Kenya Power faces tough times ahead as new tariffs delayed

The implementation of new electricity tariffs has been delayed in a move that is set to hurt sales of Kenya Power.

The power distributor had sought to raise the fixed charge and consumption tariff by 21 per cent starting March 1 to cover for rising cost and boost sales.

But the Energy Regulatory Commission (ERC) says the review will take longer as it races to input the views of stakeholders.

“We received a lot of input from various stakeholders on the proposed tariffs and we are still reviewing them,” said Kaburu Mwirichia, the ERC director general.

“We have no exact date for implementation of the tariffs but we will approve them as soon as possible,” he said. The electricity supplier had projected its profit for the year ending June to halve even after the price increase.

Kenya Power recorded a 35.6 per cent growth in net profit to Sh3.1 billion in the six months to December compared to Sh2.3 billion the year before. This came as sales grew to Sh23.3 billion from Sh22.1 billion.
It had projected its profit before tax to drop 53.4 per cent to Sh3.9 billion in the year ending June compared to Sh8.5 billion in the same period last year, according to details on its application for the new tariffs.

(Read: Kenya Power sees fall in profit ahead of tariffs increase)

The lower profit is expected to be driven by high operating costs that would wipe out most of increase in sales, a situation that has been worsened by delay of the new tariffs.

The earnings estimate means investors in the firm may receive lower dividend payout for this financial year. But the company says it expects a rebound to a sustainable profit growth in the medium term.

The firm’s sales were expected to rise 38.9 per cent to Sh62.5 billion in the year to June compared to Sh45 billion a year earlier as transmission and distribution costs, for instance, rise 28.6 per cent to Sh19.4 billion.

Kenya Power, however, expects its performance to recover in subsequent years, driven by the higher electricity tariffs.

The company projects profit before tax to grow 182 per cent from the Sh3.9 billion in the year ending June to Sh11 billion in the same period next year as sales rise 30 per cent to Sh81.7 billion. The firm’s profit before tax is expected to stagnate at the Sh11 billion mark in 2014 and 2015.

Kenya Power plans to further raise the tariffs by nine per cent in July to cover for rising expenses. It has also applied to raise its tariffs in July 2014 and July 2015 in what would further raise electricity prices by four and 11 per cent respectively.

Francis Mwangi, an analyst at Standard Investment Bank, said the tariff review would be positive for Kenya Power but cautioned the gains would depend on its ability to curb system losses.