The Energy Regulatory Commission has commissioned a study to review the current Power Purchase Agreement (PPA) from the current US dollar denomination to the Kenya shilling, a move that is expected to boost local financing, leading shield consumers from sudden spikes in prices when the shilling depreciates against major global currencies.
According to the study report which was carried out Dalberg Advisors and funded by Guarant Co, mobilizes local currency investments in infrastructure projects, projects of 10MW and below can comfortably be financed in local currency by local banks and institutional investors where else projects above 10MW can source a hybrid tariff with partial indexing to hard currency as the most viable option.
Currently, Kenyans are forced to shoulder-high power tariffs to repay mostly foreign investors who pumped money in the sector when the shilling was more stable against the dollar.
Monthly electricity data on the Stima Regulus Web, a tool that allow consumers in Kenya to calculate current and historic electricity costs for instance show that the total cost of energy per kilo watt has increased from Sh14.13 in June 2010 to Sh20.48 charged last month. The Foreign Exchange Rate Fluctuation Adjustment fee has increased from Sh0.83 per kilo watt to Sh1.08 witnessed last month. This is because the shilling has depreciated by 28 units from 2010 when it was trading at Sh75.26 to Sh103.85 last month. Most of the investment were done when the dollar was trading at Sh78-85. Yesterday, the dollar was buying at Sh103.8, selling at Sh104.
The three-month study is funded by the technical assistance facility of the Private infrastructure Development Group to the tune of Sh20 million and it will be implemented by GuarantCo, a firm established to support the development of local financial markets in low-income countries.
GuarantCo’s Executive Director, Samuel Chasia said local currency financing involves productive recycling of savings within a country rather than increasing the country’s external debt burden.