Kenya Power is set to shake up its foreign exchange-backed transactions including purchase and loan agreements amid swelling financial losses due to volatility of the shilling.
The utility firm is recruiting an agency to help manage its increasing currency risks.
“Conduct an exhaustive analysis of existing foreign exchange exposure and possible risk mitigation approaches. Review of purchase agreements, loan agreements, and other transactions involving foreign currencies: identification of sources of foreign exchange risk and its effect on financial statements,” Kenya Power said in a call for bids.
Kenya Power took a Sh23 billion hit for the financial year that ended June 2023, blaming it mainly on forex pain when paying lenders and electricity suppliers in foreign currencies.
The utility had combined obligations of about $1 billion (Sh160.75 billion) at the end of June 2023, consisting of 70 percent forex-denominated debt and 30 percent power purchase obligation, leading to a Sh23 billion forex fluctuation impact.
The power distributor posted an after-tax loss of Sh3.19 billion in the year to June 2023 compared with a net profit of Sh3.26 billion a year earlier, with the primary driver of the performance being an 89 percent surge in finance costs to Sh24.15 billion from Sh12.76 billion.
It saw a Sh16.87 billion revaluation on loans and a Sh5.32 billion revaluation on power purchases owing to the weakening of the shilling, but a misaligned exchange rate by the Energy and Petroleum Regulatory Authority (Epra) meant not all the amount eligible to be passed to consumers did so.
Kenya Power blamed Epra for the Sh23 billion forex loss it incurred in the year ended June 2023 for using the Central Bank of Kenya's foreign exchange rates instead of those quoted in actual market transactions.
The mean exchange rate of the shilling against the dollar, as given by the CBK, has continued to show a relatively stronger position for the local currency against the market rate.
Kenya Power has recently initiated several steps to limit its forex exposure, including demanding that all tenders that can be sourced locally be quoted in the shilling.
Further, the company is looking to offset its on-lent loans, which are dollar-denominated, by transferring some of its assets to the State-owned Kenya Electricity Transmission Company.
Kenya Power has also been angling for government approval to bill some of its large customers such as manufacturers in foreign currency. Commercial customers contribute nearly 70 percent of the firm’s revenues.
