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Production costs in Kenya to drop by 10% on cheaper power – KAM
The Kenya Association of Manufacturers says move to also bring down cost of goods.
In Summary
•
Kenya now has cheaper power compared to neighbouring Uganda, but remains expensive than Tanzania.
•On average, Kenya is at $0.14 (Sh16) per kWh, Uganda $0.158 (Sh17) while Tanzania is at $0.102 (Sh11.57) per kilowatt-hour.
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Production at the East African Breweries Limited plant in Nairobi/FILE
The cost of manufacturing in Kenya could drop by up to 10 per cent once the government fully effects its power reduction plan, industry lobby now says.
The government plans to cut tariffs by 30 per cent, in two tranches and announced the implementation of the first phase of 15 per cent on January 7, to reflect in this month’s bills.
This brings down the cost of power for industries in the country by almost Sh4 per kilowatt-hour in what manufacturers say will make their products competitive in the region, on reduced production cost.
Kenya now has cheaper power compared to neighbouring Uganda, but remains expensive than Tanzania.
On average, electricity in Kenya retails at $0.14 (Sh16) per kWh, Uganda $0.158 (Sh17) while Tanzania is at $0.102 (Sh11.57) per kilowatt-hour.
Ethiopia has the cheapest power in the region with a unit going for $0.021 (Sh2.38).
The Kenya Association of Manufacturers (KAM), welcomed government’s and was optimistic local manufacturers will become more competitive once the 30 per cent reduction is fully implemented.
Energy accounts for up to 30 per cent of the production costs in manufacturing in the country, according to KAM chief executive Phyllis Wakiaga.
“Kenya has had one of the highest tariffs in the region. Once the full reduction is effected, overall production costs are bound to drop by a five to 10 per cent margin,” Wakiaga told the Star on Monday.
The high cost of electricity has been attributed to various factors, including expensive Purchase Power Agreements (PPAs), high cost of fuel, multiple taxes and levies imposed on electricity bills, VAT and fuel cost adjustment.
There has also been a depressed demand growth and inefficiency in the system despite the increased power generation capacity.
The first tranche reduces the cost for commercial and industrial 1 (small consumers metered at 415V typically SMEs) from Sh20.38 per unit to Sh16.74, while commercial and industrial 2 (medium consumers metered at 11kV) will pay Sh16.01 down from 19.05.
Those under commercial and industrial 3 (large consumers metered at 33kV) will pay Sh15.89 per kilowatt hour down from Sh18.56, commercial and industrial 4 (large consumers metered at 66kV) Sh15.65 from Sh18.33, while commercial and industrial 5 (large consumers metered at 132kV) will pay Sh15.41 per unit, down from Sh18.08.
The power reduction is expected to come with a reduction in the prices of goods where traditionally, manufacturers have passed costs including that of power to consumers.
“With this decrease, we expect that local manufacturers will also pass the benefits to consumers,” Wakiaga said.
High taxation, including duplication of taxes by the national and county governments, and an unpredictable tax regime in the country could however erode the gains from lower electricity tariffs.
“A key feature of tax policies in Kenya is that they are highly unpredictable. This leads to business uncertainty, which is detrimental to a conducive business environment,” Wakiaga notes.
President Uhuru Kenyatta last year announced the government would cut cost of power by 30 per cent, with both commercial and households benefiting.
''We are working hard to ensure that the next 15 percent tranche is effected in this quarter as promised,'' the Energy Ministry said in a statement on January 7.
This reduction is expected to boost social-economic growth by reducing the cost of living and that of doing business.
munasahau mwakani lazima muchinjane kwanza
