Electricity tariffs in Kenya are among the highest on the continent partly because of poor governance in power purchasing agreements with independent power producers, the World Bank says in its latest Public Finance Review for Kenya (PFR).
- •The Bretton Woods institution places strengthening governance among the critical elements to support service delivery and strengthening social support for reform.
- •It highlights weaknesses in public investment management in PPP frameworks as some of the reasons why electricity costs remain elevated.
- •Beyond public financial management, some of the governance reforms discussed in the report include improving the conflict-of-interest framework, tightening controls of money laundering, improved licensing regimes and digitized instant traffic fines.
The energy framework has been criticised for the high costs and one-sided terms, such as payments in foreign currency. In 2023, Central Organisation for Trade Union (Cotu) called on Parliament’s Energy Committee to revoke power purchase agreement with independent power producers for the well-being of workers and the sustainable economic development of the country.
“Revoke all PPAs that have been signed with various IPPs and renegotiate better contracts that are flexible and also provide for payment in Kenya Shillings. Further to this, the Government of Kenya must depend on KenGen and only engage IPP’s to supplement shortages,” said Cotu.
Other unions including the Kenya Union of Post Primary Education (KUPPET), Union of Kenya Civil Servants (UKCS), Law Society of Kenya (LSK) and the Kenya Medical Association (KMA) submitted to the committee that the escalating cost of electricity in Kenya present a complex set of challenges for various stakeholders, led to increased financial burden to workers, reduced disposable income, decreased job satisfaction.
The World Bank’s PFR explores policy measures that could reduce Kenya’s debt-to-gross domestic product ratio by about one third within 10 years, returning the country to a position closer to its debt level of the 2010s, when the buildup began.
Expenditure policy could further focus on raising the efficiency and equity of public spending, focused on public financial management, including procurement and public private partnerships, state-owned enterprises (SOE), and inefficient subsidies. Additionally, reforming the wage bill and allowances while eventually raising spending on social protection, education, and health, are also crucial. The proposed expenditure measures could yield savings of about 1.7 percent of GDP.
Some structural reforms recommended include the implementation of the Africa Continental Free Trade Agreement (AfCFTA), competition policies alongside SOE divestiture, and interventions for urban competitiveness and the reduction of the cost of living.
