AUGUST-SEPTEMBER -2014



ENERGY: POWERING THE FUTURE

By Lewis Sakwa.

Economic priorities and its implications

It has been a tough climbing for sub Saharan countries struggling to break free from the savagery of war that has torn the region and made it inhabitable. But we however must agree that Kenya's consistency in the recent past is indication to better days. Energy drives the economy. Energy powers our daily lives. In the earlier days of the American industrial fathers, the likes of Cornelia Van Der Bilt powered the country on steam from coal. The industry was pushed further with Edison's discovery who with the help of J P Morgan developed the idea of powering industries on electricity. This brought in Tesla who in the end strove not just to transmit and power, but to transmit the electricity in a better way such that it would not only be safer but also cost effective in its production and transmission. We are still at issue with the very essentials Tesla looked into. We seek to produce power safely; for posterity of human kind, in which the focus would be coined Green Energy, a debate for another day. The very issue that led to JP Morgan abandoning Edison is of importance to both micro and macroeconomics of any state, Kenya included. It is the economic viability of the engagement.

The same debates of powering industry are still with us here as we struggle to move Kenya to a middle class economy. Projections indicate that Kenya might be the fastest growing nation as relates to the movement to the middle class economy. However, to spur this we need to power our way to a different industrial level all together. In which case the government is fully aware of. And its ambitions are large enough. The government of Kenya has put in place an ambitious plan to revolutionize the energy sector. There are plans to have an injection of 5 Giga watts of power into the national grid in the next three years. As of now our power generation ability stands at 2 Giga Watts on the higher side of approximations. The target is not an extra 3 Giga Watts. It is an ambition that seeks to put up power plants which in that case should swell our production to about 8 Giga watts. Very ambitious plans that will of course not just see us rise to a different level of industrial achievement but also spur an exponential economic growth. This is the dream of every Kenyan.

However, the modalities of power plant construction are best left to those who have been in the industry and probably handled projects in that sector to be able to foretell the success of the project. An additional five Giga watts production will cost the government 330 billion Kenyan shillings. That is probably one quarter of our current budgetary needs. This will in turn require that we have donors willing to invest in this project.

An insight into this was given by Eng. Julius Riungu, the Chief Executive Officer of Tsavo Power Company Limited. In his languid office from where everybody in the city is below you, we had a chat with him. Eng. Riungu appreciates the ambition but he has probably a reserved doubt about the validity of the project. In the course of the chat we sought to know why he felt the plan might not be wholly achieved. According to this long time Kenya Power executive, we would require donors who would in turn seek to see the ability of loan repayment by the government. On this he argues that while we may be convinced that we could have the ability to consume the produced power, he hints at a situation where the market would not be able to consume all the power produced. This is because, despite the industrial capacitation that we are witnessing in this country, the growth of the industries within the next three years to consume an extra five Giga watts of power is fully doubted. Also, the prospect of building a five Giga watt plant in the same period of time is not feasible. He postulates that the project could be spread in given timelines and phases that would lead to project evaluation and market ability analysis.

Further the cost of electricity in this country is a little more expensive than in the other countries, Ethiopia for example. There is a worry on his face with this project since Ethiopia has unitary system of power generation and distribution which has consolidated the sector and in which case has made the cost of power lower. Further, the construction of a mega dam on River Omo would and as expected has aggravated the situation. On an introspective level, investors and industrial moguls would look for a country where the cost of production is cheaper. This would mean that the cost of the energy powering the industries be cheap as well. While in Ethiopia power production and distribution from the dam is almost begun, Kenya has not begun the construction and neither is there a ground breaking focus to cope with this competition. It remains unlikely too that it is very necessary for the project to be given the go on. This does not mean that it should not go on. While it should go on, evaluation of an alternative way of power sourcing ought to be in place to ensure that our upcoming projects would be well catered for.

When queried about why Ethiopia was more likely to replace this nation as an economic hub, Eng. Riungu was particular about the cost of living and labour in our neighbors in the North. While a CEO in Kenya bags about 0.7million Kenyan shillings, the Ethiopian counterpart probably takes home an equivalent of Kshs. 70,000/= . he further says that in a production system where both production of power and its distribution under the same body, there is heavy government subsidy which brings the cost of production down. The two factors are key to the conquest of our dear country by Ethiopia. However, it is good to note that the country in the North is still dependent on us. This is where innovation, good will and intuition ought to come in. Ethiopia for long has not had the capacity to produce its own goods. It relies on imports from overseas which are not in any way brought in through a port. With the relations between Ethiopia and Eritrea severed we stand to benefit from it. Not long ago, the Government of Kenya set up an ambitious project called the LAPSSET. This seeks to build a new and larger port at Lamu to serve not only Kenya but also increase the handling ability of cargo with the expectation that upon completion we shall have enough clients to use it. It would be recognized that many of our neighbors are landlocked among them being Rwanda, DRC, Uganda, South Sudan and now Ethiopia. Under the LAPSSET project there are :

  • Lamu Port and Mandi Bay
  • Standard Gauge Railway from Lamu to Juba
  • Oil Pipeline to South Sudan, Kenya and Ethiopia
  • Oil Refinery
  • Airports at Lamu, Isiolo and Lokichogio

As it can be seen here, these are ambitious projects which when finished, will not only set us on the path of prosperity but will assert us as the economic power house in the region. The Government therefore has to take another look at its priorities and in this case throw pundits aside and begin the construction of the SGR. Alongside these, we must as a country seek to build manufacturing and industrial towns and empower them to be able to produce more products especially finished end products for the consumption in Ethiopia. We have to move from exporting the raw agricultural products to other countries and set focus on processing them in the near future. This may be achievable if we still give another look at the blue prints of vision 2030 where we have new cities coming up for specifics like manufacturing- Tatu City and for technological empowerment- Konza City. If we refocus and put our energy in achieving this we may rediscover that it would be possible to convince or even lure investors in any sector, especially energy to come in and help us power our future.

Before this goes down, we lack the authenticity in our claim that the market in this country can consume five Giga watts of power without having a problem. Definitely, we need a reignition in the industrial sector to give credibility to our desire to power them. We need to fulfill the market need; we need the demand first and then we can get as easily as possible the supply. However, it would be necessary to forecast and in reasonable phases implement the 5GW project in an amicable way such that the built Railway can be powered, The communication systems, 1600KM of NOFB is functional and that we can power our oil refinery in Turkana and help South Sudan export its oil through our pipeline. All these can be achieved but under a moderate plan that can be realistic to sustainable funding.

Let us therefore focus and harness the talent to bring forth the Kenya we want, not in a hurry but through agreeable means that as a nation we can sustain and be proud of. In the words of President J.F. Kennedy, let us work together knowing that God's work,down here on earth must truly be our own.

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