Kenya Power and Lighting Company Initiates Strategic Moves to Tackle Debt Amid Exchange Rate Woes
In a bid to counter the challenges posed by the depreciating local currency and mounting debt, Kenya Power and Lighting Company (KPLC) is making significant efforts to secure its financial stability. Managing Director Joseph Siror recently announced that the utility company is seeking assistance from the Kenyan government to convert a portion of its dollar-denominated debt into Kenyan shillings. This strategic maneuver aims to alleviate the impact of the Kenyan shilling’s 18 percent devaluation against the US dollar since the start of the year.
“We are engaging the National Treasury, especially on the fact that there are some old debts on the Kenya shilling end we have liquidity, it’s only on the foreign exchange debt that we have a challenge.” said Siror to media with regards to his deliberations with The National Assembly Departmental Committee on Energy. “So, we are engaging them (GoK) to convert them (debt) to Kenya shilling so that so that we can offset it in the local currency,” he added.
With up to 30 percent of its foreign currency loan portfolio potentially up for redenomination, KPLC is actively engaging the National Treasury to explore this avenue. While the company maintains liquidity in Kenyan shillings, its main challenge lies in foreign exchange debt. The shift to the local currency would help offset the losses incurred due to the currency’s depreciation.
The company’s latest annual report reveals that KPLC’s total borrowing stood at Sh103.8 billion in the year ending June 2022, with a significant portion amounting to Sh76.2 billion denominated in US dollars. To address this imbalance, the utility firm is not only renegotiating its existing debt but also pursuing the redenomination of contracts with independent power producers (IPPs) from US dollars to Kenyan shillings.
KPLC’s efforts to secure these changes have yielded positive results, with some IPPs already agreeing to accept payment in Kenyan shillings. This shift aligns with the prevailing exchange rate, helping to stabilise KPLC’s financial commitments. The utility’s proactive approach in negotiating contracts with IPPs highlights its commitment to managing costs and enhancing financial resilience.
Furthermore, KPLC is partnering with the World Bank to address liquidity challenges related to foreign exchange fluctuations. The proposed changes also aim to eventually reduce electricity bills for consumers.
One significant condition for the reform involves the power distributor’s obligation to purchase all the power generated by independent producers, regardless of market demand or alternative energy sources. This condition aims to curb the common practice of curtailing power supply to maintain a supply-demand balance. The reform intends to limit the impact of such curtailment practices, which can lead to higher electricity bills due to capacity charges passed on to consumers.
In line with these efforts, the Kenya Kwanza government is taking decisive steps to enhance Kenya Power’s financial sustainability. Treasury CS Njuguna Ndungu outlined a four-point plan to restructure the utility’s debt obligations and balance sheet. The plan includes transferring transmission lines and assets to Kenya Electricity Transmission Company (Ketraco), settling outstanding rural electrification schemes costs, and implementing a turnaround strategy to reduce system losses.
“To further enhance KPLC’s financial sustainability, the government will restructure the balance sheet mainly focusing on the huge loan balances, payables and receivables. This will in turn address the current huge liquidity gap at KPLC,” said National Treasury CS Njuguna Ndung’u while presenting budget estimates for year 2023-2024.
The proposed reduction of system losses from 22.4 percent to 14.4 percent by June 2025 showcases the government’s commitment to operational efficiency. Additionally, the government aims to establish a new governance structure for KPLC that provides fair representation for private sector stakeholders, aligning with the company’s shareholding structure.
To address its financial challenges comprehensively, KPLC had secured a $300 million interest-free loan from the World Bank in the first quarter of 2023. This substantial funding was to enable the utility to pay off debts, modernise its transmission network, expand the national grid, and enhance energy monitoring systems. The loan supports the Green and Resilient Expansion of Energy program, aiming to reduce KPLC’s debt to electricity producers, suppliers, and other agencies.
Part of the program’s objectives includes continuing the Last Mile connectivity initiative, introducing smart meters, and implementing a two-way communication system to improve energy flow monitoring. By reducing its debt and losses, KPLC aims to secure its financial stability while contributing to the country’s energy sustainability goals.
Through negotiations with the government, independent power producers, and the World Bank, the Kenya Power and Lightning Company is poised to achieve a more stable financial footing, reduce losses, and enhance operational efficiency. These efforts not only benefit the company but also contribute to the overall development and stability of Kenya’s energy sector.