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News and Analysis
December 20, 2024
It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money.
Welcome to yet another edition of Money Weekly.
The Energy and Petroleum Regulatory Authority (EPRA) has made a move that could end Kenya Power’s monopoly. The new regulation will see power generators using Kenya Power’s infrastructure sell power directly to consumers. Kenya Power boss Dr Joseph Siror has welcomed the move, saying Kenya Power barely scratches the surface of power needs in the country.
This comes as EPRA is also facing claims by the Auditor General of inflating electricity prices since 2018, accumulating Ksh70 billion worth of extra charges.
Additionally, the state has tripled the EPRA levy from Ksh0.25 per litre to Ksh0.75 per litre. EPRA makes most of its revenue from the fuel levy. Other fuel taxes were also adjusted upward, albeit minimally.
In the second budget drafted under the President’s Ruto, expenditure is projected to shoot to Kshh4.2 trillion. However, the budget deficit is expected to be lower by Ksh82 billion.
Equity Bank has adjusted its interest rates following the upward revision of the base lending rate by the Central Bank of Kenya (CBK) early this month. Other banks are expected to follow suit.
Kenya Eurobond yields fell, indicating the easing of investor tension. This ease in tension comes after Kenya made a partial repayment of Ksh210 billion of the inaugural Eurobond maturing in June.
For this and much more. Let’s dive in.
The Energy and Petroleum Regulatory Authority (EPRA) has gazetted regulations allowing private power producers to sell power through the Kenya Power and Lighting Company infrastructure. The move is aimed at improving market operations and increasing industry competition.
Kenya Power Managing Director Joseph Siror has welcomed the move stating that the state-owned power distributor has not even scratched the surface of power needs in the country.
The new competition comes at a time when Kenya Power has recorded a net loss of Ksh3.2 billion in the year ending June 30, 2023, and a further Ksh1.1 billion in the half-year ending December 2023. This is despite being a monopoly.
The new regulations by EPRA are in line with Section 136 of the Energy Act, 2019, which instructs Kenya Power to allow non-discriminatory access to its transmission system to electricity generators. Kenya Power will, however, charge for the use of its transmission lines to directly sell electricity in charges termed as ‘wheeling charges.’
The new regulation, according to the Electricity Market, Bulk Supply, and Open Access Regulations, 2024, will apply to locals producing wind, solar, biogas, small hydros, municipal waste, and tidal wave energy. The producers will be required to apply for a retail licence. Here is how to go about it:
Despite Siror’s confidence that Kenya Power is ready to take on competition, some large consumers have opted for alternative power sources due to the cost and unreliability of the national grid. Nonetheless, Kenya Power has allocated Ksh10 billion for system upgrades.
EPRA Exposed for Inflating Power Bills
The Auditor General, Nancy Gathungu, has exposed the Energy and Petroleum Regulatory Authority (EPRA) for inflating power bills from 2018 onwards. The audit uncovered EPRA's misapplication of the formula for calculating monthly electricity bills, revealing that EPRA had inflated the monthly fuel surcharge by up to Ksh4.4 per unit, resulting in consumers overpaying by Ksh70 billion over five years.
EPRA's deviation from the approved formula led to inflated bills, with additional charges imposed by Kenya Power. Consumers paid Ksh57.33 billion instead of Ksh34.15 billion in the 12 months to June 2023. In December 2023, EPRA's deviation led consumers to be charged a uel Energy Cost (FEC) of Ksh3.98 per unit instead of Ksh2.94.
EPRA has since dismissed the claims, saying that the tariff costs factored in power loss during transmission.
The government has tripled the Petroleum Regulatory Levy payable to the Energy and Petroleum Authority (EPRA) from Ksh0.25 to Ksh0.75 per litre. Energy Cabinet Secretary Davis Chirchir published the Energy Regulations 2024 last week.
However, the increase in levy went unnoticed because EPRA announced a reduction in prices at the pump by Ksh1 per litre. The price of diesel fell from Ksh196.47 to Ksh195.47 per litre, while petrol dropped from Ksh207.36 to Ksh206.36.
Even More Fuel Tax Adjustments
EPRA has also made adjustments to three other levies, albeit with small margins.
Other taxes levied on fuel include the Petroleum Development Levy and VAT, the Road Maintenance Levy and excise duty.
The new adjustments mean that the government is now taking Ksh78.76 per litre of petrol, Ksh67.06 per litre of diesel and Ksh61.78 per litre of kerosene.
KRA Earns Extra Ksh26bn In Fuel Taxes
In the six months to December 2023, the Kenya Revenue Authority (KRA) collected an estimated Ksh25.9 billion more in fuel taxes. This is despite fuel consumption dropping by 5% from 2.4 billion litres of petrol, diesel, and kerosene consumed in the last half of 2022 to 2.28 billion litres of the same in the latter half of 2023. KRA collected about Ksh164.03 billion last year, compared to Ksh139.08 billion over the same period in 2022.
A Ksh4.2 trillion expenditure budget for the 2024–25 financial year is currently before parliament. Here is a breakdown of the projected allocations.
The proposed budget is projected to have a deficit of Ksh703 billion, compared to the current budget’s deficit of Ksh785 billion. The deficit will be financed through both domestic and external financing, with Ksh377.7 billion in domestic borrowing and Ksh326.1 billion in external financing.
Higher Charges for Public Services
In the 2024 Budget Policy Statement, the National Treasury announced a shift towards ministries, departments, and agencies (MDAs) becoming self-sufficient, aiming to increase revenues and reduce reliance on the Exchequer.
The Treasury aims to collect more non-tax revenues, targeting a significant increase from fees and fines to bridge the budget deficit. Increased collections from MDAs' fees and fines will compensate for missed tax targets.
Domestic Government Lenders Earn More
High yields on government securities in the first six months of the 2023/2024 fiscal year have seen the government pay more interest by a fifth. Investors will receive an extra Ksh48.5 billion, accumulating to a total payout of Ksh300.1 billion compared to Ksh251.6 billion in the same period in 2022.
The recent upward revision of the base lending rate by the Central Bank of Kenya (CBK) is starting to exert its effects on the market. Equity Bank has announced a raise in its base lending rate from 17.56% to 18.24%. This revision will see interest rates for Equity Bank customers shoot to over 26% after factoring in an 8.5% margin. Other banks are expected to revise their lending rates as well.
Fines For Breach of Banking Rules
The Central Bank of Kenya (CBK) is moving away from blanket penalties by introducing specific fines for banking violations. The draft regulations propose fines up to Ksh20 million for breaches like inadequate capital, loan provisions, and governance standards.
Lenders will also face penalties for poor record-keeping and non-compliance with audits, ranging from Ksh2 million to Ksh20 million. Furthermore, shareholders violating ownership rules may be fined up to Ksh10 million, while individuals breaching the Banking Act face a maximum fine of Ksh1 million.
Warning on Kenyan Banks' Defaults
Gobal ratings agency, Moody, has shifted its outlook on Kenyan banks to negative, citing concerns over rising non-performing loans (NPLs) despite solid profitability and liquidity.
NPLs increased by Ksh133.6 billion to Ksh621.3 billion, representing 14.8% of the sector's loan book. Unaudited net profits fell to Ksh172.9 billion in 2023 from Ksh175.5 billion in 2022, reflecting challenges in the banking sector.
A Switzerland-based farm, Pamoja, has raised $8.5 million (Ksh1.2 billion) in funding. Pamoja raised the funding from a French asset management company, Mirova, a subsidiary of Natixis Investment Managers. The funds will be used to boost their operations in Kenya and Tanzania. The farm operates through two subsidiaries: Tensenses in Kenya and Macjaro in Tanzania.
Boost for Kenya Tea Exporters
The Tea Board of Tanzania announced on Wednesday that it will resume issuing import licences after a temporary suspension earlier in the month over low-quality shipment concerns.
The reversal of the decision will give Kenyan tea farmers an opportunity to sell their tea to their neighbours. This comes as Kenya seeks to grow its EAC exports to boost foreign exchange.
Coffee Farmers Reap Big
The new regulatory reforms in the coffee sector are starting to bear fruit as coffee is fetching more at the auction. Last week's coffee auction saw a premium sale of $533 (Ksh80,216) for a 50-kg bag and an $8.2 million (Ksh1.2 billion) weekly turnover. 65% of the volumes traded were grades AA and AB.
Local Sugar Production Slumps
Last year saw a four-year low in sugar production. Sugar production fell by 40% from 796,000 metric tons in 2022 to 472,773 metric tons in 2023. The slump follows a five-month ban on sugar milling that ended in November 2023. Sugar production is expected to stay low in 2024, with a forecast production of 650,000 metric tons.
Trade Spat Cuts Maize and Rice Imports
Kenya saw a 19.20% drop in the amount of grain imported from Tanzania following strict regulations by the Tanzanian government to prevent exportation, which they feared would result in food inflation.
These regulations saw the amount of grain trucked into the country fall from Ksh53.28 billion in 2022 to Ksh43.05 billion in 2023. Kenya’s exports to Tanzania grew by 21.77%, from Ksh56.57 billion in 2022 to Ksh68.55 billion in 2023.
The National Treasury proposes Ksh78.6 billion in budget cuts for the financial year ending June 30, aiming to rationalise spending. This will be equivalent to a 1.9% decrease in the overall budget for 2023/24 fiscal year to Ksh3.902 trillion.
Consequently, recurrent expenditure is projected to decrease by Ksh33.8 billion to Ksh2.76 trillion, with interest payments on debt at Ksh892.8 billion from Ksh918.8 billion.
Additionally, development spending is reduced by Ksh44.8 billion, indicating reduced infrastructure projects. While total revenues are expected to rise by Ksh23 billion to Ksh3.07 trillion.
The Treasury has repurchased $1.44 billion (Ksh210 billion) of its 2014 Eurobond using funds from a new $1.5 billion (Ksh218.8 billion) bond issued last week. The buyback exceeded the initial $1.4 billion cap, accommodating bondholders' offers totaling $1.48 billion.
The move aims to maintain debt sustainability utilising a mix of reserves, loans, and syndication. The new bond carries a higher interest rate of 9.75%, reflecting changes in global economic conditions since 2014. US rate hikes and geopolitical tensions have increased yields, necessitating higher returns for emerging market issuers.
Sellers will receive accrued interest, with final payments due in June.
The partial payment of the $2 billion 2014 Eurobind has served to ease investor tensions. The ease of tensions has resulted in the yield on Kenyan Eurobonds dropping to single digits. The bond’s interest rates have moved from a high of 15.09% last week to 9.93% early this week.
This has had a ripple effect on other Kenyan bonds.
Treasury to Issue Local Dollar Bond
The Treasury is set to issue a dollar-denominated bond to help finance its budget. The bond is aimed at complementing what Treasury bonds and bills bring into the basket.
Tough CMA Terms For Bond Issuers
The Capital Markets Authority has published new regulations aimed at protecting shareholders from companies that issue bonds and then end up collapsing or defaulting with investor funds. This move is intended to restore investors' trust in a market that has seen numerous corporate failures and defaults in the last 10 years.
Insurance Firms Raise Premiums
Insurance firms are adjusting premiums following the 16% VAT introduction via the 2023 Finance Act. This adjustment is likely to increase operating costs for businesses due to higher insurance premiums. Hence, insurers are advising customers to review the sums insured. Customers are urged to align insured asset values with expected compensation to avoid coverage gaps.
Phase 2B SGR Resettlement Plan Kicks Off
The government has initiated an inventory settlement of assets for SGR Phase 2B from Naivasha to Malaba. It has recruited consultants for compensation and resettlement plans in Narok, Bomet, Kericho, and Kisumu. The project includes 255 km of line from Narok to Kisumu and Kisumu port modifications.
Kenyans in Diaspora Sent Ksh60bn
The Central Bank of Kenya’s data shows that Kenyans abroad sent home $412.4 million (Ksh60.15 billion) in the first month of the year. This is an 18% increase compared to January 2023 and a Ksh5.85 billion increase compared to December 2023. Experts have attributed the hike in remittances to the DhowCDS platform launched in September 2023.
Unremitted Workers’ Pension Hits Ksh42bn
Government employees risk retiring without a pension after cash-strapped parastatals fail to remit monthly deductions to pension schemes. State owned entities have failed to remit about Ksh42.06 billion in employer contributions. These unremitted contributions are the second biggest pending bills for government entities after arrears owed to contractors and suppliers.
Kenya Moves to Regulate Bitcoin Trade
A technical working group is at work developing a policy document expected to be forwarded to the cabinet for adoption. The policy document will guide the development of a legal framework to regulate digital assets and crypto currencies such as Bitcoin. This is a move by the government aimed at countering the increasing risk of money laundering and terrorism financing.
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