The Impact of Power Sector Reforms on Efficiency, Access and Household Welfare in Kenya

Abstract

Electricity is a key enabler of socio-economic development. Provision of adequate and affordable electricity is necessary for economic growth and wellbeing of a people. Since the 1980s electricity sector in many countries has been subjected to reforms. In Kenya reforms have xi been driven by donors and the government together. After more than 20 years of reforms in Kenya’s electricity sector, this study asks whether the expected outcomes of the reforms have been realized. The first essay uses data obtained from Information Administration (EAI), World development indicators (WDI), Africa Energy Policy Research Network (AFREPREN), Africa infrastructure country diagnostic database, International Labour Organization (ILO) Annual reports and statistical abstracts from the respective countries to assess the impact the reforms have had on the sector’s efficiency. The results obtained from DEA, Malmquist productivity index and stochastic frontier analysis showed that the power sub-sector in Kenya has improved in technical efficiency after the reforms, even though there is room for further improvement to draw near to the best performers in the developing world. Countries which have implemented reforms to a larger extent were found to be more efficient. An analysis of panel data obtained fromWorld Bank national accounts, IEA, Center for Systemic Peace and various national accounts spanning 25 years using fixed effectmodel, showed that among the reforms considered namely restructuring, regulation, legislation, competition and private sector participation, competition is a key positive driver of both electricity access and supply. The third essay used data obtained from KNBS of 2005/2006 and 2015/2016 Kenya Integrated Household Budget surveys. The study using 2SLS (IV)estimation model confirmed that the welfare of households connected to electricity in Kenya was better relative to that of unconnected households. Specifically, household expenditure on both food and non-food items arehigher in electrified household than in those without electricity. Household members in electrified home spend more time in income earning activities and also earn higher incomes than those without electricity.Findings show significant impact on school enrollment for all children. The impact is however higher for boys than for girls. The study also concluded that households connected to xii the grid spend more income on education than their counterparts. The overall positive effect on the selected education outcomes was found to be higher in poor households and in rural areas than in wealthy urban households. It is important, however, to fast track competition in transmission and distribution of electricity since these two reforms have lagged behind. This will, hopefully, improve efficiency in electricity production, lower user electricity tariffs, encourage electricity consumption and hopefully spur overall economic development.