Industries push for power subsidies

September 19, 2008
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, NAIROBI, September 18 – Manufacturers are lobbying the government to renew a power tariff subsidy to cushion them from the current cost crisis.

Through their umbrella Kenya Association of Manufacturers (KAM), the producers point out that an initial subsidy of 60 cents per unit expired on June 30.

“Energy cost has made Kenya very uncompetitive by affecting the cost of doing business across all sectors of this economy,” said Vimal Shah, KAM Chairman in a statement.

They want the government to subsidise the current Kilowatt-Hour price which stands at Sh16.05 cents. The statement indicates that the association has over the last two months, received strong protests from its members regarding the recent increase in electricity costs.

According to KAM, initial analysis show that the overall effective cost per unit of electricity for the industrial sector had gone up from Sh8 to Sh15 on average.

In September, fuel cost adjustments were set to go up again from Sh7.69 to Sh7.78 per unit, with costs expected to increase further. In January this year, the fuel cost charge was Sh1.77 per unit comparative to January last year when it was Sh1.12 per unit.  This increase constitutes approximately 600 percent over the past one year.

The country’s cost of fuel tops the East African region at Sh 16.O5per KWH, with Tanzania at Sh7.10 and Sh8.60 in Uganda. While Kenya’s main competitor in the COMESA region, Egypt, has its cost of fuel pegged at a mere 2.90 cents per KWH.

Though Uganda and Tanzania were struggling with electricity shortages last year, Tanzania commissioned its Tonga plant and depends more on gas as opposed to diesel-generated electricity while Uganda has a huge hydro source. On the other hand Egypt exports oil and uses the returns to subsidize fuel prices locally.

Kenya is highly dependant on fuel generated electricity which explains why the rates are so high. With the new rates, Kenyan industries are now faced with the grim reality of business closures and possible relocations.

The statement from the KAM further indicates, the country will not only lose out on new investments but will also have current industries relocating to neighboring countries with lower energy costs.

In the past, companies have preferred to move to other COMESA countries from where they produce and export back to Kenya without paying duty. Such a measure will lead to huge job losses and increased poverty.

“Kenya needs to check the direction to which it is propelling its development strategy, whether to be a producing nation or a trading one.  Is there any need to talk about vision 2030 when we are so uncompetitive?” posed Shah.

The power increase is expected to affect all types of producers in the country including horticulture, Jua Kali sector, tourism and manufacturing among others. In the short term, industries do not have a choice but to increase commodity prices which will add to the already very high cost of living, further fuelling inflation.

In the long term the manufacturer’s body is proposing the opening of some of the new gas plants in Olkaria which they claim are ready. 

Kenya has the 2nd biggest geothermal resource in the world after New Zealand.

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