The Treasury will pump Sh5 billion into paying part of Kenya Power’s #ticker:KPLC outstanding debt for the last-mile electrification and help stabilise the utility firm’s distressed finances, the World Bank has said, boosting subsidised power connections for poor households.
Improving Kenya Power’s financial position is one of the conditions for a fresh $750 million (Sh80.9 billion) loan from the World Bank to help Kenya recover from Covid-19 economic hardships and support the budget.
“The National Treasury also provisioned for Sh5 billion in the financial year 2022 budget for partial clearance of outstanding Kenya Power receivables against the last mile electrification programme”, the World Bank said.
The Last Mile Connectivity is an eight-and-a-half-year project set to cost Sh77.6 billion. The project is part of the State’s efforts to promote a 24-hour economy, boost security and bring more public facilities into the national grid.
Development financiers are committing Sh50 billion while the remainder is being provided by the government.
Budget cuts and shortage of poles have, however, hampered the programme with the country missing its target for the past three years.
“Inadequate budget transfer to fund the last mile electrification programme coupled with a slow growth in electricity consumption despite the aggressive connection campaign has caused liquidity constraints for KPLC forcing it to resort to high-cost, short-term debt to finance long-term assets,” the World Bank said.
The last-mile electrification has slowed down considerably and the earlier goal for achieving universal access to electricity by 2022 has been deferred to 2026.
In the three years to June 2020, Kenya connected 1,522,858 customers to the national grid, missing its target by nearly 1.28 million.
Treasury Secretary Ukur Yatani in his Budget Policy Statement (BPS) for 2021/2021 said the State plans to connect 2.4 million households to subsidised power in the year starting July, edging closer to the ambitious goal of universal electricity access.
A further 3,003 public facilities that include schools, trading centres, health centres, water points, and administrative offices have also been marked for connection.
The State will construct 3,082.9 kilometres of transmission lines, 37 transmission stations, and 45 distribution substations that will stabilise power distribution.
The additional households will bring to more than 9.6 million linked to subsidised power under Last Mile. “This will enable connection of an additional 2.4 million new [sic] households through the grid and off-grid solutions,” Mr Yatani said.
He said the increased connections will be achieved through a mix of geothermal, coal, wind, solar and hydro sources that will more than double power generation to 6,700 megawatts from 2,819 megawatts.
The CS added that the State was banking on the recently completed national geospatial mapping that has revealed vast natural resources to be used in power generation.
Apart from reinvigorating the rollout of the Last Mile, the World Bank further wants Kenya Power’s power purchase agreements (PPA) reviewed to strengthen the utility’s financial position.
It said the country’s power feed-in-tariff (FiT) should be set on an auction system that would guarantee maximum pricing benefits to consumers.
The Ministry of Energy has approved and published a new FiT policy to include only small hydro, biomass and biogas technologies and restricted the generation pipeline to projects that have a signed PPA as of March 29, 2021. It has also approved and published a new Renewable Energy Auctions Policy for solar and wind.
“The new policy means that several large, and potentially expensive, projects which have been in the planning stages or not yet signed by the regulator [the Energy and Petroleum Regulatory Authority] will no longer come on stream. In addition, new renewable energy capacity will be competitively priced through an auction framework” the World Bank said, adding that this would result in saving estimated $1.1bilion (Sh117.7 billion) over the next 10 years.
Kenya Power’s power purchase costs stood at about $810 million (Sh82.1 billion) in the financial year 2020, accounting for more than half of the utility’s total costs of operations.