Policies needed to offset impact, cost of power blackouts on manufacturers

The correlation that exists between a country’s economic growth and infrastructure failures is indubitable, and there is enough evidence to prove the substantial impact on economies, particularly from power interruptions.

Power failures have long-term effects on the economic growth of a country. This impact is not just measured in terms of losses due to outages but also in terms of lost opportunities. The continent will achieve much faster growth without power fluctuations.

At the turn of the century, Eskom, South Africa’s leading power utility company, won international accolades for the provision of quality power.

African countries looked up to this bastion of reliable supply and envied its track record until 2007, when power outages began in the country. Since then, it’s been a rocky road for the company as it seeks to meet ever growing demand, particularly from a rapidly expanding industrial sector.

Last year, less than half of its facilities were in good working order, leading to a resumption of regular blackouts in South Africa. The effect of these outages on the country’s economic growth and particularly the mining sector has been huge.

Jointly, mining and manufacturing contribute a fifth of the country’s GDP. Power interruptions, in addition to a weak rand, contributed to the country losing its position as the largest economy in Africa to Nigeria. Its prospects are not likely to fare any better if it doesn’t solve its electricity issues soon.

Analysts predict that this problem will depress South Africa’s economic growth for the next decade in keeping with the long-run effects earlier alluded to.

Other African countries like Ghana, Zambia, Comoros and Nigeria have all experienced weak economic growth due to power failures. In 2015, the World Economic Forum ranked countries like Botswana, Mozambique and Nigeria lower than South Africa on reliability of electricity supply.

Nigerian businesses are known to run on generators — an expensive source of backup power. Zambia has a supply deficit running close to half of its demand at peak hours and outages are said to last up to 12 hours. Mining companies are now affected by the shortages and Comoros has to contend with undependable power in addition to other factors.

In the same World Economic Forum survey, Morocco and Namibia led in providing reliable power on the continent. Morocco is home to one of the largest solar plants on the planet, securing its reliability even further.

Kenya ranked 97 globally, coming in behind Ivory Coast. Kenyan industries have continued to bear the brunt of frequent power interruptions. The interruptions increased by over 70 per cent in the first quarter of the year compared with the total average of 2015.

On average, manufacturing companies are experiencing power outages on an average of 56 days per year, resulting in losses of up to 20 per cent in sales revenue. This is a major drain on industries and we feel that this may not be sustainable in coming days.

Consumption growth rate

Industry’s combined electricity consumption growth rate dropped to five per cent for the 2014/15 period compared with 11 per cent for the same period in 2013/14.

A survey carried out last year and this year among our members reveals that on average, manufacturers lost the equivalent of five per cent of the monthly electricity bill in certain sectors and as high as 18 per cent in other sectors.

Areas that have frequent interruptions are Nairobi, Mombasa, some parts of western Kenya and the North Rift.

The cost in terms of production throughput, operation cost of generators and loss of equipment is immense. Compensation for damaged equipment takes a long time to be effected.

The resulting products are highly priced, which reduces the competitiveness of Kenyan products, limits expansion and discourages investors.

While Kenya Power has improved its services in certain aspects such as the provision of alternative feeder lines to consumers to increase redundancy in supply lines; initiating active WhatsApp groups in different regions; upgrading substations across the country; holding frequent forums with stakeholders and the assignment of account managers dedicated to consumers for timely intervention, it still has some way to go.

We applaud these efforts but we need to safeguard the competitiveness of the manufacturing sector by putting in place policies to offset the impact of blackouts. Under threat is our growth, productivity and competitiveness.

Energy-related investments estimated at $450 billion are needed to cut power failures by half and provide access to the rest of the continent.

The 2015 Energy Bill, which includes a clause to allow manufacturers to seek compensation for losses in production and sales due to interruptions, should be passed into law.

Indeed, Kenya Power, as a rule, includes penalty clauses in their power purchase agreements with power producers. It is only prudent that Kenya Power extends the same to its customers as a way of ensuring efficiency in service delivery.

This should instil some discipline in power utilities and help find innovative solutions to the problem.

It is high time that service providers and particularly utility service providers embraced the culture of Service Level Agreements with a defined minimum threshold standard of service below which penalty clauses kick in.

Phyllis Wakiaga is the CEO of the Kenya Association of Manufacturers and the Global Compact Kenya representative. [email protected]