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Kenya Power offices on Aga Khan Walk in Nairobi.
Kenya Power paid Sh24 billion to electricity producers in the financial year ended June 2025 to reduce overdue power purchase obligations as part of efforts to cut interest charges arising from late payments.
The payments followed persistent flagging of the utility firm by Auditor-General Nancy Gathungu over handling of contracts with power producers such as Kenya Electricity Generating Company (KenGen).
Kenya Power took the move in order to lower the multi-million-shilling fines that it pays to power producers for failing to settle payments within agreed periods contained in existing Power Purchase Agreements (PPAs).
The firm’s latest annual report shows the payment was distributed among several key energy suppliers including KenGen which received Sh5.2 billion as part of the overdue electricity power supply payments.
Kenya Power paid independent power producers (IPPs) Sh18.3 billion while Kenya Electricity Transmission Company (Ketraco) was allocated Sh0.9 billion. The payments were over and above those to power generators for energy supplied during the review period.
“Owing to the persistent negative working capital position of the business, KPLC had, over the last seven years, accumulated overdue obligations for which payment plans had to be entered into with the counterparties,” said the firm.
Overdue payments
“KPLC made payments of over Sh24 billion... over and above the annual invoice total in a deliberate effort to reduce the overdue amounts that lead to penalty charges.”
Besides negative working capital, Kenya Power says the acute shortage of foreign currency over the past two years drove up outstanding obligations especially considering that a significant part of power purchase is denominated in foreign currency.
Despite the Sh24 billion payment, the firm’s report shows it closed June owing KenGen Sh17.71 billion compared with Sh17.33 billion in the previous year. The amount owed to other suppliers of electricity rose to Sh32.57 billion from Sh26.26 billion over the same period.
In the review period, Kenya Power paid KenGen Sh303.72 million as interest on late payments. This was an improvement from Sh710.16 million in the previous year.
“Interest on late payment accrues upon the expiry of 40 days from the billing date and acknowledgment of the invoice by Kenya Power, or upon lapse of the agreed credit period, whichever comes earlier,” says KenGen.
Kenya Power says that settling all outstanding invoices within the stipulated credit periods would have required borrowing funds at market rates, which are significantly higher than the interest charges incurred on overdue payments.
The firm is banking on continued improvement of its working capital position to settle more overdue bills from power suppliers. The firm narrowed its negative working capital position to Sh19.21 billion in the year ended June 2025 from negative Sh27.43 billion a year earlier.
