The International Monetary Fund (IMF) and the World Bank have differed on the push to end Kenya Power’s monopoly in the sale of electricity to homes and businesses.
The IMF wants Kenya to speed up regulations that will allow other firms to sell power in competition with the utility, arguing that the country is behind schedule in liberalising the electricity market.
But the World Bank has warned the government against its push to end the monopoly, saying an open market will trigger a surge in electricity prices—which has risen the most among basic items over the past five years.
Kenya has published regulations that allow private firms to sell electricity directly to consumers, with the government targeting ending the monopoly next year.
The IMF reckons that Kenya is running behind schedule with the regulations, whose approval is part of the conditions attached to a multi-billion-shilling loan from the fund.
“We know the Draft Regulations (on Open Access) are out for public consultation and there is still work ongoing. Once the consultation is completed and all the issues are addressed and finally the regulation is approved then we would consider this reform also met,” said Haimanot Teferra, the IMF mission chief to Kenya.
The IMF’s financial support is seen as crucial for Kenya to be able to navigate its current liquidity challenges, which are mainly driven by high debt interest repayments.
The fund is in agreement with the Kenyan government that exposing Kenya Power to competition will offer homes and businesses choice, and ultimately lower consumers’ electricity bills—which have increased to Sh1,278 for 50 units from Sh823 in 2019.
But the World Bank is predicting chaos and costly electricity under a liberalised market. “For retail consumers who may face higher tariffs due to the possible end of cross subsidisation if the larger, more lucrative customers were to leave Kenya Power,” said the IMF in reference to World Bank’ concerns.
“On the open access draft regulation, the World Bank has cautioned that this could have macro-fiscal implications especially for Kenya Power that has already contracted long-term, fixed power purchase agreements with several independent power producers.”
Kenya Power has inked power purchase agreements with 27 firms whom it paid Sh117 billon in the year to June 2023. Consumers often complain of steep power bills, which are partially due to idle capacity charges that compensate power generators for electricity that is generated but never used.
Under a typical power purchase agreement, a power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell it to consumers because of reasons including excess production.
The contracts are long-term, running up to 25 years, and a migration of top retail customers to new entrants could make it difficult for Kenya Power to meet its obligations, the World Bank warns.
Commercial and industrial customers account for about 51.2 percent of Kenya Power’s sales revenues—making them a dominant profit driver.
The larger and moneyed customers pay more for a unit of electricity, allowing Kenya Power to use them in subsidising some domestic consumers.
The World Bank reckons that the domestic consumers could be forced to pay more should the large consumers migrate to the new entrants.
Debate over the monopoly comes days after Kenya Power reported a Sh30.08 billion profit for the year ended June compared to a loss of Sh3.19 billion, allowing it to resume paying dividends after a six-year drought.
It remains to be seen if the government will push with the bid to end the Kenya Power monopoly in an economic setting that has seen the World Bank and the IMF clouts grow.
The influence of the Bretton Woods institutions on Kenya’s economic policy planning has increased to levels that would require the government to implement tough conditions across sectors.
This is the product of mounting loans the country has recently tapped from the IMF and the World Bank, which hitherto gave project loans for poverty alleviation, but is now offering cash directly to the Treasury for budget support—including paying salaries.
The World Bank is Kenya’ largest foreign lender with the institution’s unpaid loans standing at Sh1.8 trillion from Sh692 billion in 2019.
The stock of IMF loans rose from Sh57 billion in 2019 to Sh413.5 billion in June, but it is more vocal and dishes out tougher conditions compared to the World Bank.
“In the context of what we expected to be done by this time, not all of them were completed and this will have to be pushed to the next time when they are completed then we will be able to assess and present to our board,” Ms Teferra said in reference to the loan conditions.
Last month, the IMF board approved the seventh and eighth reviews of Kenya’s programme, paving the way for the cash-strapped government to access a $606 million (Sh78.2 billion) loan tranche.
Kenya and staff of the IMF announced an agreement on the seventh review of its $3.6 billion (Sh465.1 billion) program in June, but completion of the review at the board level and the subsequent disbursement were disrupted by deadly protests—which triggered the withdrawal of the Finance Bill, 2024.
