Kenya Power in Sh32bn loan deal after tariff boost

The recent review of electricity tariffs has helped Kenya Power to secure Sh32 billion ($370 million) loans to be used for upgrading and expansion of its transmission grid.

Acting Kenya Power managing director Ben Chumo said in an interview that the recent tariff review had boosted the company’s credit rating with lenders, helping to unlock funding.

“The lenders have gained confidence in us (following the tariff review). The loan is from both local and international borrowing, with terms of between seven and 11 years at reasonable rates. Now we might not go the way of a Eurobond or corporate bond,” said Dr Chumo, who however declined to reveal the identity of the lenders until deals are finalised.

The funding means Kenya Power is likely to shelve, or at least postpone, issuing a corporate bond through which it had planned to raise at least Sh26 billion.

The company had said in November that it would consider a variety of funding options, including concessional loans, corporate bonds and a Eurobond when raising funds for improvement of its power transmission network.

The company estimates that it needs Sh156 billion ($1.83 billion) to improve reliability of power supply, reduce system losses and create capacity for new power connections over the next five years.

Dr Chumo said that the Ministry of Energy had given a go-ahead for the funding, which is expected to be finalised in February after approvals from the Treasury.

Kenya Power reported borrowings of Sh39.9 billion in its books as at the end of June 2013 from various local and international lenders.

The company’s books show a Sh7.7 billion 20-year loan from the government and the International Development Agency (IDA), lent at 4.5 per cent.

Other international lenders listed by Kenya Power include the European Investment Bank, the Nordic Development Fund, Agence Francaise de Development (AFD), First Rand Bank and Citi Bank.

The list of creditors includes Equity Bank, which has lent a medium term Sh4.4 billion and a Sh4 billion short term loan and Standard Chartered Bank Sh9.3 billion.

The power company in November got a boost after the Energy Regulatory Commission (ERC) gave the go-ahead to a tariff review application, which Kenya Power had maintained was necessary if it was to continue meeting its power purchase, grid maintenance and expansion obligations.

Under the terms of the tariff approved by ERC and which became effective last month, domestic power users pay Sh3.93 for the first 50 units of electricity consumed or nearly double the previous rate of two shillings.

For those consuming between 50 units and 1,500 units, the cost per unit went up by Sh2.20 to Sh10.3, while those consuming higher amounts pay Sh20.5 per kilowatt hour (Kwh) up from Sh18.57.

The regulator, however, left the fixed charge — paid monthly regardless of consumption — at Sh120 for domestic customers.

Transformers

“Kenya Power will benefit from the tariff review though they did not get everything they had asked for in their application,” said Cyprian Nyakundi, a manager at ERC, in November when the new tariffs were announced.

Kenya Power intends to use the Sh32 billion from the loans to address shortcomings in the existing grid network, which Dr Chumo said needs to be readied for the injection of up to 5000MW of power by 2016 —under the government’s power production scale up programme.

Part of the work planned on the grid include bundling of overhead cables, laying of underground cables, replacement of wooden poles with concrete ones, and changing of transformers.

“We have identified 100 major industrial customers such as Bamburi and Mabati Rolling Mills who we shall be giving dedicated power lines as part of these improvements,” said Dr Chumo.