Small businesses face higher electricity bills this month on forex charges
By Noel.Wandera, January 15, 2024
Small businesses in Kenya are facing a steep increase in their electricity bills this month, after the Energy, Petroleum Regulatory Authority (EPRA) revised the tariffs by an estimated 11.6 per cent.
According to the regulator, the hike is mainly due to the rise in the Foreign Exchange Rate Fluctuation Adjustment (FERFA), which reflects the cost of servicing foreign currency loans used to finance power generation projects. The FERFA more than doubled from Sh3.169/kWh in December 2023 to Sh6.46/kWh in January 2024.
EPRA explained that the change in FERFA was triggered by a surge in foreign currency payments made by the KPLC towards outstanding power purchase costs, and KenGen’s loan repayments in December that amounted to € 5.4 million (Sh938 million) and ¥ 253.3 million (Sh274 million).
The regulator said that KPLC had deferred some of its foreign currency obligations since March last year, due to the tight liquidity in the forex market. However, when the market conditions improved in December 2023, KPLC resumed making the pending payments, resulting in a higher FERFA.
“Thus, when the market eased in December 2023, KPLC started making pending USD/EURO financial obligations,” EPRA said through documents in our possession. The impact of the higher electricity tariffs is likely will be felt across all sectors of the economy, especially by small businesses, which are the backbone of the country’s economy. Small businesses that rely on prepaid tokens will now receive fewer units for the same amount of money. For instance, a token of Sh200 will now buy 6.26 units, down from 7.10 units in December.
This means that small businesses will have to spend more on electricity, or reduce their consumption, which could affect their productivity and profitability. The higher electricity costs and their frequent changes also create uncertainty and instability for small businesses, making it harder for them to plan and budget for their operations.
Manufacturers, who are another key driver of the economy, will also suffer from the increased energy prices. As a major user of electricity, any rise in tariffs directly affects their production costs and competitiveness. Manufacturers have been calling for affordable and stable energy prices.