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The East African : May 10th 2015
The EastAfrican BUSINESS MAY 9-15,2015 E N E RGY Bill aims to open up distribution, ending Kenya Power’s monopoly ‘What I see is inc≥eased e∞ciency when the powe≥ dist≥ibution and t≥ansmission ma≥ket is opened up to othe≥ playe≥s’ A JOINT REPORT The EastAfrican K enya’s electricity sector is set for a major transformation if a proposed Bill is passed by the National Assembly. The Kenya Energy Bill 2015 pro- poses a raft of measures to separate the generation, distribution and retail of electricity that will see the Kenya Power’s monopoly effectively come to an end. The Bill, currently with the Com- mission for the Implementation of the Constitution (CIC) for review, proposes the licensing of other electricity distributors and retailers. The Bill will also see competition in electricity retail that some consider will reduce the cost of power. Kenya still has the highest cost of power in the region. While on average Kenyans pay 25.7 US cents per kilowatt, their counterparts in the region pay less, with consumers in Uganda and Tanzania paying 17.97 and 7.4 US cents per kilowatt respectively. “The retail licence will author- ise a person to supply electricity to consumers through a series of commercial activities, including procuring the energy from other licensees, inspection of premises, metering, selling, billing and collecting revenue,” reads the Bill. The retailers, once licensed, will be able to buy power from different sources and pay the distribution company a fee for using their network to connect customers. Currently, only Kenya Power has the infrastructure to distribute power. The Bill will also give consumers a choice of the type of power they want, allowing them to subscribe to a distributor based on either medium or high voltage needs. Licensing In a move that will see the coun- try’s electricity supply network grow, the Bill proposes that a distribution licensee plan and construct the requisite electric supply lines to enable any person in the licensee’s area of supply to receive a supply of electrical energy either directly from the licensee or from a duly authorised electricity retailer. Currently, Kenya Power is grap- pling with growing its distribution network. In its last investor briefing, the power utility firm said that it required more than $900 million to improve the quality of its electricity distribution facilities. Kenyan legislator David Bowen, who moved the motion introducing the Energy Bill, said that the cost of connecting power in rural areas is prohibitive for the poor and has hampered the growth of small industries. “If the Bill is enacted into law, the electricity industry will be fully liberalised and Kenya stands to gain in the growth of industries, which have been stifled by high cost of power. We should be able to see more connections to the grid, away from the current grim picture where 85 per cent of the population does not have access to electricity,” Mr Bowen said. Currently, the demand for elec- tricity in Kenya is increasing at an average of 8 per cent a year, while only 15 per cent of the population is connected to the grid. Kenya currently has 1,664MW of capacity against a maximum recorded demand of about 1,410MW, and is among the countries where the cost of electricity is very high. The government plans to add 5,000MW to the country’s power output by 2017 to hasten economic growth, which is expected to raise power demand to 15,000MW by 2030. Analysts are however sceptical about some of the Bill’s provisions, especially when energy production is not fully addressed. Paul Wakiaga, an energy con- sultant with OilChem, said it would be counterproductive to open up the retail and distribution networks “if we do not boost the electricity generation sector.” “If more players come in and they are tapping electricity from the same source, what difference will they make? It will mean that we will have a huge demand and then resort to the expensive diesel generated power we are trying to run away from,” Mr Wakiaga argued. According to Patrick Obath, an energy consultant and former chairman of the Kenya Private Sector Alliance (Kepsa), new investors in the power distribution market may be forced to procure their supplies from Kenya Power, implying that the cost of power is not likely to come down by opening up the market to many players. “The key thing is that they have to buy power from Kenya Power, which needs money to pay for its loans. I don’t see the cost of power coming down as a result of bringing other guys into the equation. The only way the cost of power can come down is when the power transmission losses are reduced to the minimum,” said Mr Obath. According to Mr Obath, liberal- ising the electricity transmission segment may require the state to consider various models including BRIEFS Sipa raising funds to explore nickel in Uganda Sipa Resources Ltd has launched a private placement of 11 million ordinary shares to raise up to $800,505 for exploration of nickel in its Kitgum-Pader base in northwestern Uganda. Sipa managing director Lynda Daley said the placement includes applications by certain directors for a total of $134,000 subject to shareholder approval. Sipa has discovered nickel and copper deposits at the Akelikongo Kitgum-Pader prospects. Acacia Mining given green light in Gokona project Acacia Mining Plc has received the Tanzania government’s final approval to start mining at the Gokona underground project in North Mara. Acacia chief executive Brad Gordon said the Gokona project is expected to produce 450,000 ounces of gold over a five-year life. “We are confident that the exist- ing reserve will be extended as we increase our understanding of the ore body beneath the open pit, with potential for lateral extensions as well as the mineralisation remaining open beneath the 300 metre vertical depth cut off used in the current mine plan,” he said. 51 Kenya Power employees fix a transformer in Nairobi. Picture:File WILL POWER COST LESS? The Kenya Energy Bill 2015 proposes to separate the generation, distribution and retail of electricity. It proposes the licensing of other electricity distributors and retailers. The Bill gives regulators powers to set the minimum cap on the financial and technical requirements for one to get a retail licence. Opinion is divided on the effect of the Bill, if enacted into law, on demarcating the country into different supply zones, where investors bid to acquire those regions. “What I see is increased efficien- cy when the power distribution and transmission market is opened up to other players. It doesn’t mean removal of Kenya Power from business, it doesn’t mean taking away Kenya Power’s infrastructure but it means opening up the market to innovation and significantly increasing efficiency in electricity distribution,” said Mwendia Nyaga, chief executive of Oil &Energy Services. According to George Wachira, a director at Petroleum Focus Consultants, introduction of other distributors should improve efficiency and reduce transmission costs. “It has always been the intent of energy regulators to introduce the price of power. One group say it will be counterproductive to open up the retail and distribution networks without boosting electricity generation. A second group sees no change in costs if KenGen remains the sole power generator. Yet another group feels introduction of other distributors may improve efficiency and reduce transmission costs. other distributors the same way generation was opened up. If this happens, we are likely to see more regional generators and distributors supplying captive markets. A good example is the Kitui coalbased power generator, who may wish to distribute power to future heavy industries (cement, iron ore smelting) in the vicinity,” he said, adding, “This could reduce transmission costs. We also have many mini-producers (hydro, co-generation, solar etc.) who have captive markets around them. I think it would be more efficient and probably cheaper. We have seen competitive marketing at its best in the telecoms sector, and it can be replicate in the power sector.” By Allan Olingo and James Anyanzwa Mining in Rwanda. Pic: File RioZim plans 1,400MW power for Zimbabwe RioZim plans to produce up to 1,400 Megawatts of electricity using coal from Sengwa in northwestern Zimbabwe. Chief executive Noah Matimba said the company needs $2.1 billion to invest in building electricity plants. According to the stateowned Zimbabwe Power Company, electricity production stands at 801MW against a peak demand of 2,200MW after the shutting down of Hwange plant due to technical problems. Syrah receives licence for Balama project Mozambique has given Syrah Resources Ltd the environmental licence to develop the Balama graphite project. This licence follows the water licence and mining concession granted in December 2013 to last for a span of 25 years. Managing director Talga Kumova said the licence will ensure that the Balama graphite project adheres to environmental standards.
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