A weakened Kenyan shilling cost Kenya Power to spend an extra Sh3.63 billion in debt servicing even as the company considered billing some of its customers in foreign currency to lower its forex costs.
This comes as the company slightly reduced its mountain of debt from Sh105.96 billion in the financial year 2020/21 to Sh103.84 billion in June, made up of Sh39.73 billion in commercial debt and Sh64.11 billion government-guaranteed debt.
Kenya Power cut its commercial debt by Sh8.3 billion in the year to June 2022 after settling part of its debt to Standard Chartered Bank, Equity Bank, Rand Merchant Bank, and NBCA Bank.
Part of this debt is denominated in US dollars exposing the company to higher debt repayment costs as the local currency continued to lose value against the greenback during the period.
Between June 2021 and June 2022, the value of the Kenyan shilling dropped by 9.2 per cent against the US dollar, exchanging at a mean of Sh117.83 on June 30 this year compared to Sh107.85 on the same day last year.
Against the euro, the local currency faired a little better, with its value dropping by 3.3 per cent during the period to exchange at a mean of Sh128.22 from a mean of Sh124.02 last year.
“Finance costs have increased in the current year to Sh12.68 billion from Sh9 billion in the previous year due to depreciation of the Kenya shilling against the US dollar and euro,” said Kenya Power.
The utility is betting on the moratorium on the repayment of its government-guaranteed loans to cushion itself from the growing finance costs driven by a weaker shilling.
The company owes Sh64.11 billion to development finance lenders such as the China Exim Bank, Agence Francise de Development (AFD), Nordic Development Fund, and the World Bank which is guaranteed by the State and is therefore payable to the government.
The National Treasury gave Kenya Power a moratorium on the repayment of Sh25.12 billion of this debt until June 2024.
“The company has obtained an extension of on-lent debt repayment moratorium approved by the National Treasury amounting to Sh25.12 billion to June 30, 2024,” said the firm.
The weak shilling has been a burden to the utility not only regarding settlement of its commercial loans but also paying for power purchased from KenGen and independent power producers (IPPs).
With power purchase agreements (PPAs) signed between the company and these firms denominated in foreign currency, Kenya Power incurs huge costs that are recovered through the foreign exchange rate fluctuation adjustment (Ferfa) component in power bills that is adjusted monthly.
The utility however is exploring billing some of its customers especially large power users in foreign currency. Kenya Power contends that this will help it collect some much-need forex from the market to settle its financial obligations.
