The International Monetary Fund (IMF) has barred Kenya from further price cuts, citing a potential collapse of Kenya Power, which is currently experiencing cash flow problems.
Kenya cut power tariffs by 15% in January this year as part of the first phase of a two-part plan to reduce power costs, providing relief to households and businesses that have been burdened by high electricity costs.
The IMF’s stance could dash consumer hopes of even lower electricity prices at a time when inflation has reached a 58-month high, sending the cost of commodities such as food and fuel through the roof.
“Any future reduction in electricity tariff should be avoided unless fully backed by well-identified and achievable cost-saving measures to prevent deterioration of KPLC’s liquidity and profitability situations,” said IMF.
The government had hoped to achieve another similar power tariff cut by the end of March by renegotiating power purchase agreements (PPAs) between Kenya Power and power producers in order to reduce its massive annual dues to the power firms.
However, the second phase of the power outage did not occur because the government was unable to persuade independent power producers (IPPs) to lower their tariffs, effectively delegating the task to the next government following the August 9 General Election.
The IMF has now warned that further power price cuts without major reforms at Kenya Power, including meeting its financial obligations, could bankrupt the company, plunging the country into an energy crisis.
“The tariff reduction has aggravated KPLC’s pre-existing liquidity challenges by lowering revenues by an estimated Sh26.3 billion per annum, while additional cost-saving measures currently identified across the electricity supply and distribution chain would only yield benefits over time and are not sufficient to fully offset this revenue impact,” IMF said.
“Without stronger actions on cost-saving measures KPLC’s liquidity concerns would persist, creating an adverse feedback loop to the rest of the electricity sector and the budget” the lender added.
Treasury Cabinet Secretary Ukur Yatani stated in a submission to the IMF that the state would submit a restructuring plan to the Cabinet sub-committee on Kenya Power by the end of this month. Interior Cabinet Secretary Fred Matiang’i chairs the Cabinet subcommittee.
