PRODUCTION:  The cost of production for Kenyan manufacturers is set to reduce after a 15 per cent reduction in power tariffs effective this month.

Kenya Association of Manufacturers (KAM) said following the tariff adjustments, costs of producing goods will reduce by between Sh2.67 and Sh3.64 per unit of electricity, dictated by respective tariff and consumption levels.

Mucai Kunyiha (pictured), chairman of the manufacturers lobby group said the cost of power will reduce for industries that meet the Time of Use Tariff threshold as gazetted.

Time of Use Tariff refers to changes in energy loads during specific time intervals by exposing consumers to the correct cost-reflective price signals.

“This is a significant milestone towards realising our long-standing efforts to have power costs reduced, boost local manufacturing and consequently, investments in the sector,” he said in a statement yesterday.

Manufacturers have, in the past, raised concerns over the high cost of electricity in the country, which impacts the overall cost of production.

Presently, the sector’s annual growth hardly hits 4 per cent due to a mix of factors, which have rendered it uncompetitive and slowed its productivity,” said Sachen Gudka, formerly a chairman of KAM.

Unlike household consumers who will enjoy immediate relief from the reduction, there is a possibility of manufacturers maintaining the current prices of goods, rather than pass the benefits to Kenya, as has occurred in the past.

Kunyiha said the timing of the announcement was appropriate, as the economy is experiencing the impact of the Covid-19 pandemic, including rising costs, supply challenges and lower purchasing power.

The high cost of electricity has mainly been attributed to expensive Purchase Power Agreements, high cost of fuel, multiple taxes and levies imposed on electricity bills; Value Added Tax and Fuel Cost Adjustment, as well as depressed demand growth and inefficiency in the system despite the increased power generation capacity.

Fuel cost component

Kunyiha said KAM will continue to support the government’s efforts to address the fuel cost component that is one of the key factors in energy costs as well as the expensive petro-thermal generation, whose cost is affected by fluctuating global prices and exchange rates.

He said achieving overall sustainable and stable policies on the cost, availability, and reliability of power was paramount to the country’s economic growth.

“To fully gain from the benefits of this move, we must keep an eye on the urgent implementation of the second phase of the 15 per cent reduction in power tariffs, as announced by President Uhuru Kenyatta during last year’s Jamhuri Day celebrations,” said Kunyiha.

While addressing the Nation, Uhuru said the cost of electricity will eventually reduce by 33 per cent within a period of four months.