ERC seeks to move from dollar to a shilling denominated framework

Last Updated 7 years ago by Kenya Engineer

The Energy Regulatory Commission (ERC) announced on 11 July that it will undertake a study to help address existing constraints in the supply of local financing to infrastructure projects in the energy sector. Kenya seeks a move away from dollar-denominated rates. The country follows the example of countries such as India and South Africa that have successfully adopted their local currency-denominated bulk tariffs for energy projects. The move by ERC from a dollar to shilling financing for energy projects is also in a bid to make electricity cheaper to the end user. The cost of power has been going up in the last ten years despite increased generation capacity.
The 3 months study is funded by the technical assistance facility of the Private Infrastructure Development Group (PIDG) to the tune of KES 20 million. The project will be implemented by GuarantCo, which is part of the PIDG. GuarantCo was established to support the development of local financial markets in low-income countries.
ERC’s Acting Director General Pavel Robert Oimeke said the study was in line with the commission’s objective is to ensure adequate, quality, cost effective and affordable supply of energy through indigenous resources.
The study, it is hoped, will result in a guide to shifting power prices downward and aims to deliver lower power prices to homes and businesses. The current regime has power purchase agreements (PPAs) between electricity distributor, Kenya Power and electricity producers’ coming in fixed US dollar denominated tariffs. “The aim of this study is to present a case to have PPAs in shillings in order to promote local financing leading to a reduction of power costs to consumers,” said ERC acting director-general Pavel Oimeke.
The Energy Principal Secretary Eng. Joseph Njoroge noted that because of the change in denominations from shillings to dollars, the customer has had to bear the increased cost in power bills through the adjustment of forex in their bills. He said that the initiative is aimed at limiting or reducing that fluctuation and therefore create a stable tariff for the customer.
Marcus Watson the lead advisor at Dalberg noted that the international trends show a shift toward local currency denominated power agreements. The study is being undertaken by Dalberg International. Kenyan consumers currently pay a forex adjustment levy through their bills which are reviewed monthly and is linked to foreign currency expenses incurred by Kenya Power and electricity producers. The shilling-denominated deals promise to wipe out forex levy, easing consumers’ burden.