Kenya Power to take Sh6.5bn hit after tariff cut extended to April
Kenya Power says it will incur an additional loss of Sh6.5 billion owing to the government’s decision to extend a 15 per cent cut on electricity tariffs by three months to April.
Former President Uhuru Kenyatta introduced the 15 per cent tariff cut in January last year to lower the cost of living. The cut was to be achieved through a reduction in inefficiencies along the power supply chain, including system losses.
A further 15 percent cut was targeted through renegotiation of power purchase agreements with independent power producers but this failed to materialise after the power producers failed to agree to the plan.
The power tariffs reduction, which had a cost implication of more than Sh26 billion, was to last for a full year until December 2022.
Kenya Power was to absorb Sh14 billion of this loss and has so far been reimbursed Sh7 billion in subsidy by the government. The Sh7 billion that is yet to be reimbursed has sunk the company back into losses.
President William Ruto’s administration extended the tariffs cut by a further three months until April 1 when new power tariffs to be approved by the Energy and Petroleum Regulatory Authority are set to take effect.
“If you use the parameters that were used when putting the 15 per cent reduction in place in January last year, we estimate that the extension of the lower tariffs for the months from January to April 1 will cost about Sh6.5 billion,” said Kenya Power.
This comes as the utility has sunk into a Sh1.14 billion net loss for the six months to December 2022 owing to the reduction in base electricity prices.
The power prices cut—coupled with a weak shilling that significantly increased the utility’s costs—has sunk it back into losses just a year after earning a net profit of Sh3.81 billion in the half-year to December 2021.
The company had a net loss of Sh2.98 billion in the full financial year that ended June 2020, which was its first in 17 years.
The 15 percent reduction in power tariffs saw the basic electricity revenue earned by the company during the six months decrease by Sh6.69 billion despite an increase in sales. It recorded a 4.4 per cent growth in electricity sales during the period, attributed to growing demand occasioned by increased economic activities and an expanded customer base.
“This drop is attributable to increased foreign exchange losses and the implementation of the 15 per cent reduction of the end user electricity tariff as recommended by the government in January 2022,” said Kenya Power in a statement.
A weak shilling increased Kenya Power’s costs of repaying its debts as well as payment of power supplies from power producers. This saw its operating costs rise to Sh21.72 billion from Sh19 billion in the six months to December 2021, while fuel costs rose to Sh15.08 billion from Sh10.87 billion owing to higher fuel prices.
Kenya Power, however, maintained a positive outlook for the second half of the year and has earmarked growth of sales to turn it back into a profit-making position.
“The company projects to improve its business performance in the second half of the financial year by retaining the unwavering focus on increasing electricity sales, enhancing system efficiency and prudently managing its resources,” said the company.