Kenya Power has received approval from the government to bill some of its customers in US dollars in a major win for the firm whose recent performance has been hit hard by foreign exchange losses.
The utility on Friday said it is setting up accounts to enable the collection of electricity bills in US dollars, euros and Sterling pounds from customers that are willing and able to pay their bills in foreign currency.
“There was a lot of engagement on this right from the top, including the regulator and the government, and we got the necessary approvals. We are in the process of opening collection accounts in a manner that is well interfaced with our systems,” said Kenya Power Finance Manager Stephen Vikiru.
Kenya Power bounced back into profitability in the half year to December 2023, earning a net profit of Sh319 million. This is a significant turnaround from the net loss of Sh1.14 billion it recorded in the same period the previous year.
The utility recorded a 31 percent jump in revenues to Sh113.55 billion, up from Sh86.66 billion. This was driven by an increase in electricity sales, the end of the 15 percent power tariffs cut and the introduction of new, higher tariffs which took effect in April last year.
Kenya Power, however, continued to suffer significant forex losses during the period as finance costs more than doubled to Sh15.02 billion, marking a sharp increase from Sh7.39 billion in the preceding 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 for years sought approval from the Energy and Petroleum Regulatory Authority (Epra) to be allowed to bill some of its customers who earn in foreign currency, especially US dollars and euros, in those currencies.
When the proposal was first mooted, some customers raised concerns over the legality of paying in dollars given the utility was already being compensated for forex losses through a component in electricity bills.
However, Kenya Power has moved to ease any fears, stating that only willing customers will be billed in foreign currency using exchange rates that will be agreed upon during each billing period.
Mr Vikiru said that firms like fresh produce exporters who earn in foreign currency were being inconvenienced by having to exchange their foreign currency into shillings to settle their bills.
“For example, a horticulture company that exports flowers, they have to go sell the dollars or euros they have received to pay their bills yet we actually need those currencies,” he said.
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.
The firm has been facing a shortage of forex to settle its bills to power suppliers and external debtors amid a rapid depreciation of the shilling against major world currencies in recent years.
The weak shilling ballooned 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 plunged the company into a net loss of Sh3.19 billion, reversing a profit after tax of Sh3.26 billion the previous year.
The majority State-owned company said that the forex issues even saw some independent power producers (IPPs) accept to be paid in shillings because the firm could not find forex to settle mounting arrears.
“These are contractual relationships with IPPs, and due to the liquidity challenges we had with forex it is an offer we made to them to pay them in Kenyan shillings and some of them accepted,” said Mr Vikiru.
Kenya Power said it has taken the opportunity presented by the strengthening of the local currency over the last two weeks to settle its forex obligations.
The company said that further strengthening and improvement in its liquidity will enable it to purchase stocks of US dollars and euros to ease forex pressure later on when it will need to pay for power purchase and settle its matured debt.
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 unrealised forex loss.
The assets are to be transferred to the Kenya Electricity Transmission Company (Ketraco), which is wholly 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.
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