The news that the Kenya Government plans to suspend the review of electricity tariffs will no doubt come as a disappointment to Kenya Power and Lighting Company (KPLC) shareholders. But it should definitely not come as a surprise to them.
The Energy minister, Kiraitu Murungi, wants the review which is usually done after every 3 years, suspended in order to protect consumers from rising inflation. This however does not include periodic adjustments on fuel cost, foreign exchange and inflation that are passed on to the end user.
KPLC in the recent past completed a restructuring which led to the Government’s preference shares converted into ordinary shares and the Government forgoing its rights in a Rights Issue. This led the Government to being the majority shareholder of the company. It was expected that the Government would exert its influence on matters concerning the company.
Some might argue that the electricity industry is of strategic importance to the country and should thus be under the close watch of the Government. Then, does Kenya still subscribe to Capitalism and free market forces? Why is it that the government always takes populist measures?
It is not KPLC’s doing that leads to an increase in the price of fuel. This is dictated by market events such as the Arab crises and the global economic recovery. Yet KPLC is being forced to rely on a widening customer base in order to meet the additional costs of paying power producers which are higher than they were a few years ago.
“Review of electricity prices will remain suspended. We are now focusing our effort in helping families deal with the rising prices of basic commodities,” said Mr Murungi last week.
The firm will be forced to bear the cost of inflation if prices are not adjusted, unlike other companies in different industries which are quick to adjust prices.
Electricity prices rose to a 14 month high last month. But KPLC is not benefiting from the rise in power costs making the fight for tariff review critical to its future profitability.
The Government should realize that KPLC is a publicly listed company and is obligated to operate in a fair environment in order to deliver adequate returns to its shareholders. If not, then they should just nationalise the company and delist it from the Nairobi Stock Exchange.
The Government might not want to be seen to be aiding KPLC in making ‘super profits’ at the expense of Kenyan citizens paying ‘high’ costs. Therefore, more interference on KPLC’s operations during this high-inflation period cannot be ruled out. It’s what to expect from Government-controlled companies. If that happens, the shareholders will suffer
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