This is the second and final part of the series to show you exactly what is in your power bill. See part one here.
Yesterday we covered the Kenya Power Charges component of your electricity bill; we will now analyse the Government Charges and Third Party Levies contained in your electricity bill.
Kenya Power is a designated collector of VAT for the government, and is required to collect levies for the Rural Electrification Authority and Energy Regulatory Commission. Kenya Power generates funds required to settle these obligations from you, the electricity consumer.
Kenya Power is also required to recover cost of fuel used to generate part of the power consumed by each customer each month and remit the same in total to thermal generators who generated the power. This is expense is covered by the Fuel Cost Charge part of your electricity bill.
Interestingly, as noted in our previous post, 70 to 75 per cent of funds collected from the Consumption Charge component of electricity bills are used to purchase bulk power from electricity generating companies like KENGEN. Here we see that the Fuel Cost Charge is used to recover cost of fuel used to generate electricity.
It is important to note that the Fuel Cost Charge fluctuates depending on the amount of fuel used to generate electricity. During rainy seasons when dams are full, there is high generation of hydroelectricity which is much cheaper, lowering demand for thermal generated electricity. Rise and fall in international oil prices also have an impact on the Fuel Cost Charge. Rise in oil prices would translate in buying expensive fuel to generate electricity. This additional expense is transferred to you the consumer in for of the Fuel Cost Charge.
Kenya Power depends on loans to finance some of its major projects. In August 2012, Kenya Powered secured USD 200 million, approximately KES 16.8 billion, loan deal from the World Bank’s International Finance Corporation (IFC) to invest in its grid. These loans, borrowed in foreign currencies, have to be repaid in foreign currencies. Based on the fact that currencies strength fluctuate on a regular basis, the Forex Adjustment component of your electricity bill is formulated in ratio to the fluctuation of hard currencies against the Kenya Shilling for currency based payments in the sub-sector related to electricity project loan repayment.
There are levies collected from you, through your electricity bill, which is channeled to the Energy Regulatory Commission (ERC) and the Rural Electrification Project (REP).
The Rural Electrification Project levy is used to contribute to the subsidization of rural electrification projects for the rural dwellers, making it affordable for rural dwellers to acquire electricity connection.
Currently 12% VAT is levied on the Fixed Charge component of your electricity bill.