allAfrica.com: Kenya: Uncertainty As Companies Battle Over Electricity Tariffs (Page 1 of 2)

Shareholders of two publicly listed firms, Kenya Power & Lighting Company and Kenya Electricity Generating Company, are bracing for uncertain times as electricity tariffs once more become a bone of contention.

KenGen has billed Kenya Power using the old tariff, and the payment is due Wednesday.

Kenya Power says it can pay 80 per cent of the amount -- but only if KenGen signs the contentious draft power purchase agreement. In a way, the current tiff may go a long way towards changing portfolio investors' perception of state-dominated firms or sectors.

Worse still, the two top power utility firms could continue feuding over the tariff for months, depending on how an energy arbitration tribunal rules.

While distributor Kenya Power appears content with retaining the rates contained in the contentious draft power purchase agreement, KenGen may take the battle all the way to the High Court if it loses its appeal.

This would heighten uncertainty among investors and lenders alike. The power producer supplies nearly two-thirds of the power. A long drawn-out court battle is the very scenario they were hoping to avoid by going through the ministry of Energy's tribunal.

The Energy Tribunal is supposed to rule on KenGen's appeal against what it says is a reduction of bulk tariff, or the price paid by Kenya Power for KenGen power -- despite a 24 per cent rise in retail or consumer tariffs in July.

The Energy Regulatory Commission is the first respondent while Kenya Power, which was enjoined later, is the second.

KenGen says the new tariff of Sh2.19 per unit is a reduction of the Sh2.36 per kilowatt-hour rate used under the interim power purchase agreement supposed to have ended in July.

The latter price is what investors counted upon when they bought KenGen shares in an initial public offering in 2006.

The tribunal was constituted after the dispute, arising from the first major tariff review since 1999, as provided for by the law. It is chaired by Mbage Ng'ang'a, with Philomena Mwilu as vice chairperson. The directors are Kipketer arap Chumo, Nyaga Kamundi and Shem Olende.

Interestingly, the three stakeholders have not even agreed on a new rate owing to the new method of calculation. The method uses capacity, various costs, financials and energy supply (the only factor used before) of power plants.

KenGen says the Energy Regulatory Commission underestimated capacity. As a result, the tariff dropped from Sh2.36 to Sh2.19 according to the power supplier.

The Kenya Power calculation puts the rate at Sh2.26, only adding to the confusion. However, the calculations filed with the tribunal show that KenGen rates should improve to Sh2.49 in the next two years.

"If KenGen implements the tariffs, this will put in jeopardy the company's viability, not to mention the ability to meet its financial covenants to the lenders and other third parties," says the power producer, while urging the tribunal to revert to the Sh2.36 rate.

They want regulatory commission compelled to provide details of how they arrived Sh2.19.

The regulator denies this is the applicable rate and claims, subject to "compliance with the terms and conditions", the rate would be Sh2.44. The commission says KenGen had at one point demanded Sh3.95.

Kenya Power is not amused by KenGen's move.

"Any increase in the appellant's tariff to Sh2.36 would mean that we would incur an additional cost of Sh0.10 per kilowatt hour," it says, adding, "this was not provided for under the retail tariffs and would therefore materially adversely affect us."

Investors in both companies will be holding their breath as the tribunal makes its ruling.

KenGen, by far the lowest-cost supplier, has been mulling over a major bond issue to save the country from a looming power crunch, which has lately translated into an increase in expensive emergency power from 100 to 150 megawatts with the contract being extended to next year.

Kenya Power, on the other hand, needs the money to expand its client base and patch up its rickety distribution network that loses more than a tenth of the power, the price of which it is haggling over. And their finances have been shaky for the most part of the last decade.

The Sh2.36 was supported by a government subsidy of 60 cents for this reason. But it is expected to explain how the increased retail tariffs (from Sh1.76) fit in the whole matrix as it feuds with KenGen over sharing the power largesse.

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