Kenyans will pay more for electricity starting next week after KPLC approved new charges in a move expected to fuel the run away inflation.

The Energy Regulatory Commission (ERC) gave its nod to the rise in cost of power by about 21 per cent over May charges as it moved to end power subsidies enjoyed by retail consumers and the Kenya Power and Lighting Company (KPLC) employees.

But the 33 per cent of power users who consume less than 50 units will continue to enjoy a small subsidy.

The subsidies-which amounted to more than 40 per cent of the true cost of a unit of electricity- had been identified as one of the factors that were hurting the country's ability to secure its future energy needs.

"These changes are necessary to ensure improvements in the quality of supply and to attract investments in new power generation, transmission and distributions in a sustainable manner," said Mr Kaburu Mwirichia, the director general at ERC. The new changes take effect from July 1.

The tariffs will be reviewed after three years save for periodic adjustments on fuel cost, foreign exchange and inflation that will be passed to the end user.

Retail tariffs have remained unchanged since 1999 despite three tariff studies having been conducted over the period, a move that analyst blame for the low investments in the sector at a time when the country is facing a power crisis.

The price raise will affect over one million consumers, most of who have lost their purchasing power because of escalating food, fuel and transport expenses.

"An increase in power expenses will obviously exert great pressure on inflation," said Mr Jacob Omollo, an economist at the Institute of Policy Analysis and Research (IPAR), adding that the power and fuel index account for a huge fraction of the inflation basket.

Latest figures from the Kenya National Bureau of Statistics show that inflation climbed to 31.5 per cent in May from 26.6 per cent in April allowing high food prices to eat deep into consumer pockets.

This is the highest level that month-on-month inflation rate has hit since early 1990's, when a broke Kanu government under President Moi brought the economy to its knees.

Electricity pylons

But heavy commercial consumers, who have persistently complained of high electricity tariffs, should feel relieved as the power regulator approved a small cut in the price of electricity.

Experts say that the tariff reduction for heavy manufacturers is a clear sign of attempts to make the local manufacturing competitive in the face of cutthroat competition from Egypt, South Africa and South East Asia economies, which enjoy cheaper power.

While welcoming the drop in power tariffs, players in the manufacturing sector have termed the drop "small", instead arguing that the government should initiate further cuts.

"The reduction is a step in the right direction, but for us to match our competitors we need to cut our power costs further," said Mr Salim Alibhai, the managing director of Sadolin paints.

In recent years, manufacturers have lobbied the government to cut the cost of power for manufacturers, arguing that the high prices have helped price Kenyan products out of the international market.

Regional rivals

Energy costs in Kenya are nearly four times higher than the prevailing rates in South Africa and Egypt, the country's main rival in the regional market.

However, the price raise is of such high significance to the extent that if investments in new power plants are not made now, Kenya will be unable to meet the demand for power in the next few years.

This will reduce the potential of the economy to generate employment at a time when the country is reeling from high unemployment levels, notably among the youth.

The tariff revisions are expected to boost the financial strength of KPLC and help KenGen to generate enough cash to finance its investments that will boost the country's generation capacity.

At the moment, the country's power reserve margin-the difference between the country's power supply and demand- has dropped to six per cent against the required limit of 15 per cent.