Kenya Power is blaming the Energy and Petroleum Regulatory Authority (Epra) for the Sh23 billion loss it incurred in the year ended June for using the Central Bank of Kenya's foreign exchange rates instead of those quoted in actual market transactions when paying its lenders and electricity suppliers in foreign currencies.
Auditor General Nancy Gathungu says the firm uses the CBK rate when passing the exchange rate fluctuation costs to consumers, but pays power producers at the prevailing market rate, with the difference in the two rates costing it billions of shillings.
Kenya Power had combined obligations of about $1 billion (Sh153 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 exchange fluctuation impact.
“The company currently bears the difference between the actual forex rate used for payments and the CBK mean rate used by the regulator [Energy and Petroleum Regulatory Authority] for the pass-through costs,” says the Auditor-General report.
“There is no forex compensation mechanism to ensure that the market rate applied at the time of making payments is mitigated against the impact of the forex rate fluctuation.”
The utility firm saw a Sh16.87 billion revaluation on loans and a Sh5.32 billion revaluation on power purchase obligations owing to the weakening of the shilling, but the misaligned exchange rate meant that not all the amount eligible to be passed to consumers did so.
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 when compared with the market rate.
For instance, currently, CBK was quoting the buying and selling rate of the shilling at 153.1 units and 153.3 units respectively against the dollar on Friday, while banks were quoting a weaker position.
NCBA, for example, had a buying rate of 152.50 and a selling rate of 157.5. Satellite Forex Bureau was buying a dollar at 155 and selling at 157.
Kenya Power posted a loss after tax of Sh3.19 billion in the year to June 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.
Kenya Power passes to customers a forex adjustment charge to reflect the fluctuation of hard currencies against the Kenya Shilling for expenditure related to the power sector such as project loan repayments.
The Auditor-General says Kenya Power should review its approach to power purchase contracts to mitigate against the significant foreign exchange exposure given that its entire revenue is in local currency.
“This should include engaging existing power generators for sustainable currency-related solutions that will resolve the accumulation of overdue obligations,” says Ms Gathungu in her report.