US energy firm Ormat Technology has raised concern about declining payments for supplies sold to the Kenya Power and Lighting Company (KPLC) revealing that the utility owes it some Sh1.6 billion ($ 11.8 million).
The Naivasha-based geothermal power producer said that KPLC owed it Sh3.67 billion ($ 27 million) by the end of December but only made payments totaling Sh2.06 billion ($ 15.2 million) in January and February.
“In the electricity segment, we are exposed to the credit and financial condition of KPLC that buys the power generated from our Olkaria III complex in Kenya,” Ormat said.
“In 2022, KPLC accounted for 14.4 percent of our total revenues. There has been a deterioration in the collection from KPLC that became slower than in the past, and as of December 31, 2022, the amount overdue from KPLC in Kenya was $27million(Sh3.67billion) of which $15.2million(Sh2.06billion) was paid in January and February of 2023” it further said in a disclosure.
The payments in February and March mean that KPLC still owes Sh1.6 billion (411.8 million) with the US firm warning that any change in utility firm’s financial condition may adversely affect it.
Kenya Power sunk into a Sh1.1 billion net loss for the half year that ended December—a development it blamed on the weak shilling and the 15 percent electricity tariff cut that was effected in January last year as a State directive.
Financial results showed KPLC’s performance dipped from the Sh3.82 billion net profit that had been posted in the preceding similar period.
“This drop is attributable to increased foreign exchange losses, and the implementation of the 15 percent reduction of the end user electricity tariff as recommended by the Government in January 2022,” Kenya Power said, noting that the tariff reduction saw the basic electricity revenue drop by Sh6.69 billion.
Kenya Power’s full-year earnings look set to be depressed, given that the subsidy on electricity tariffs was in place up to December before it ended.
Revenue from pacts with customers fell from Sh83.57 billion to Sh86.67 billion, while the cost of sales —linked to units of electricity purchased and from power distributors and sold to customers— increased from Sh55.3 billion to Sh66.1 billion.
The rise in the cost of sales amidst a drop in revenue saw the gross margin fall by 27 percent to Sh20.6 billion from Sh28.3 billion. Kenya Power says the dip in revenue was despite a four percent growth in electricity sales to 4,764 gigawatt hours for the period.
Ormat said its total revenues from power sales in Kenya totaled Sh14.39 billion in 2022, a slight rise from Sh13.98 billion the previous year. The company sells the electricity produced by the power plants in Naivasha to Kenya Power under a 20-year PPA ending between 2033 and 2036.
The US firm operates within the Naivasha-based Olkaria III complex through its wholly-owned subsidiary, OrPower 4, Inc., where it has an output capacity of 150 megawatts(MW)of geothermal power.
The US firm however said a low-performing wellfield has limited its generation output in Olkaria to just 125MW although a planned drilling campaign on the location would boost the production volumes this year.
“At our Olkaria power plant in Kenya, the lower performance of the wellfield limited the generation of the power plant that is currently generating 125MW. We are performing a drilling campaign and expected to increase plant capacity in 2023” Ormat said.