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Power consumers lose Sh20b to Forex swings

Zachary Ochuodho @zachuodho

Kenya has lost Sh20 billion over the last two decades in payments for power whose tariff is denominated in foreign currencies, People Daily can report today.

The cost, which is passed to power consumers as foreign exchange (Forex) chargs in monthly bills, is incurred due to Forex fluctuations for power projects whose financing and tariff is pegged to foreign-denominated currencies, especially the US dollar.

“The tariffs would have resulted in an average power cost increase of Sh250 per household annually,” said Energy Regulation Commission (ERC) director for economic regulation Frederick Nyang’.

Foreign currency dominated debts have had a negative impact in increasing the cost of loans when the shilling depreciates thus contributing to the high cost of electricity.

A study unveiled yesterday recommends that loans for projects under 10 megawatts (MW) be fully denominated in local currency while those above 10 MW, be partially denominated in hard currency depending on the technology employed.

If the recommendations of the study by GuarantCo are implemented then consumers can be shielded from Forex shocks and consequently bring down the cost of power.

Kenya has 80 independent power producers, most of which have adopted foreign currency dominated tariff in their power purchasing agreements.

“Studies indicate that for the last 20 years Kenya has lost Sh20 billion due to the foreign currency adjustments,” GuarantCo’s executive director Samuel Chasia said.

He said local investors buy hard currency to participate in infrastructure projects a factor that has exposed them to exchange losses due to currency fluctuations.

The study was commissioned in July last year as part of government efforts to bring down the cost of power.

Energy principal secretary, Joseph Njoroge, who was also present, said the government will put in place measures to ease the cost of power to support the manufacturing sector Big Four Agenda.

“Over the last decade the Government has been focused on providing power to all citizens. We are now shifting focus to ensuring that power is not only accessible but also affordable,” he said.

ERC director general Pavel Oimeke said energy infrastructure development in the country is capital intensive, a factor that has traditionally seen local investors shy away from participating in the sector.

“The emergence of the alternative investment models and development of local capital markets will facilitate local investment while at the same time enabling the sector to continue to attract investment,” said Oimeke.

He said local firms comprising  pension funds, commercial banks and insurance companies have projected availability of Sh4.4 trillion in the next decade that can be sourced to undertake projects.

The report, however, notes that key measures need to be taken to encourage local investors to participate in implementing energy projects.

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