Kenya Power is set to shake up its foreign exchange-backed transactions including purchase and loan agreements amid swelling financial losses due to volatility of the local currency.
The utility firm is already recruiting an expert agency to help manage its increasing currency risks.
“Conduct an exhaustive analysis of existing foreign exchange exposure and possible risk mitigation approaches. Review of purchase agreements, loan agreements, and other transactions involving foreign currencies: identification of sources of foreign exchange risk and its effect on financial statements,” said Kenya Power in a call for bids.
Kenya Power took a Sh23 billion hit for the financial year ended June 2023, mainly blamed on forex pain when paying its lenders and electricity suppliers in foreign currencies.
The utility company had combined obligations of about $1 billion (Sh160.75 billion) at the end of June 2023, consisting of 70 per cent forex-denominated debt and 30 per cent power purchase obligation, leading to a Sh23 billion forex exchange fluctuation impact.
Kenya Power posted a loss after tax of Sh3.19 billion in the year to June 2023 compared with a net profit of Sh3.26 billion a year earlier, with the primary driver of the performance being an 89 per cent surge in finance costs to Sh24.15 billion from Sh12.76 billion. The firm saw a Sh16.87 billion revaluation on loans and a Sh5.32 billion revaluation on power purchase obligations owing to the weakening of the shilling, but a misaligned exchange rate by the Energy and Petroleum Regulatory Authority (Epra) over the period ended June 2023 meant that not all the amount eligible to be passed to consumers did so.
Kenya Power blamed Epra for the Sh23 billion loss it incurred in the year ended June for using the Central Bank of Kenya's foreign exchange rates instead of those quoted in actual market transactions when paying its lenders and electricity suppliers in foreign currencies.
The mean exchange rate of the shilling against the dollar, as given by the CBK, has continued to show a relatively stronger position for the local currency when compared with the market rate.
