Kenya Power to cut jobs in new business review

Loss-making Kenya Power #ticker:KPLC plans to lay off an unspecified number of employees from its 10,481 workforce to cut costs as part of a fresh plan to return to profitability.

The electricity distributor says the move is informed by its current financial challenges which has affected its ability to run sustainably and deliver on its obligations to shareholders and the public.

The company is seeking a technical adviser to implement the restructuring plan, including reduction of debts, electricity theft and strategy for renegotiating bulk power purchases from firms like KenGen #ticker:KEGN.

“Over the last four years, the company has experienced a general decline in its financial situation as depicted by reduced net earnings,” the company says in internal documents seen by Business Daily.

“In a bid to turn around and transform the financial performance of the company; improve efficiency and enhance customer experience, KPLC...[is eyeing] phased reduction in workforce to ensure KPLC remains competitive and provides the right levels of service.”

Kenya Power’s salaries and wages rose 9.1 percent to Sh17.4 billion in the year ended June 2020 when its workforce shrank to 10,481 from 10,914 the year before.

The jump in payroll costs came despite reduced staff numbers indicating that the salaries for those who remained on the payroll rose significantly.

Higher remuneration costs contributed to overall administration expenses rising by Sh5.6 billion to Sh26.7 billion, plunging the company into a Sh939.4 million loss in the review period.

The electricity distributor’s troubles have sucked in key constituents, including suppliers like KenGen, which has not been paid some Sh24 billion.

While the productivity of Kenya Power’s employees has improved over the years, this has not resulted in increased sales and profits.

Each of the utility’s employees served an average 723 customers in the review period –a record— and up from 643 a year earlier.

Sales, however, stagnated at Sh133.2 billion. The company also suffers from poor sales collection, theft of electricity and defaults by big customers, including government ministries.

Kenya Power recently hired eight debt collectors to help recover outstanding bills running into billions of shillings and improve its cash position.

The retrenchment plan is one of the measures being taken to improve the financial position of the company in which the National Treasury has a 50 percent stake.

The government has formed a team to renegotiate fixed charges in power contracts the monopoly signed with electricity generating companies downwards.

Kenya Power also invited local and international banks to offer it new cheaper loans that will be used to retire some of its Sh55 billion worth of commercial debt, potentially reducing its finance costs by hundreds of millions of shillings.

Interested financiers had up to May 17 to submit their documents.

It is seeking to take advantage of ultra-low interest rates in developed markets such as Europe and the United States to refinance its existing debt.

The company is seeking financiers offering both lower rates and longer loan life, adding that the value of the loans that will ultimately be refinanced will depend on the offers received.

The process could take up to six months. Most of Kenya Power’s current commercial loans are denominated in US dollars and have interest rates ranging from 2.5 percent to 5.75 percent plus a Libor margin.

Libor, a global benchmark, is an acronym for London Inter-bank Offered Rate (Libor).

Some of the loans have fixed interest rates, meaning the utility has not benefited from the recent drop in the base rate to below one percent.

Kenya Power’s current lenders include Standard Chartered Plc whose total outstanding loans as of June 2020 was Sh39.3 billion, Rand Merchant Bank (Sh2.4 billion) and Equity Bank (Sh4.9 billion).

The electricity distributor says it is willing to work with both local and international lenders in the balance sheet restructure.

Kenya Power also wants to reduce its technical and commercial losses to between 10 to 12 percent, by installing advanced metering infrastructure for consumers to improve billing and curb the menace of power theft.

Kenya Power suffered Sh15.99 billion worth of system losses beyond what it is allowed to recover from consumers in the year ended June 2020, shining a spotlight on the burden of the expanded network and customer base on the utility’s revenue.

The firm’s system losses rose 23.46 percent in the period, well beyond the 14.9 percent that the regulator had allowed it to pass on to customer bills in 12 months.

Kenya Power also wants to reduce collection losses by between two to three percent starting with the largest debtors and the public sector.