31st October 2003

INDUSTRY MONITORING

Taxes raise cost of power sold to KPLC

Kenya’s electricity costs are high because of taxes charged on power generation firms.
Mr. Michael Fox, who is the chief executive of Tsavo Power Company, said lowering these taxes would help reduce the price that independent power producers charged the national electricity distribution firm, Kenya Power and Lighting Company (KPLC).
“We pay too many taxes to the government. If these taxes were reviewed, the cost of electricity could come down,” he said.

The high costs of power have dampened local demand, but Mr. Fox denied a recent claim by Energy Minister, Mr. Ochilo Ayacko that producers have been overcharging the company.

Mr. Ayacko said this had contributed to the firm posting heavy losses over the last few years.

Kenya power this week reported a Sh4.1 billion loss on sales of Sh19.2 billion, but its management remains upbeat on its chances of returning to profitability.
The government converted the debt KPLC owed power generator KenGen into equity.
However, Mr. Fox said that KPLC cannot sell as much power as it should, because of low demand. He noted that the collapse of the tourism industry in Coast Province had reduced the firm’s market. Tsavo Power is among several IPPs who generate electricity and sell it directly.

“Our worst month was July this year, when Kenya Power only bought eight per cent of what we can produce. Last month, they bought 20 per cent of our electricity,” Mr. Fox said.

He said that while his company can produce 74.54 MW of electricity, KPLC only buys what it needs.

Mr. Ayacko, has constantly blamed power producers for the high cost of electricity in the country. He recently warned that the government will not renew their contracts after they expire.

Tsavo Power Company is an affiliate of the Aga Khan Fund for Economic Development (Akfed). Cinergy Global Power Inc of the US the biggest share holder of the company at 49.9 per cent. The firm has a 20-year contract to supply electricity to KPLC.

Its owners invested Sh6.6 billion when setting it up. Others shareholders are CDC Group Plc, Wartsila Development, Finance Services, International Finance Corporation and German institutions.