Kenya Power lost Sh4bn in a State subsidy plan

Kenya Power

A Kenya Power vehicle transports transformers along the Nyeri-Nairobi highway on November 17, 2022. 

Photo credit: Joseph Kanyi | Nation Media Group

Kenya Power incurred a loss of Sh3.66 billion following a nine-month government-backed electricity subsidy plan that was aimed at cushioning consumers from high energy bills.

The government kept electricity prices constant between December last year and September to prevent an increase in power costs pushed by high fuel and currency fluctuation costs to appease Kenyans ahead of the August polls amid a high cost of living.

The Energy and Petroleum Regulatory Authority (Epra) kept the fuel cost charge (FCC) and foreign exchange fluctuation adjustment rate (Ferfa), which are adjusted monthly to cater to changes in the market cost of fuel and forex, unchanged during the period.

The fuel charges are collected by the company and paid to KenGen and independent power producers (IPPs), while the forex adjustment charge cushions the company as it pays for its foreign debt, electricity purchases, and other costs in foreign currency.

Kenya Power’s financial statements for the fiscal year to June 2022 show the firm received revenues amounting to Sh7.3 billion in forex adjustment charges and Sh24.4 billion in fuel cost charges during the period, but incurred costs of Sh9 billion and Sh26.3 billion on the two components respectively.

This saw the company spend Sh3.66 billion more to plug the disparity in the earnings from customers.

“Management has indicated that the variance was due to the actual recovery rates approved by Epra for billing to customers, being lower than the actual rates applied at the point of purchasing power from the producers,” said Auditor-General Nancy Gathungu.

“The disparity in those rates were borne by the company thus affecting its financial performance for the year,” said the Auditor-General.

Kenya Power however braved the costs to more than double its profit after tax from Sh1.5 billion to Sh3.5 billion during the period. This marked the second financial year in a row in which the company recorded a profit after moving from loss-making territory in 2021.

The subsidy on electricity is among several that were introduced by former President Uhuru Kenyatta to pacify the masses ahead of the pivotal August general elections.

This was in addition to a subsidy on fuel that helped prevent a sharp increase in the price of the commodity following a surge in global crude oil prices.

The former Head of State also introduced a subsidy on maize flour in July that cut the cost of a 2-kilogram packet of maize flour to Sh100 from Sh205.

The subsidy on maize flour ended in August after a one-month run, while the subsidy on electricity was lifted in September ushering in the highest power prices in more than five years.