the grid, Kenya’s energy costs are the highest in the world.
Massive increase in power tariffs
The Energy Regulatory Commission (ERC) of Kenya recently announced new electricity retail tariff charge rates effected on 1st July, 2008.
Since then, electricity cost has gone up by 53 per cent from Ksh. 8.00 to Ksh. 15.00 per unit for the industrial sector, with small businesses paying the higher rate. These new electricity charges are too high particularly for the manufacturing sector which is the largest energy consumer. It must be reduced as soon as possible before it causes further damage to the industry.
Because of this, the energy sector has witnessed an increase in thermal power generation plant, whose capacity now stands at 36 per cent as compared to 27 percent in 2003. However, hydro based power still accounts for the largest proportion at 53 per cent. This calls for the implementation of the least cost power development plan.
Impact on Kenya’s products
As a result of the exorbitant electricity pricing, Kenya’s products are increasingly finding it difficult to compete with those from other countries especially Asia because of the variations in the costs of doing business.
For instance, while Kenyan manufacturers are paying between Sh10 and Sh15 per kilowatt of electricity, their competitors in China and India pay the equivalent of between Sh 2.50 and Sh 3.80 per kilowatt of electricity. This therefore makes their products much cheaper than Kenya’s.
Within Africa, Kenya’s electricity is four times more costly than it is in Egypt and South Africa who are major trading partners within the COMESA bloc. For instance,, electricity in Kenya is four times costlier than it is in Egypt. Kenyan manufacturers are therefore disadvantaged by the cost and quality of electricity, although it is not the only production factor which leaves the country in this position. As a result, our products have become very uncompetitive, a fact that has adversely affected our export market.
Correlation between electricity and international oil prices
Under normal circumstances, hydro power generation accounts for 60 per cent of power supply in the country, with the remainder coming from geo-thermal generation and fuel-driven thermal generation. Currently, hydro generation is down to 46 per cent due to the dry spell. This drives us to over-reliance on thermal and geo-thermal, with fuel charge adjustments weighing heavily on the economy.
Impact of Fuel Cost Adjustment – FCA
The rising world fuel prices have no doubt influenced the high cost of electricity in Kenya, given that thermal generated energy accounted for 38 per cent in August this year, having increased from 30 per cent recorded earlier in January. Correspondingly, Fuel Cost Adjustment (FCA) increased from Kshs 1.77 in January to Kshs 7.69 in August per unit of electricity consumed.
While it is a fact that world oil prices have been on an upward trend between January and July this year rising to a high of US$142 per barrel, the cost started dropping in August and has since gone below the US$ 100 per barrel mark .
Unfortunately, this has not translated in a drop in the local FCA on our electricity bills. On the contrary, at a time when the world crude oil prices are dropping, the Fuel Cost Adjustment on electricity rose from Kshs 3.59 in June to Kshs 7.69 in August and Kshs 7.78 in September! This FCA plus other non-fuel costs have shot up total electricity unit cost to Kshs 15.00 per kilowatt, which is too high to bear.
According to the FCA chart above, when the world crude oil prices were dropping to levels lower than those recorded in July, the FCA on electricity bills increased tremendously, thereby increasing the overall cost of electricity to unprecedented levels, now standing at Kshs 15.00 per kilowatt.
In effect, the drop in the international crude oil prices that has been experienced since July should be felt by consumers. Currently, crude oil is retailing at approximately US$ 90 per barrel, which means that we should be paying a FCA of Ksh 5.00 as opposed to the current Ksh 8.00.
In June this year, KPLC announced a 24 per cent increase in prices, attributing the hike to the use of oil-fired generators at Kipevu, Nairobi East and from independent power generation by Aggreko, an emergency power supplier. Later in July, it became evident that the increase in electricity tariffs was in excess of 50 per cent. The increase in these costs has been passed on to consumers.
Following the commissioning of the 110MW emergency power plant at Nairobi’s Embakasi plant on June 7, and Eldoret’s 40MW emergency power plant, the country’s total emergency power capacity now stands at 150 MW up from 100MW. This increased thermal power generation from 177,804,123 KWH to 194,561,134 KWH in June alone.
The country’s total committed capacity for emergency power generation is 180MW. If need arises, the remaining 30 MW will be put up in Lanet, Nakuru.
Proposed Solutions
Manufacturers have proposed nine possible solutions the government could consider in addressing the current electricity cost crisis:-
- Increase investment Generating Capacity: Government should demonstrate by policies and processes that it is doing everything possible to increase generating capacity. Relying on State provision by KENGEN alone is insufficient. Government should actively encourage other investors from the private sector to participate and explore other sources of thermal energy besides fuel based for example coal. There are investors that have expressed interest to Government in this regard and but there has been slow response.
- Encourage Industries to generate for own use and sell excess to Grid. Beyond the policies thus enacted, Government should actively encourage large consumers to generate electricity for own use and sell excess to the national grid.
- Demonstrate Seriousness and commitment to roll out of programmes for Renewable Energy: Government has stated severally its commitment to expansion and adoption of renewable energy generation for example solar and wind. However, there are no significant Government backed programmes to do this. Requirements for all buildings to have solar power installations and exploitation of wind power, would go a long way in reducing the current pressure on existing supplies.
- Review Revenue Maximisation Policies: Government should stop fuelling the inflationary pressure: Government Revenue makes up a significant portion of fuel price at 35%. With a high thermal content in Electricity, Government should cap its revenue collections from fuel used for generation to ease the price consumers pay. This situation is grave for the economy and painful for all consumers. It does not augur well for Government to increase its revenue collection beyond anticipated targets out of such a grave situation.
- Incentivise Energy Conservation: Government should provide Tax incentives and credits for installation of power saving devices at household level and industry.
- Review the Financing models used by the utility companies; One of the arguments made by the ERC when announcing the new tariffs in June, was that it would help both KPLC and KENGEN meet the cost of new capital expenditure in systems improvement. However we urge that this model used is revised to reduce initial burden on consumers and spread payout over a longer time span.
- Be a Partner to Society in absorbing the pain of high Energy Costs. Government should provide relief to consumers by absorbing some of the additional costs, for instance of rental charges for the emergency power generation. Other charges the Government should pick up include cost of fuel used for Generating Electricity above US$ 70 pb.
- Review Programmes for Demand Expansion: there are many government programmes to expand demand for Electricity amid crippling shortages and prices. In order to match promise and delivery, Government should review such programmes.
- Demonstrate partnership with Business and Society in finding lasting solutions to the power problem. We as business and other sections of Society have ideas for solutions to the existing challenge. We ask Government to actively partner with all in the search for solutions to this crippling challenge.
2) Physical Infrastructure – This committee is headed by the Kenya Shippers Council and gives oversight to throughput issues related to the Port of Mombasa, including decongesting the port, flow of goods, ports, cargo clearance and movement, cost of transportation (shipping, customs, clearance), state of roads, railway, and ICT/communication issues.
Although the Port of Mombasa is the most important entrepot for the entire East African region, its performance hitherto has been dismal, with unacceptable delays in turnaround times.
While the Mombasa Port has acted as the regional entrepot for over a century, years of under investment coupled with increased demand have left it unable to cope with the demands. It was therefore a welcome relief when the government took steps to revamp the Port not only to enable it cope with the current trade demands, but also to provide the level of service and capacity that will be required in the future.
Transforms at the Port
President Mwai Kibaki directed that the Port adopts a 24/7 operations schedule and reduce cargo clearance time from 48 hours to 24 hours. This was a clear indication of the government’s commitment to ensure that trade thrives in the country.
However, the Port is yet to pick up despite this directive. The 24-hour operations at the port is yet to improve its performance as many serious flaws still exist. For instance, the harmonisation of systems is yet to be put in place.
Container yard population currently stands at a massive 17,232 TEUs while ship waiters merely are four. Prudent management and utilization of resources are required to turn around the port as opposed to the issuance of an executive order. The Port of Mombasa is a pale shadow when compared to the Port of Singapore which delivers 1.25 Million Containers although they both have similar spaces with an installed capacity of 14,200 TEUs!
Prime Minister Raila Odinga, also made a purge on the Port with the aim of ensuring that the Port was efficient in service delivery. Inefficiencies experienced at the Port were partly occasioned by poor management which was satisfied with the status quo. It is however important to note that apart from this purge and the various directives issued of late, there is urgent need to expand the infrastructure to enable it cope with the growing demands.
Axle Load
Roads are normally designed to withstand specific amounts of loading during their entire lifetime. Overloading leads to rutting, cracking and other deformations which shorten the pavement design life. This results in increased vehicle operating costs, reduction in service levels, unsafe conditions leading to increased accident risks and increase road maintenance costs.
Axle load regulation
In order to arrest the rapid deterioration of the road infrastructure caused by overloading, the Government is enforcing axle load regulation through Cap 403 of the Laws of Kenya.
Kenya was the only country among the five East African Community countries that had not implemented axle-load limits. Indeed, Kenya was the only country that allowed the four axle configuration – this could be the reason for the rapid deterioration of our roads.
President Mwai Kibaki recently ordered that all vehicles should have a maximum of three axles. This is intended to arrest the rapid deterioration of the road infrastructure. The heavy cargo on Kenyan roads includes raw materials from the port destined to industries across the country, exports of our agricultural produce, and finished goods headed to both the local and regional markets.
Current estimates indicate that Kenya loses between Sh30 million to Sh50 million per kilometre of road damaged by heavy commercial vehicles.
Chairman: Pradeed Paunrana – Athi River Mining
Liaison: Sylvester Makaka
