Developments at Kenya Power

Recent news about Kenya Power and Lighting Company Limited

LIST OF NEWS ARTICLES

• Kenya Power enters solar to curb consumers switch (11 February)
• Kenya Power in U-turn on bills increase push (11 March)
• Kenya Power to work on re-negotiating fixed charges with power firms (12 March)
• State explores new terms for Sh65bn Kenya Power debt (23 March)
• Uhuru picks team to review Kenya Power’s costly purchase deals (31 Mar)
• State appoints team to review Kenya Power deals (1 April)
• Kenya Power defaults Sh23.9bn KenGen bill (1 April)
• MPs to investigate Kenya Power over inflated electricity cost (1 April)
• Inside Kenya Power’s fresh turn to tame bill defaulters (1 April)
• Power firm softens push for tariff hike (2 April)
• How Flawed Deals Cost Kenya Power Billions (3 April)
• The companies making a killing as Kenya Power limps (4 April)
• State asks KenGen to stop Kenya Power debt pursuit (5 April)
• Kenya Power starts remitting unclaimed assets arrears (5 April)
• KenGen mulls writing off Sh581.9m from Kenya Power debt (6 April)
• System losses cost Kenya Power Sh16bn revenue (6 April)
• Editorial: Let Kenya Power meet its debt obligations to KenGen (6 April)
• State unveils Sh36bn Covid bailout for KQ, Kenya Power (7 April)
• Kenya Power drops push to increase bills (7 April)
• …
• Balancing between value for money and investor confidence in power contracts (12 April)

EXCERPTS

Kenya Power enters solar to curb consumers switch

Business Daily, 11 February 2021

Electricity distributor Kenya Power is set to join the solar business, hoping to stay relevant and protect its long-term revenues increasingly threatened by a fast uptake of home solar panels by its main customers.The utility firm — eager to cash in rather than lose out on the millions of solar kits being mounted on the roofs of homes and business premises around the country — plans to install panels in private houses and office blocks with the promise of cheap uninterrupted electricity.

Power lines electrocute 2 [rare] giraffes in conservancy

Associated Press, 23 February 2021

Kenya’s wildlife agency says two giraffes were electrocuted Sunday when they walked into low-lying electric power transmission lines that pass through the Soysambu Conservancy in western Kenya. Trizer Mwakinya, head of communications at the Kenya Wildlife Service, said yesterday that workers from the Kenya Power and Lighting Co. “were on site” to rectify the problem. But conservationist Paula Kahumbu in tweets addressed to the power company and the wildlife agency said the power lines have been killing giraffes, vultures and flamingos. “Advice from experts was ignored. RIAs [regulatory impact assessments] are notoriously poor on many development projects. Sad that it takes these kinds of deaths to wake some people up!” she said in a tweet. In an earlier tweet with a picture of two dead giraffes under an electric pole, Kahumbu said the two were of the Rothschild’s giraffe species. The Kenya Wildlife Service says there are only 609 Rothschild’s giraffes in the country. Close to 1,400 Rothschild’s giraffes remain in the wild in the world and according to the International Union for Conservation of Nature the species is not considered endangered anymore but is now in the near-threatened category. — Tom Odula, Associated Press

Kenya Power in U-turn on bills increase push

Business Daily, 12 March 2021

Kenya Power (KPLC) is seeking to lower fixed charges in contracts signed with electricity generating companies, a move that will boost its financial performance and lead to reduced power bills for consumers. The Auditor-General says the electricity distributor has identified a reduction of capacity charges paid to power firms regardless of generation as one of the key actions that will pull it out of deep losses.

The electricity distributor says the move will also serve to bring down electricity bills. This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.

Kenya Power reckons that time has come for the generators to cut their appetite for higher profits.” It’s high time cheaper power was achieved by all making some sacrifices to grow our economy for all,” [Kenya Power chief executive Benard] Ngugi said.

“Management indicated that plans are underway to renegotiate downwards the capacity charges on the existing power purchase agreements (PPAs),” the Auditor-General said in its report on Kenya Power’s financial statements for the year ended June 2020.” These charges, which account for 54 percent of the total cost of sales are significant and, considering their fixed nature, may have adversely affected the company’s performance resulting in losses.” Kenya power paid capacity charges totalling S7.4 billion, representing more than half of the company’s cost of sales of Sh87.4 billion.

Besides capacity charges, the power distributor has a long list of other costs, including interest on loans, infrastructure maintenance and staff remuneration.

Kenya Power to work on re-negotiating fixed charges with power firms

EmergingMarketWatch, 12 March 2021

Kenya’s power distributing company, Kenya Power, announced plans to work on re-negotiating terms with power producers, particularly with regards to fixed (capacity) charges, which have been an important contributor to the Company’s losses, according to local news reports. This is seen as a step back from the persistent push for a 20% hike of the electricity tariffs, with the Company previously blaming its losses on the regulator’s delay in approving the hike.

The govt has indeed been unwilling to go ahead with the hike, being often on the spot over its inability to bring down the cost of electricity despite heavy investment in the energy sector, and particularly — in renewable capacity. Furthermore, the matter is also sensitive as some of the firm’s shareholders are directly or indirectly linked to president Kenyatta family. On the other hand, it remains to be seen whether such negotiations may be successful, and yield a meaningful reduction in the cost of electricity, given the long-term contracts with independent power producers.

State explores new terms for Sh65bn Kenya Power debt

Business Daily, 23 March 2021

The State is reviewing Sh65.96 billion Kenya Power (KPLC) commercial debt to retire expensive ones through international partners to lift the utility firm from liquidity crunch.

“The government of Kenya is reviewing Kenya Power’s existing commercial facilities with objective to retire expensive ones through engagement on favourable terms with international partners,” said the firm.

About 77.3 per cent or Sh51.02 billion of the commercial loans are dollar-denominated, making the level of repayment costs susceptible to currency fluctuations.

The firm’s main commercial lenders include Standard Chartered Bank, Rand Merchant Bank, Equity, Stanbic Bank and Agence Franchaise Development.

The on-lent debts, tapped from institutions like International Development Agency (IDA), China Exim Bank and Japan Development Bank, are guaranteed by the State and therefore payable to the government.Kenya Power successfully petitioned the government to grant moratorium for payment of principal and interest on State on-lend loans amounting to Sh5.7 billion until July 2021.

[Kenya Power] plunged into a Sh939 million net loss in the year to June 2020, its first loss in 18 years.

Uhuru picks team to review Kenya Power’s costly purchase deals

Business Daily, 31 March 2021

President Uhuru Kenyatta has appointed a task force to review power purchase agreements (PPAs) signed between Kenya Power and all electricity generators with a goal of renegotiating the energy prices and other terms downwards.

Review of the PPAs comes after it emerged that Kenya Power has signed contracts committing it to take more electricity than it can sell, leaving it to pay onerous capacity charges to energy producers even when their plants are idle.

There will also be an audit of the operations of the power producers, with the government threatening to terminate the contracts of those found to have broken the country’s laws or taken advantage of Kenya Power.

During the tenure of the taskforce, all pending issuance or renewal of power purchase contracts and negotiations will remain suspended.The government expects that lowering fixed charges in the energy contracts will offer financial relief to Kenya Power and also bring down power bills for consumers.

State appoints team to review Kenya Power deals

The Standard, 1 April 2021

President Uhuru Kenyatta on Monday gazetted the new task force on the review of Power Purchase Agreements (PPAs). The team will relook into the contracts that dictate how KPLC pays the power producers.

Such contracts have been partly blamed for the high cost of electricity to the disadvantage of Kenya Power. The committee comes two weeks after the Energy Ministry gazetted a committee to undertake similar roles but was hastily degazetted days after the appointment.

Kenya Power defaults Sh23.9bn KenGen bill

Business Daily, 1 April 2021

Kenya Power (KPLC) defaulted on payment for electricity worth Sh23.9 billion supplied by KenGen in the year ended June 2020, exposing the electricity producer to the risk of major losses.

The Office of the Auditor-General says in its report on the power generator’s financial statements that the debt had increased from Sh19.3 billion a year earlier: “In addition, the amounts due from Kenya Power were on average outstanding for periods of 195 days, which was way above the 90-day credit cycle provided for in the agreement between the two companies.”

Other power producers are also claiming a total of Sh20.5 billion from Kenya Power and it was not immediately clear how much of the amount is in default.

The power producer has in the past written off Kenya Power debt running into hundreds of millions of shillings, representing up to 2.5 percent of the amounts owed.

“As disclosed by the board and management in the past and current financial statements, strategic initiatives have been undertaken to improve the financial results of the company,” the audit report said.

The latest effort is the formation of a task force to review power purchase agreements (PPAs) signed between Kenya Power and all electricity generators with a goal of renegotiating the energy prices and other terms downwards. Review of the PPAs comes after it emerged that Kenya Power hadsigned contracts committing it to take more electricity than it can sell, leaving it to pay onerous capacity charges to energy producers even when their plants are idle.

“The terms of reference of the task force shall be to undertake a comprehensive review and analysis of the terms of PPAs entered into by the Kenya Power and Lighting Company Limited (KPLC),” said a gazette notice announcing the formation of the team.” Review the take-or-pay approach applied under the PPA structure and recommend a viable pay-when-taken (merchant plant) approach, or any other viable payment structure, for use in independent power generation projects.

“The task force is also expected to review the allocation of risk between the independent power producers and the electricity distributor. There will also be an audit of the operations of the power producers, with the government threatening to terminate the contracts of those found to have broken the country’s laws or taken advantage of Kenya Power.

Efforts to offer financial relief to the company include a moratorium for payment of principal and interest on government on-lent loans amounting to Sh5.7 billion million until July 2021 and waiver of any penalties arising from the deferment of these payments for a period of one year.The government is also reviewing the firm’s existing commercial facilities with an aim of retiring expensive ones through engagement on favourable terms with international development financiers.

“The strategy of the company is to pursue restructuring of short-term commercial facilities (overdrafts) into medium-term facility,” Kenya Power said.

MPs to investigate Kenya Power over inflated electricity cost

Daily Nation, 1 April 2021

Kenya Power is once again on the spot over inflated electric power costs it buys from Independent Power Producers (IPPs) as MPs launch investigations into the firm’s “opaque” operations.

The investigations will be undertaken by the Energy Committee of the National Assembly as directed by Speaker Muturi’s directive following an intervention by Garissa Township Aden Duale.

Data in parliament shows that Kenya Power procures electric power from IPPs at an inflated rate of Sh23 per kilowatt hour. This is notwithstanding that Kenya Power can easily obtain the same power from Kenya Electricity Generating Company (KenGen) at Sh0.50 per kilowatt hour.

What is interesting is that the IPPs buy electricity from KenGen at about Sh0.50 per kilowatt hour before offloading it to Kenya Power at the inflated rate.

Nakuru Town East MP David Gikaria, who chairs the Energy Committee promised to get to the bottom of the issues affecting the country’s power distribution company. “It is our mandate to ensure that the shady dealings at Kenya Power come to an end,” Mr Gikaria said. “You cannot load over expensive power to the economy and expect it to grow. It is not possible.”

Mr Duale further wants the Energy ministry to provide

• A list of all IPPs including their stakeholders, directors and addresses to the committee
• The amount paid to each of the IPPs by Kenya Power and the Ministry of Energy since commencement of their respective contracts
• Explanation of measures taken to reduce the cost of electricity to households, businesses, factories and other consumers with a view to supporting President Kenyatta’s big four agenda of enhancing manufacturing

The audit report further notes that the Power Purchase Agreements (PAA) with power producers, which account to 54 percent of the total cost of sales are significant to the financial woes bedeviling the company.

This is considering their fixed nature and may have adversely affected the company’s performance resulting in the huge losses.

The company’s financial statements reflect the cost of sales of Sh87.5 billion with Sh47.5 billion in power purchase costs, which relates to capacity charge as per [PPAs].

The 2017/18 report from the Office of the Auditor-General further casts a gloomy picture on the accounts of the Kenya Power. The report before parliament reveals that the country’s sole power distributor risks losing Sh2 billion in interest and penalties for failing to declare unclaimed assets in its books to the Unclaimed Financial Assets Authority (UFAA). The assets held by the state corporation include customer refunds, unidentified receipts, way leaves compensation, uncollected dividends and stale cheques among others.

Inside Kenya Power’s fresh turn to tame bill defaulters

Business Daily, 1 April 2021

Loss-making Kenya Power (KPLC) has hired eight debt collectors to help recover outstanding bills running into billions of shillings and improve its cash position.The State monopoly says it is also installing smart meters to its customers around the country to improve billing and curb the menace of power theft.

The move is part of the electricity distribution new strategy to net defaulters and root out electricity thieves using illegal connections to the national grid to deprive the company of revenue as it seeks to lift itself out of a deep earnings slump.

Kenya Power has struggled to cut its debt, reduce operating costs and restore its working capital into a positive position even as the expanded grid poses an oversight nightmare.It plunged into a Sh939 million net loss in the year to June 2020, marking the first loss in 18 years. (The utility had made Sh2.89 billion loss in 2003.)

Kenya Power added 500,397 new customers to the grid in the review period to hit 7.576 million customers but consumption has remained muted.

Power firm softens push for tariff hike

The Standard, 2 April 2021

Kenya Power appears to be slowing down its push for a tariff increase and is instead rooting for sector-wide reforms including reviewing the relations it has with power producers to reduce the cost of procuring power.

Chair Vivienne Yeda said, “The improved cash position has been achieved within the existing tariffs. All it took was an insistence and persistence on doing things right, on not embarking on unnecessary expenditure, on taking a close look at costs including energy costs, collecting amounts due and tightening systems.”

How Flawed Deals Cost Kenya Power Billions

Daily Nation, 3 April 2021, AllAfrica.com

Board chairperson Vivienne Yeda told shareholders on Thursday that shaky leadership had reduced the utility firm into a “procurement machine” but the current team is working to reverse this.

“The absence of a robust institutional framework created a vacuum, which inevitably was filled by all types (of people) who for instance drove Kenya Power into becoming a veritable procurement machine,” said Ms Yeda.

“We are well on course to realising this short-term goal through a combination of paying close attention to costs including sealing loopholes that facilitate financial haemorrhage, improving revenue collection and working to improve service delivery,” said Ms Yeda.

The companies making a killing as Kenya Power limps

The Standard, 4 April 2021

Companies supplying electricity to Kenya Power made a killing last year even as the electricity distributor recorded huge losses.

• KenGen was paid Sh41 billion in non-fuel costs
• US-headquartered Ormat, which operates geothermal power plants in Olkaria through its Kenyan subsidiary Orpower, earned Sh12.4 billion
• Lake Turkana Wind Power earned Sh12.2 billion
• “Thermal power plants… continue to earn billions despite their diminished importance following cleaner and cheaper generating capacity” [from Olkaria geothermal]

A review of annual reports of Ormat and KenGen, which are publicly-listed and have to make public their dealings with the power retailer, shows that more than half of the earnings from Kenya Power were in form of capacity charges.

“The take-or-pay pricing model for PPAs with IPPs (independent power producers) resulted in fixed capacity charges that are unfavourable in the absence of demand growth and during declining demand like this period of the Covid-19 pandemic,” said the firm.

State asks KenGen to stop Kenya Power debt pursuit

Business Daily, 5 April 2021

The government has asked KenGen and other suppliers of Kenya Power not to enforce collection of billions of shillings they are owed by the electricity distributor, exposing them to cash flow problems and potential losses…

There has been no indication that Kenya Power will receive direct financial assistance from the National Treasury.

The government is, however, seeking to help the electricity distributor by squeezing its commercial partners including financiers and suppliers.Kenya Power, for instance, is being backed by the government in its quest to lower fixed charges in contracts signed with electricity generating companies.

The company is also seeking to retire expensive bank loans earlier than expected by replacing them with cheaper credit facilities from development finance institutions.

Kenya Power starts remitting unclaimed assets arrears (1 April)

Business Daily, 5 April 2021

Kenya Power has remitted Sh88 million or six percent of the arrears it holds as unclaimed assets in a race to comply with the law and avoid penalties.

Auditor-General Nancy Gathungu said in an audit report that the utility is, however yet to deposit Sh1.29 billion with the Unclaimed Financial Assets Authority (Ufaa).

The unclaimed assets include deposit refunds, unidentified receipts, unpaid customer electricity deposits, unpaid way-leaves compensation, unclaimed dividends and stale cheques which ought to have been reported to Ufaa.

KenGen mulls writing off Sh581.9m from Kenya Power debt

Business Daily, 6 April 2021

KenGen (KEGN) expects to write off Sh581.9 million out of the total of Sh23.9 billion it is claiming from Kenya Power (KPLC), the electricity generator has disclosed in its annual report for the year ended June 2020.

“The State and energy sector public organisations through the Ministry of Energy, have been requested to ease pressure on supplier dues payable by KPLC i.e. the amount to be settled on a payment plan including a moratorium on dues payable,” Kenya Power says in its latest annual report for the year ended June 2020.

The firm also owed private power producers Sh20.5 billion and it was not immediately clear how much of the amount is in default and whether they will also be subject to debt restructuring.

[For Kenya Power] The move to delay and stretch out payments to suppliers is the clearest indication of the depth of the company’s financial crisis, which will get worse as the debt balloons with ongoing electricity generation and offtake.

Editorial: Let Kenya Power meet its debt obligations to KenGen

Business Daily, 6 April 2021

The government must find a middle ground in the KenGen and Kenya Power debt standoff. Asking KenGen and other suppliers of Kenya Power to stop pursuing collection of the billions of shillings owed by the electricity distributor exposes the companies to cash flow problems and potential losses.

Such short-term fixes will continue encouraging a bad culture of unaccountability in government agencies.

KenGen, whose sole customer is Kenya Power, had not been paid Sh23.9 billion by the electricity distributor as of June 2020 and has one of the largest exposures in the debt restructure being championed by the government. The huge debt is slowing down KenGen’s expansion plans.System losses cost Kenya Power Sh16bn revenue

Business Daily, 7 April 2021

Kenya Power suffered Sh15.99 billion worth of system losses beyond what it is allowed to recover from consumers in the year ended June 2020, shining a spotlight on the burden of the expanded network and customer base on the utility’s revenue… The Energy and Petroleum Regulatory Authority (Epra) last July raised the allowed system losses by five percentage points, which Kenya Power is counting on to cut its exposure to irrecoverable costs.

Kenya Power said the high system losses are due to technical and commercial factors arising from the expanded transmission and distribution network as well as increased electricity pilferages.Technical losses occur when electrical energy is dissipated in the process of transmission and distribution while commercial losses are mainly attributed to pilferages, faulty meters and meter tampering.

Kenya Power’s system losses have increased from 18.68 percent to the current level over a seven-year period on the back of the network expansion especially in the last mile programme.Over the last seven years, the firm has increased its network by 56,611 kilometres to 84,681 kilometres while customer based jumped 3.3 times to 7.6 million.

State unveils Sh36bn Covid bailout for KQ, Kenya Power

Business Daily, 7 April 2021

The government will spend Sh36 billion to bail out key parastatal[s] which have sunk into losses as a result of Covid-19 economic fallout.

The National Treasury said companies including Kenya Airways, Kenya Power, and several universities need urgent support after their revenues dropped sharply during the pandemic.

International Monetary Fund (IMF) has revealed the bailout plans in the agreements it has reached with the government as conditions for offering Kenya the latest Sh255 billion loan.

The agreements also reveal that Kenya has committed to audit nine key parastatals and reform them, according to IMF guidelines to rationalise government involvement in the sector and ensure the viability of State Owned Enterprise (SOEs) continued operations. These include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power and Lighting PLC, Kenya Electricity Generating Company PLC, Kenya Ports Authority, and three of the largest universities.

Chinese built standard gauge railway (SGR) posted a combined operating loss of Sh21.68 billion in the three years to May last year straddling Kenya Railways with huge losses.

Kenya Power posted a net loss of Sh939 million for the year ending June 2020 after getting a Sh6.1 billion tax credit lifting the company from a pre-tax loss of Sh7 billion.

In the eight months to November last year, Kenya had increased its stock of public debt by Sh971 billion under the cover of fighting the Covid-19 pandemic.

Kenya Power drops push to increase bills

Business Daily, 7 April 2021

Kenya Power (KPLC) has dropped the push to increase bills by up to a fifth, shifting its focus to lowering costs, curbing electricity theft and recovery of unpaid bills amounting to over Sh27 billion.

The electricity distributor reckons it has identified a reduction of capacity charges paid to power firms regardless of generation as one of the key actions that will pull it out of deep losses and bring down electricity bills. This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.

Under a typical power purchase agreement, a power producer gets paid for any electricity generated, even if it is impossible for Kenya Power to sell it to consumers due to excess capacity and other reasons.

Now, the utility hopes the reduced bill it will pay generators will offer it room to cut electricity prices while making returns to its shareholders.

Kenya Power reckons that time has come for the generators to cut their appetite for higher profits.

Balancing between value for money and investor confidence in power contracts

Business Daily, 12 April 2021

President Uhuru Kenyatta recently appointed a 15-member task force to comprehensively review all power purchase agreements that different producers have with Kenya power, with a view to realising value for money to the public in the form of reduced tariff. One critical aspect up for review is the take-or-pay approach.

Notably, take-or-pay clauses have dominated power purchase agreements in the electricity generation sector for the longest time in Kenya…

Ghana is the only country in Africa at the stage of implementing the pay-when-taken approach in power purchase agreements, while South Africa is considering adopting it. Kenya and South Africa should follow Ghana’s lead.

Njoroge is an energy economist & director of policy and research at The Africa Utility Forum