The Financing Problem In The Electric Power Sub- Sector

Abstract

This study focuses on the financing problem in the electric power sub-sector. The sub-sector has not been able to supply sufficient electrical power energy to meet the current demand and it is estimated that only 8% of the Kenyan population have access to electric power. The lack of sufficient and reliable electricity supply is attributed to inadequate infrastructure for generation, transmission and distribution, which has been brought about by the serious financial constraints facing the sub-sector. The subsector requires enormous capital in order to complete the on-going capacity expansion projects, commission new projects and revamp the existing generation, transmission and distribution facilities. The objective of the study was to identify the major obstacles faced by the electric power sub-sector in raising funds. A survey of the five out of the six key players in the sub-sector comprising of four generating companies and the sole electricity transmission and distribution company in Kenya was carried out. Primary data on the various funding constraints from each of the respondent was collected using the questionnaire attached in appendix I. The findings of the study were that the major obstacles faced by the electric power sub-sector in funding its capital budget are inadequate capital in the domestic capital market and the sub-sectors inability to attract foreign private capital. Underdeveloped domestic financial and capital markets, high cost of finance and lack of a well established legal and regulatory framework is responsible for lack of adequate capital in the domestic capital market. The subsectors inability to attract foreign private capital was largely attributed to political risks, economic risks and commercial risks.