Kenyan small businesses are reeling under the shock of a sudden 11.6 per cent increase in their electricity bills, effective January 2024.

This unexpected jolt, attributed to a revised tariff by the Energy and Petroleum Regulatory Authority (EPRA), has sparked concerns about its impact on the backbone of the nation's economy.

The primary culprit behind this surge is the dramatic rise in the Foreign Exchange Rate Fluctuation Adjustment (FERFA), which reflects the cost of servicing foreign currency loans used to finance power generation projects.

FERFA skyrocketed from Sh3.169/kWh in December 2023 to a staggering Sh6.46/kWh in January 2024, more than doubling its value in a single month.

EPRA clarifies that this drastic shift stems from a surge in foreign currency payments made by the Kenya Power and Lighting Company (KPLC) to settle outstanding power purchase costs and KenGen's loan repayments.

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The December payments, amounting to €5.4 million (Sh938 million) and ¥253.3 million (Sh274 million), significantly impacted the FERFA calculation.

Interestingly, EPRA reveals that KPLC had deferred some of its foreign currency obligations since March 2023 due to forex market constraints.

However, with market conditions improving in December, KPLC resumed settling the pending payments, leading to the current FERFA spike.

“Thus, when the market eased in December 2023, KPLC started making pending USD/EURO financial obligations,” EPRA stated in its explanation.

The consequences of this revised tariff are far-reaching, with the impact likely to ripple across all sectors of the economy. Small businesses, the lifeblood of Kenya's economic landscape, stand to bear the brunt of this hike.

Prepaid token users, for example, will receive fewer units for the same amount. A Sh200 token, which previously bought 7.10 units in December, now fetches a mere 6.26 units, translating to a direct reduction in electricity consumption for the same cost.

This translates to a double whammy for small businesses: either they must cough up more to maintain their current electricity usage, or they are forced to scale back consumption, potentially impacting their productivity and profitability.

The frequent fluctuations and unpredictability of electricity costs further exacerbate the situation, making it challenging for small businesses to plan and budget effectively.

Manufacturers, another key driver of the economy, are also bracing for the impact of this energy price hike. As major electricity consumers, any rise in tariffs directly affects their production costs and competitiveness.

The call for affordable and stable energy prices from manufacturers has become increasingly urgent in the face of this latest development.

The 11.6 per cent electricity bill surge triggered by EPRA's revised tariff has cast a dark cloud over the Kenyan business landscape.

While the rationale behind the increase is explained, the ramifications for small businesses and manufacturers are undeniable.

The question remains: how will Kenya's economic engine navigate this unexpected turbulence, and will policymakers step in to address the concerns of these critical sectors?