By Business Daily
Tuesday’s decision to cut the cost of electricity for households and small businesses that use a maximum of 100 kilowatt-hours (kWh) a month is a move in the right direction.
It’s intention to cushion poor households from rising cost of living and to reduce operational spend for small businesses is spot on. No one would argue with the wisdom of such good intentions because this is what any government with the interests of its people at heart would do.
However, one mistake the Energy Regulatory Commission (ERC) is making is to think that the middle class has the capacity to absorb every imaginable levy.
When the electricity charges were reviewed in July, middle income households were slapped with the heaviest burden of 54 per cent increase in their power bills. What the regulator seemingly failed to grasp is the extent to which this substantial increase in the power charges will impact not only the middle class but the entire economy.
The middle class drives the economy because their relatively robust purchasing power enables them to consume a larger proportion of goods and services.
It is this consumption that fuels demand and supply, two of the critical factors that underpin a healthy economic growth. The country also depends on this category of people to set up businesses that help grow the national cake and boost tax revenue.
Taking into account such an essential link between the middle class and the overall economy, a country can only shoot itself in the foot by eroding their purchasing power.
The middle income earners also take on the additional financial responsibility of their less endowed members of their families, and even other relatives. Considering the high dependency ratio in Kenya, it is possible that a good share of the bills ascribed to the poor are in reality footed by the middle class.
It is ironical that tariffs are rising yet the country has been expanding its generation capacity. For instance, about 170 megawatts have been mounted onto the grid from the Turkana wind farm, and more capacity is expected from the same source once more turbines are switched on. This should reflect on the bills as soon as possible.
Overall, the government has to find a permanent solution to the high cost of energy. The starting point should be terminating or significantly curtailing the use of the prohibitive thermal power. the middle class a break on electricity.