Markets & Finance

Kenya Power share price falls 4.3pc after tariff order

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An electrician checks power transmission lines. Kenya Power had planned to increase tariffs. FILE

Kenya Power’s share price dropped 4.3 per cent in Friday’s trading at the stock exchange as investors weighed news of an order by Deputy President William Ruto halting planned increases in electricity tariffs.

The share closed the week at Sh17.95 from Thursday’s average of Sh18.75, losing Sh1.6 billion of market capitalisation to settle at Sh35 billion.

At one point the stock traded 7.1 per cent down at Sh17.50 weighed down by increased investor supply, before recovering later in the day.

“The concern is that they have entered into power buying agreements at certain prices, especially considering new power is expensive when compared to those power purchase deals they did in the past, such as before the period of high inflationary pressure in 2011,” said Suntra Investment Bank research analyst Johnson Nderi.

Mr Ruto on Friday ordered a stop to a planned raise of electricity tariffs following Kenya Power’s application for price review to the Energy Regulatory Commission (ERC). The move is expected to put a strain on Kenya Power’s profit margins.

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

Kenya Power is allowed to file an application for tariff increases every three years to cover for increases in inflation, inputs and new power purchase agreements signed with electricity generators.

Mr Nderi said the government’s intervention had left the power company in an awkward position, given that they had done their project plans while factoring in the increased revenue from the new tariffs.

Other analysts warned that the stock would come under pressure, due to the expected impact on earnings going forward as a result of the government decision.

Mr Ruto ordered the stop on tariff reviews last week when he met top officials from the Treasury, Ministry of Energy, the ERC and Kenya Power.

“We expect pressure on the stock with sell-offs,” said stockbroker ABC Capital in a note to clients.

Power producer KenGen, which is Kenya Power’s biggest supplier of electricity, also saw its share price drop in Friday’s trading. Its shares which had traded Thursday unchanged at Sh15.05, dropped 3.6 per cent to close at Sh14.50 on Friday.

Kenya Power had argued that failure to approve the tariff increase would hurt its capacity to maintain, upgrade electricity distribution, on which it is planning to spend Sh80 billion in the medium term.

In its application to the ERC, Kenya Power had pointed to weak performance in the second half of the financial year to June 2013.

The company indicated that it expected a 53.4 per cent fall to Sh3.9 billion in profit before tax in the 2013 financial year, as operating costs raced ahead of revenue growth.

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