Power rationing to worsen poverty, crime and instability

UPDATE: 9 August 2009:

Kenya Power & Lighting Company has increased the number of days Kenyans will go without power from two days a week to three. The company is considering extending the rationing period to include Sundays, as power production continues to fall.

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The planned power rationing programme introduced in Kenya will lead to the collapse of an economy still ravaged by ethnic and political conflict. A decline in the economy will worsen rampant unemployment leading to intensified criminal activity.

A power generating station in Kenya. Rationing of electricity begins this week for the first time in a decade.

A power generating station in Kenya. Rationing of electricity begins this week for the first time in a decade.

As predicted by many but denied by the government until its subdued admission yesterday, Kenya is to be plunged into darkness by an electricity rationing programme.

Most parts of the country will be disconnected from power during the day in order to supply the capital city and manufacturing industry, according to Energy Minister Kiraitu Murungi.

The official line is that a severe drought has reduced the flow of rivers into hydroelectric power stations along the River Tana. In truth, years of neglect, mismanagement of the energy sector and corruption are to blame for the current mess.

Chronic incompetence by political appointees to the two state-owned electricity firms has largely contributed to the power cuts. The Kenya Electricity Generating Company (Kengen) is unable to satisfy rising demand from industry and homes. Meanwhile, the Kenya Power and Lighting Company spends more money on administration than it does on upgrading plant and machinery. Drought should not hinder power production as the current dry spell was predicted at least a year ago.

There are fears that power rationing will add to the already severe outages to make matters very difficult for Kenya’s fledgling industry. After the previous power rationing programme in the years 1999 -2000, the economy went through three successive years of negative growth which ended in 2003. It marked the first economic contraction in Kenya’s colonial and post colonial history. From the look of things, a similar scenario is about to replay itself.

Kenyan industry already faces very high energy prices compared to competitors in Egypt, South Africa, India and China. Power cuts will drive many out of business, if the experience a decade ago is anything to go by. Companies will simply not be able to fulfil their orders, resulting in closures and layoffs. In the year 2000, for example, giant biscuit maker House of Manji went bankrupt after it was unable to deliver on a multi-million pasta contract to an international aid agency. The company had taken a loan to fulfil the order but was unable to repay since it could not manufacture the product. Power rationing was largely to blame. The company has since been revived but it is unlikely to recapture its former glory.

In his announcement yesterday, Minister for Energy Kiraitu Murungi said that Nairobi’s Central Business District will be spared the power cuts. However, the government seems to be running on an outdated principle that the suburbs are sleeping quarters for people working in the city during the day. This may have been the case twenty years ago but, today, business worth billions of shillings is taking place in the suburbs. Without electricity, small and informal business will suffer massively with major social and economic effects on society.

Cybercafes, metal workshops, secretarial bureaus, hair and beauty shops, supermarkets, schools, motor vehicle garages, hospitals as well as offices need electricity to function. Without electricity, economic activity will cease. Though some enterprises can afford generators, it will be expensive to run oil-powered generators for upto 12 hours a day. Like the case of House of Manji ten years ago, entrepreneurs who are servicing bank loans will not keep up with payments and there will be increased bankruptcies in the next one year.

All in all, layoffs and bankruptcies can only mean millions of people on the streets without a livelihood. There will be more crime, more demonstrations, more hawking and more instability. Aware that power rationing will worsen already worrying crime levels, Kiraitu announced that there will be no power cuts at night.

He also said that police stations will be spared the power cuts but did not elaborate the technical and moral challenges of supplying electricity to the security services while everybody else is in darkness. How will such a directive be enforced in small rural towns that are supplied with power by a single line hundreds of kilometres from the national power grid? Will the government build a separate power grid for police stations?

Experience from last time indicates that power rationing usually lasts longer than advertised. Therefore, places that are supposed to be in the dark for 6 hours will suffer power cuts of 8 hours and more. Indeed, in the year 2000, the situation was so bad that 24 hour power rationing became the norm. Kenyans are hoping that, this time, they do not undergo similar suffering.

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Third national power blackout

There’s concern over the state of Kenya’s electricity system after the country today experienced its third national blackout this year.

Kenya’s cities and struggling industry came to a standstill at 8:40am today. According to the Daily Nation website, the Kenya Power and Lighting Company blames the outage on a faulty generation machine along Tana River.

The country is experiencing daily power cuts as the transmission system sags from overloading caused by decades of under-investment. Poor maintenance of generation and distribution equipment is also to blame.

The Kenya Power and Lighting Company (KPLC) is a state owned monopoly which buys most of its electricity from KenGen – another state player. Private power generators were first allowed in the mid 1990s but are widely thought to be controlled by the ruling elite.

Inspite of the poor quality of electricity supply, Kenyans are paying among the highest electricity tariffs in the world as both KPLC and KenGen grapple with bloated workforces and entrenched corruption. It is said that KPLC spends more money buying vehicles than it does on the proper maintenance of transmission lines.

In 2007, the Ministry of Energy criticized KPLC for failing to use billions of shillings meant to connect rural customers. As thousands of customers were put on a waiting list, the power company returned the funds to the treasury instead of buying poles, wires and electricity meters.

KPLC is undergoing dire financial straits and its continued survival is largely because of government pressure on KenGen to keep down the prices at which it supplies power to KPLC. However, the decision has starved KenGen of the money it needs to build new generation capacity as demand is constantly increasing.

In the year 2000, Kenya had its worst experience of power rationing. 12 hour power cuts led to the economy shrinking for two consecutive years. A return to power rationing will spell doom for the Kenyan economy, still struggling to recover from political violence that killed over 1,000 people this year.

Food, fuel shortages worsen Kenyan life

As though life for the ordinary Kenyan wasn’t hard enough, inefficiencies in government are causing shortages in maize, petrol and LPG gas.

What makes it painful is that the products are in the country but are unable to reach the shops thanks to political interference intended to create lucrative business opportunities for well-connected personalities.

Unreasonable taxation by the Kenya Revenue Authority has impeded the movement of fuel from the Mombasa port into the interior. The harsh measures are intended to increase government revenue and pay high salaries for the President, Prime Minister, Cabinet ministers and Members of Parliament.

At the moment, President Mwai Kibaki earns almost as much as US President George W. Bush even though Kenya is at the rear end in terms of economic, social and political indicators.

Kenyans will, thus, have to pay more for food and fuel because of an artificial shortage designed to line the pockets of a corrupt ruling elite already wallowing in ill-gotten wealth.

According to the Saturday Nation, maize millers are unable to obtain supplies from the National Cereals and Produce Board (NCPB), which is a state organization. The millers say they are forced to negotiate with brokers, who buy the maize from the NCPB then sell it to millers at 26% commission. The brokers are likely to be people with high level connections.

As a result, consumers are buying a packet of the 2kg Jogoo maize flour at Shs87 (US$1.2). With Christmas holidays just a month away and demand expected to soar, the price of maize flour is bound to break the Shs100 barrier. As always, the poor will be hardest hit. Consumer inflation will exceed the 31% recorded in the middle of this year.

The obvious solution to such a crisis would be to import from regional countries, especially Tanzania and Malawi. However, the Ministry of Agriculture is making it cumbersome to import foodstuffs, arguing that Kenyan farmers need to be protected. The gains of a liberalized market are slowly being reversed for the benefit of a few.

Shortages in LPG gas are inflicting major losses on hotels and restaurants. 5-star restaurants now resemble rural kiosks as they resort to using firewood and charcoal to prepare meals. Of course, the results are nothing to boast about and customers are turning away in droves. The use of firewood and charcoal is extremely expensive on a large scale. The gas shortage has been attributed to inefficiencies at the Changamwe Oil refinery and tax measures.

Interruptions in the supply of petrol have become alarmingly frequent in the past year. A decade ago, Kenya’s oil industry prided itself on its efficient distribution network that made it easier to buy fuel than to find clean water. That is no longer the case. Multinational oil companies, fed up with a short sighted government, are deserting the country.

In a move that only a Kenyan politician can dream of, the government wants to create a new oil monopoly in the form of National Oil Corporation of Kenya (NOCK). The government has 100% shares in NOCK and multinationals leaving the country are being pressured to sell to NOCK. It is feared that, in the next few years, shares in NOCK will be sold to highly placed individuals disguised as “strategic partners.”

At the same time, individuals close to the centre of power have their eye on departing multinationals. They took over the operations of Mobil Kenya by creating a new company called Oil-Libya. The deal was sealed following shuttle diplomacy between Kenya and Libya.

What does this mean for Kenyans? More fuel shortages and higher prices for the little that is available.

In addition to supply shortfalls in food and fuel, Kenya is currently experiencing shortages in electricity and water supply. Utility companies – all owned by the state – have failed to keep pace with a growing population. Industries are worst hit and must maintain expensive fuel-powered generators just to keep going. Now, even their generators may grind to a halt because fuel does not arrive on time.

Another national power blackout

Kenya was plunged into a power blackout Sunday morning barely six months after the previous national outage highlighted the derelict state of electricity supply.

The Kenya Power and Lighting Company (KPLC) blamed the national blackout on a breakdown at major transmission substation at Juja Road, east of the capital.

The Sunday outage caught many by surprise, as Christians were preparing to attend church services.

Frequent power blackouts are a hallmark of the state of Kenya’s power generation and distribution facilities, most of which were constructed in the 1970s and 80s. Increasing demand for power from a growing population has placed a strain on Kenya’s aging infrastructure.

Daily power outages are a common occurrence that have frustrated economic development in Kenya. A typical enterprise will experience at least two outages per day with high probability of blown computers and other equipment, resulting in heavy losses.

Inspite of the poor quality of supply, Kenyans are paying possibly the highest electricity tariffs in the world. In June this year, KPLC announced a price increase of 20% but consumers put the increase at more than 50% based on the bills they receive. KPLC says the higher-than-expected increase in electricity tariffs is due to high oil prices emanating from the use of oil-powered generators.

As a consequence of threats from manufacturers to relocate their operations from Kenya, Acting Finance Minister John Michuki last week announced a reduction in taxes for oil products. This, according to Michuki, should help reduce electricity costs and thereby save thousands of jobs.

Read about the May 2008 national blackout >>

Price controls will cause shortages

The Kenyan government’s threat to impose price controls on fuel could create shortages and make life worse for its people.

Faced with rising prices, declining agricultural production and a weakening currency, authorities in Kenya are eager to calm a restive population recently scarred by ethnic violence.

Analysts warn against price controls in an economy liberalized 14 years ago. “Market forces are the most efficient price determinant for goods and services,” says an economics lecturer at the University of Nairobi, “because governments often cannot act quickly enough to raise or lower prices depending on demand and supply.”

It is feared that spiraling inflation caused by rising commodity prices could undermine a fragile peace between supporters of President Mwai Kibaki and those of Prime Minister Raila Odinga.

This week, the coalition cabinet discussed the rising prices and their impact on the economy. During the weekend, the Prime Minister promised that the government would tackle high food prices but fell short of mentioning specific steps. Raila was addressing his constituents in the Kibera slum, Africa’s largest.

Meanwhile, acting Finance Minister John Michuki has promised to take tough measures against oil companies for not heeding a government ‘directive’ to lower fuel prices by Shs10 (US$0.133) a litre. Michuki accuses oil companies of greed, a charge widely repeated by Kenya’s media.

As international crude prices hit a high of US$147 by mid this year, petrol prices surpassed Kshs105 (US$1.4) a litre. Now, international crude prices have settled at below $100 a barrel but fuel prices locally have reduced marginally. Most stations are retailing petrol at about Kshs99 ($1.32) per litre.

Multinational oil companies say they are being condemned unheard. Intense competition in the sector has reduced profit margins to just a few cents for every litre of fuel. “Kenyans think that oil companies are making huge margins, which is not true,” explains the University of Nairobi lecturer.

Oil companies say they are yet to clear old stocks bought when international crude prices were still high. Besides, the weakening of the Kenya shilling is cancelling out any savings made from reductions in international oil prices. In the past month alone, the Kenyan currency has suffered 15% devaluation against the dollar.

Harsh taxation measures imposed by the Kenya Revenue Authority (KRA) to curb oil smuggling have placed a heavy toll on prices. KRA demands payment of oil taxes before the product is released for sale, a measure that forces oil companies to borrow amidst a worldwide credit crunch.

Meanwhile, taxes take up almost half the retail price of fuel in Kenya. The state has been urged to cut down expenditure in order to ease the burden on the Kenyan consumer. However, with a giant cabinet of 42, there are no prospects of tax cuts any time soon.

High fuel prices have had a domino effect on electricity tariffs, which have risen over 100% since June 2008. Manufacturers have threatened to relocate their plants lamenting that Kenya’s energy costs are among the highest in the world in spite of erratic power supplies. Businesses must operate fuel-powered standby generators which further drives up the energy bill. Already, hundreds if not thousands of jobs have been lost as industries cut production to a bare minimum.

If the government imposes price controls on fuel and other essential commodities, suppliers will not be willing to sell at a loss and severe shortages will arise – Zimbabwe style. A black market will emerge with the phrase ‘consumer-exploitation’ assuming a sinister meaning altogether.

Black markets are not subjected to quality standards and are controlled by criminal gangs. Shops and supermarkets will be empty as the Mungiki, Taliban and others have a field day smuggling essential commodities through the back streets. Kenyans will waste many hours queuing for items that should normally be readily available.

Such is the harsh reality should the government re-introduce price controls.

No respite as food, energy prices rise

Kenyans are helpless against increases in food and energy prices caused by rising demand worldwide, supply disturbances and climate change.

With Kenya’s liberalized economy, the government has little leeway in effecting price controls on traders already suffering razor-thin margins. Meanwhile, the Meteorological Department has warned of diminished rains in coming months, raising the prospects of more expensive food, and starvation for the poor.

The prices of maize, wheat and rice have gone up an average of 50% in the past year, the single biggest increase since 1993. Much of the increase is a result of rising food prices globally. The mega-populations of China and India are putting great demand on the world’s food output. Economists say that the growth of the world economy means more people have more money to buy more food. According to the principles of supply and demand, prices must go up.

The Kenyan government is also to blame: last year, an extra tax on plastic bags caused an immediate Shs3 increase in the price of bread with no visible impact on plastic waste disposal. Prices of other foodstuffs packaged with plastic, such as milk, also went up.

Tribal violence in the wake of Kenya’s disputed election worsened the situation by disrupting agricultural activities, causing shortages and pushing up prices. Much of the violence was concentrated in the agriculturally productive areas of the Rift Valley, Western province, Trans Nzoia and Mount Elgon. Granaries were destroyed, farms ransacked and stores looted. One of the more famous newspaper photographs is of armed soldiers walking over heaps of smoldering potatoes.

The violence delayed planting of crops that would have been harvested later this year. In some of the worst cases, planting was never done.

As with everything else, food prices in Kenya have been affected by the worldwide increase in the price of oil due to the transportation element. Fuel is needed to get fertilizers to the farms. Fuel is needed to till the farms using tractors. At the end of the process, fuel is needed to get the produce to consumers. Farm workers, citing current inflation, also demand higher wages and thus push up food prices.

In the Rift Valley, farmers who had escaped post-election violence were unable to plant because they could not afford the costs of fuel and fertilizers. Those who could, only managed halfway before they ran out of funds.

Rising fuel costs have affected electricity rates in Kenya. In June, the Kenya Power and Lighting Company announced a 24% increase in prices. The company says the hike was caused by the use of oil-fired generators at Kipevu, Nairobi East and from Aggreko, an emergency power supplier. Come July, it was evident that the increase in electricity tariffs was in excess of 50%. Consumers made a rush for energy saving bulbs, and cut down on electric heating. Kenyan industry, already paying one of the highest electricity tariffs in the world before the increase, will lose out to Egypt, India and South Africa.

There is renewed interest in alternative energy but it will be a long time before it is commercialized. Biofuels are almost non-existent. Coal mining in Mwingi District has been frustrated by the local political elite. Solar power is still too expensive. Meanwhile, abandoned wind mills at Ngong indicate that authorities gave up on the concept long ago.

Climate change is another factor behind rising food prices. In the past decade, rains have been erratic as a growing population moves into forest areas to create farms and settlements. Periods of drought are interspersed with flooding, all of which destroy crops.

Unlike other countries in Africa, the consumer market in Kenya is completely liberalized. This perhaps explains why food riots have not been witnessed here as most consumers understand free market forces.

During last year’s electoral campaigns, the Orange Democratic Movement (ODM), promised to reduce the price of maize flour from Shs60 (US$0.89) down to Shs30 ($0.44). Since then the price of a packet of maize flour has actually risen to Shs80 ($1.17). There is simply no legal mechanism to enforce price controls.

The outlook for the future is that food and oil prices are unlikely to go down to pre-2007 levels. At best, we can only hope that prices stabilize at current rates. The possibility of a recession in the United States, Europe and Japan will reduce demand, forcing food and oil producers to stabilize prices.

Cable thefts reach worrying levels

Increased theft of electricity and telephone cables is a threat to economic development even as it reaches new depths of impunity with law enforcers watching helplessly.

Last week, a major electricity transmission line linking Nairobi with Mombasa was brought down by vandals at the coast. A report by the Standard newspaper says the thieves brought down electricity pylons and stole the wire for sale as scrap metal. The Kenya Power and Lighting Company puts losses from this single incident at Kshs28 million (US$418,000).

Meanwhile, Telkom Kenya continues to lose millions of shillings from thefts of its underground telephone cables. The thieves are interested in copper, which is currently fetching high prices in the international market. Due to rampant vandalism, Telkom Kenya is placing more emphasis on its mobile phone business through the Telkom Wireless service. Telkom Wireless uses CDMA technology, unlike other mobile phone companies such as Safaricom and Celtel, which utilize the GSM standard.

In order to combat the increased cases of cable vandalism, both the Kenya Power and Lighting Company and Telkom have set up telephone hotlines for the public to provide information on the perpetrators. Kenya Power has a “Mulika Mwizi” (Spotlight on thieves) media campaign aimed at increasing public vigilance on power transmission facilities.

Kenya’s police have achieved limited success in stopping cable vandalism. Most of the people caught are small fish, usually poor youth attracted by the lure of quick cash. The masterminds of the vice are believed to be politically well connected and wealthy individuals. Last year, a parliamentary contestant on the ODM party was found with rolls of vandalized wire at his Embakasi house and at a yard in Nairobi’s Industrial Area. The case against Mr Irshad Sumra has however gone quiet even as he remains politically active.

In June, the Kenyan government banned the export of scrap metal to discourage cable vandalism. One month down the line, it would appear that the wire thieves may have found a new channel for their goods.