Banks lose out as Kenya Power gets Sh45bn to pay loans
Energy Cabinet Secretary Davis Chirchir. The ministry is embarking in a raft of measures to lower the cost of energy. FILE PHOTO | EVANS HABIL |
What you need to know:
Six commercial banks that have lent billions of shilling to Kenya Power are set to be major losers after the government secured a Sh45 billion loan from the World Bank to buy them out.
The power distributor is currently servicing loans worth more than Sh70 billion.
World Bank will charge Kenya Power an interest rate of about two per cent per annum, a cost that is significantly lower than the commercial rates charged by banks.
Six commercial banks that have lent billions of shillings to Kenya Power are set to be major losers after the government secured a Sh45 billion loan from the World Bank to buy them out.
The move, the government says, is aimed at lowering interest on loans that Kenya Power has been paying to the lenders and in turn avoid raising electricity bills.
The power distributor is currently servicing loans worth more than Sh70 billion.
“We are getting a $500 million loan (Sh45 billion) from the World Bank to clear loans held by Kenya Power so that we can lower the interest cost,” said Energy secretary Davis Chirchir in an interview.
Kenya Power owes Equity Sh7.44 billion, CBA Sh2.75 billion, Standard Chartered Sh6.65 billion, Co-operative Bank Sh4.5 billion and Barclays Sh6 billion. South Africa’s Fast Rand Bank is owed Sh13.54 billion.
The utility firm borrowed an additional Sh10.35 billion from Standard Chartered after the June annual report on which the above figures are based, raising the total owed to the lender to Sh17 billion.
Mr Chirchir said reducing the interest rate on these loans is one among a raft of measures the ministry will embark on to lower the cost of energy. He added that the saved costs will amount to about Sh1.5 billion annually.
It is understood that the World Bank will charge Kenya Power an interest rate of about two per cent per annum, a cost that is significantly lower than the commercial rates charged by banks.
Kenya Power increased its borrowings from Sh51 billion in 2013 to Sh70 billion last year.
The loan maturity period ranges from less than 12 months to after five years.
Among the new loans by the power distributor are Sh4.5 billion and Sh6 billion short-term loans from Co-operative Bank and Barclays secured in 2014. CBA also extended a Sh2.75 billion medium-term loan to the power company last year.
The cost of energy came down in the last four months of last year, attributed to the injection of an additional 280MW of geothermal power to the national grid.
The notable reduction in price was on the fuel cost charge, which is the main component in electricity bills for both domestic and commercial consumers.
The fuel cost charge dropped from Sh7.22 per unit in August last year to Sh2.87 by the close of the year, resulting in 27 and 26 per cent drop in bills for commercial and domestic customers respectively.
Apart from lowering the fuel cost charge through geothermal energy production and the concession loan, the government also promises to undertake measures aimed at lowering management costs of companies involved in the energy generation and distribution chain.
Another avenue the government is exploring to lower power costs is use of solar energy, which the minister says will be scaled-up soon, though he didn’t offer a timeline.
“We promise that we will work on every component of the bill (electricity) to reduce the cost of energy,” said Mr Chirchir.
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