June 24, 2024
EXPLAINED: How Kenya Power will charge consumers in US dollars

EXPLAINED: How Kenya Power will charge consumers in US dollars

 Kenya Power has received government approval to bill some of its customers in US dollars, a significant win for the company, whose recent performance has been hampered by foreign exchange losses.

The utility announced on Friday that it is setting up accounts to collect electricity bills in US dollars, euros, and Sterling pounds from customers who are willing and able to pay in foreign currency.

“There was a lot of involvement in this from the top, including the regulator and the government, and we received the necessary approvals.

“We are in the process of setting up collection accounts that are well integrated with our systems,” said Kenya Power Finance Manager Stephen Vikiru.

Kenya Power returned to profitability in the half year ended December 2023, earning a net profit of Sh319 million.

This represents a significant improvement over the net loss of Sh1.14 billion recorded in the same period the previous year.

The utility’s revenues increased by 31% to Sh113.55 billion, up from Sh86.66 billion.

This was driven by an increase in electricity sales, the end of the 15% power tariff cut, and the implementation of new, higher tariffs in April last year.

Kenya Power, on the other hand, continued to suffer significant forex losses during the period, with finance costs more than doubling to Sh15.02 billion, up from Sh7.39 billion the previous year.

“This increase is attributed to the rise in unrealised foreign exchange losses on loan revaluations, a consequence of the weakening of the Kenya shilling against major foreign currencies in which most of the loan portfolio is denominated,” said the firm.

Kenya Power has long sought permission from the Energy and Petroleum Regulatory Authority (Epra) to bill some of its customers who earn foreign currency, particularly US dollars and euros, in those currencies.

When the proposal first came up, some customers expressed concerns about the legality of paying in dollars, given that the utility was already compensated for forex losses through a component in electricity bills.

Kenya Power, on the other hand, has moved to allay any concerns by stating that only willing customers will be billed in foreign currency at agreed-upon exchange rates during each billing period.

Mr Vikiru stated that firms such as fresh produce exporters that earn in foreign currency were inconvenienced by having to exchange their foreign currency into shillings to pay their bills.

Kenya Power is a major buyer of foreign currency in the country.

The Nairobi Securities Exchange (NSE)-listed company says it requires approximately $46 million and €18 million per month to pay for power purchases and external commercial loans.

The company has been facing a forex shortage to pay its bills to power suppliers and external debtors as the shilling has depreciated rapidly against major world currencies in recent years.

The weak shilling increased Kenya Power’s finance costs in the year to June 2023 to Sh24.15 billion, up from Sh12.7 billion in the previous year.

This resulted in a net loss of Sh3.19 billion, reversed from the previous year’s profit after tax of Sh3.26 billion.

The majority State-owned company stated that the forex issues forced some independent power producers (IPPs) to accept payment in shillings because the firm was unable to find forex to settle mounting arrears.

Kenya Power stated that it has taken advantage of the local currency’s strengthening over the last two weeks to settle its foreign exchange obligations.

To further mitigate forex losses, the company intends to restructure its balance sheet so that proceeds from the transfer of a portion of the transmission line assets will be used to offset on-lent loans, which are entirely denominated in foreign currency and account for a significant portion of the unrealised forex loss.

The assets will be transferred to the Kenya Electricity Transmission Company (Ketraco), which is fully owned by the government.

“The company is also in the process of reviewing its forex mitigation strategy in light of the evolving forex market dynamics,” Kenya Power said.

EXPLAINED: How Kenya Power will charge consumers in US dollars

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