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Kenya Power in talks over Sh102b debt consolidation

By Noel Wandera
Friday, November 20th, 2020
Kenya Power. Photo/Courtesy
In summary

Debt-ridden power distributor, Kenya Power is negotiating with the World Bank to consolidate its short-term Sh102.6 billion commercial debts into a 25-year repayment programme.

The long-term repayment programme is expected to give KP financial headroom to streamline its revenue generation processes and enable the company to overcome its financial doldrums.

As at June 30, the power distributor has been operating on an overdraft of Sh102.6 billion with an annual debt service obligations of Sh24 billion per year.

“The way it is, is that it is expensive for the company and we cannot sustain it.

We are now in negotiation with World Bank and Treasury so that they can take over all these loans and give us a longer time period,” said Energy Cabinet Secretary Charles Keter during a presentation to the Senate Standing Committee on Energy yesterday.

Kenya Power Chief executive Benard Ngugi said the company’s historical short-term loan portfolio of Sh45 billion and long-term portfolio worth Sh65 billion was borrowed between 2014 and 2019 for an additional 5,000 MW to the National Grid.

In its financial statement for the financial year ended June 2019, Kenya Power’s profit before tax reduced to Sh334 million down from Sh4.9 billion.

Keter said part of the reduction was due to delay in review of the retail tariff to cover the cost of electricity purchases, transmission and distribution.

According to Keter, the company also suffered increased financial costs as a result of continued usage of commercial facilities, especially the use of short term bank overdrafts to finance KP’s operations.

Concerned about the growing debt portfolio, members suggested a forensic audit of Kenya Power in order to arrest the escalating position, which Keter and Ngugi agreed to.

Keter said Kenya Power had managed to reduce overdrafts from Sh10 billion to less than Sh1 billion, having converted most of them into long term loans.

Outstanding bills

He said National Treasury had agreed to settle outstanding bills from the Rural Electrification Scheme of Sh11.9 billion in two equal installments of Sh6 billion by the next financial year ending June 2020.

Ngugi said the issue of tariff adjustment was before Energy, Petroleum and Regulatory Authority (EPRA). Early this month, a local daily reported that Kenya Power was seeking an adjustment upwards in its tariffs which if implemented will aid its turnaround efforts.

The utility is said to want an increase in the consumption charge for usage of less than 100 kilowatts per month to Sh12.50 a unit, up from the current Sh10, meaning the charge for consuming above 100 units would rise to Sh19.53 a unit from the current Sh15.80 in if approved by EPRA.

EPRA Director-General Pavil Oimeke, said the technical committee has been meeting to look at the technical issues as the tariff covers the entire energy sector.

“So once that is done, the board will give an okay then we shall start the stakeholder engagements.

It is a process that takes long but we are looking at probably 6 months,” said Oimeke.