Key points
- The World Bank warns Kenya that ending KPLC’s monopoly could raise electricity costs for small consumers.
- KPLC’s revenue from large clients subsidizes smaller consumer tariffs, risking higher household rates if deregulated.
- The IMF cautions that market opening could disrupt KPLC’s pricing structure, increasing costs for less profitable customers.
World Bank has cautioned Kenya against ending the Kenya Power and Lighting Company’s (KPLC) monopoly as the government considers allowing private energy producers to sell power directly to consumers by 2025.
The global institution, in discussions with Kenyan Treasury Cabinet Secretary John Mbadi, highlighted potential risks to small-scale and household consumers, arguing that increased competition might drive up their electricity costs instead of lowering them.
Cross-subsidization at stake
The World Bank noted that KPLC’s revenue from large commercial clients helps to subsidize tariffs for smaller consumers, a system that could collapse if these high-value customers migrate to independent suppliers.
Without this support, KPLC might be forced to charge higher rates for household users, as it would still need to fulfill its long-term commitments to power suppliers like KenGen and Lake Turkana Wind.
The International Monetary Fund (IMF) also warned that KPLC, which functions as a “contestable monopoly,” could face serious financial challenges under deregulation.
Although perfect competition usually drives prices lower, the IMF pointed out that opening the market could undermine the utility’s pricing structure and increase costs for smaller, less profitable customers.
Costs and consumer concerns
The warnings from the World Bank and IMF come as Kenyan consumers criticize KPLC’s service quality and high electricity rates, which are among the highest in Africa.
While KPLC recently announced a 14 percent tariff reduction, complaints about blackouts, lack of transparency, and allegations of corruption persist. With a pending $606.1 million World Bank loan to Kenya, the institution has advised a careful evaluation of the macro-fiscal risks tied to energy deregulation.
The decision on KPLC’s monopoly, it noted, could have far-reaching implications for Kenya’s energy market stability and consumer costs.
