Electricity producers reject Kenya Power offer to be paid in Kenya shillings

Most power producers rejected an offer from Kenya Power to pay them in Kenyan shillings due to a shortage in foreign currency, hitting the utility with interest for delayed payments.

The power distributor had approached the electricity generators last year to accept local currency payments to help clear the backlog of power purchase payments which were attracting interest.

At the time, the shilling had depreciated to a record low, while a forex shortage had ravaged the economy leaving large forex buyers such as Kenya Power, oil marketing companies and importers exposed.

This saw the utility’s trade payables hit Ksh66.88 billion in the year to June 2023, out of which 40% (Ksh26.62 billion) had not been paid for more than 90 days. A strong shilling at the start of 2024 however helped Kenya Power reduce these outstanding payments, but by June 2024 they still stood at Ksh43.4 billion.

To further reduce the arrears, the company had sought help from power generators to accept payments in Kenyan shillings but they refused.

The delay in settlement of the trade payables (over 60 days) arose mainly due to disputed power purchase invoices, late penalty interest on delayed power purchase payments, cash flow challenges due to unavailability of forex currency and pending court cases. Management had engaged the power generators to accept payment in Ksh equivalent but the uptake was low

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Forex fluctuations and shortages have been a major headache for Kenya power for decades. This is because while the company collects electricity revenue from customers in local currency, it pays power producers in foreign currency, mainly in US dollars and Euros.

The company has been pushing industry regulator, the Energy and Petroleum Regulatory Authority (EPRA), to allow it to bill some of its customers in US dollars for years but has not yet succeeded.

Kenya Power is one of the biggest buyers of foreign currency in the country. The Nairobi Securities Exchange (NSE) listed company says it needs about $46 million and €18 million monthly to pay for power purchase and external commercial loans.

To further mitigate forex losses, the company is seeking to restructure its balance sheet where proceeds from the transfer of part of the transmission line assets will be applied to offset on-lent loans which are entirely denominated in foreign currency and contribute a significant portion of the unrealized forex loss.

The assets will be transferred to the Kenya Electricity Transmission Company (KETRACO), which is wholly owned by the government. The company recently hired an advisor to help in valuation of the assets to pave way for the transfer.

brian@theenergyreview.com