Kenya Power still mulls payment of electricity bills in dollars

Kenya Power is still considering selling electricity to their larger consumers in dollars or euros, even after the plan was rebuffed by the sector regulator last month.

According to the utility’s Finance General Manager Stephen Vikiru Kinadira, getting paid in dollars by the customers will help the firm lessen exposure to foreign currency risks and the ongoing dollar crisis.

While billing will be in local currency, collections from the large consumers will be in dollars, a position that would enable the company to have dollars in its account, and help in meeting some of its dollar-denominated obligations.

“Trying to get internal dollar flows is another measure of dealing with the challenge. We will not be billing in dollars, we are billing in shillings as per approved tariffs but collecting in dollars where possible,” he said. “In the next month or so we will start engaging directly with some of our clients who we know have dollar flows based on the nature of their business.”

This will come in handy since some of the firm’s purchase obligations are predominantly in forex, especially for Independent Power Producers (IPPs). “When you look at the cost of sales which is the power purchase you get that 65 per cent of that is in foreign currency,” he said.

According to Vikiru, the utility’s monthly foreign currency requirement amounts to $50 million (Sh6.5 billion) and €20 (Sh2.7 billion), while quarterly loan obligations amount to $30 million (Sh3.9 billion). “The interest is computed at a higher foreign exchange rate, so you find your finance costs are higher. The other challenge is the availability of foreign exchange which leads to the risk of default. Even getting the foreign exchange is a challenge.”

Commercial debts

He said in the short run, KP is also re-financing some of the commercial debts that are in forex while in the long term, they plan to structure the loans and power purchase in Kenya shillings as well as non-tariff revenues which are multi-currency like dark fibre. Vikiru said the decision by the government to source fuel on credit to ease the pressure on the dollar will also assist, especially during thermal generation.

“We are also engaging banks to see if we can be able to put rolling orders in such a way we do not have to call today for the dollar you require but be able to pick what is in the market at the best rates possible,” he said.

Vikiru’s move is, however, set to hit headwinds, considering that the Energy Petroleum Regulatory Authority (Epra) opposed the strategy amid concerns the utility will be compensated twice for exchange rate losses.

“You can’t have your cake and eat it, that is collect in dollars and have the forex adjustments as well. It has to be one,” Daniel Kiptoo, Epra’s Director-General, told a local daily, in reference to forex adjustment that Kenya Power enjoys.

KP has strained to access dollars in a market where manufacturers have repeatedly raised the alarm over the scarcity amid a weakening shilling which hit Sh129.8 to the dollar by yesterday evening.

Payments points

The emerging preference for dollar payments points to the increased dollarisation of the economy, with the shilling weakening against the dollar by 24 per cent since March 2020 to settle at Sh129.88 yesterday.

Kenya Power is seeking to solve many problems by seeking customers to settle bills in dollars or euros.

The first is to cushion itself from the weakening shilling in an environment where the spread between the bank and the official rate is widening.