The energy regulator has opposed Kenya Power’s plans to bill some electricity consumers in dollars amid concerns the utility will be compensated twice for exchange rate losses.
The Energy and Petroleum Regulatory Authority (Epra) on Tuesday maintained that Kenya Power is fully compensated for foreign exchange losses in current bills.
The compensation is done monthly on consumer bills through the foreign exchange surcharge—which reimburses the utility for fluctuations of hard currencies for spending denominated in dollars and euros such as loan repayments.
Epra was reacting to Kenya Power’s disclosures that it wants consumers whose revenues are in dollars and euros to pay it using foreign currencies.
The utility hopes the settlement of bills in hard currencies will shield it from foreign exchange losses for expenses such as loan repayments that are often dollar-denominated following the depreciating shilling.
“You can’t have your cake and eat it, that is collect in dollars and have the forex adjustments as well. It has to be one,” Daniel Kiptoo, Epra director-general, told the Business Daily.
“The proposal is their request to solve a greater macro problem, which may not be necessary if the interventions planned by government work.”
A wobbly shilling saw the foreign exchange fluctuation adjustment rise to Sh1.85 per kilowatt hour (kWh) in February electricity bills, from Sh0.73 in August last year.
Consumers paid Sh7.32 billion to Kenya Power as foreign exchange losses reimbursement in the year to June last year, up from Sh923 million in a similar period in 2020, underlining the burden of the weakening shilling on electricity users.
This means that Kenya’s electricity bills are already dollar-denominated.
The utility firm on Monday disclosed that the continued weakening of the shilling against major currencies is hurting its financial performance through exchange rate losses.
The emerging preference for dollar payments points to the increased dollarisation of the economy, with the shilling weakening against the dollar by 24 percent since March 2020 to settle at Sh126.85.
Kenya Power is seeking to solve many problems by seeking customers to settle bills in dollars or euros.
The first is to cushion itself from the weakening shilling in an environment where the spread between the bank and the official rate is widening.
While the Central Bank of Kenya (CBK) is quoting the official average exchange rate at Sh126.85 a dollar, banks are selling the greenback at Sh137.20 and buying the US currency at Sh126.50.
This means that firms like Kenya Power have to commit more shillings in seeking foreign currencies to settle their obligations like loan repayments and paying generators for wholesale electricity.
Secondly, the utility has struggled to access dollars in a market where manufacturers have repeatedly raised the alarm over the scarcity of the US currency.
But the CBK governor, Patrick Njoroge, has always insisted that Kenya has sufficient foreign currency to meet demand, brushing off manufacturers who warned a shortage of dollars may create “a parallel shadow market”.
The shilling is expected to weaken further, hurt by increased demand for dollars from the energy and manufacturing sectors.
“We see the shilling remaining under a lot of pressure. There is a lot of demand coming from across all sectors, and mainly from the energy and manufacturing (sectors),” a trader at one commercial bank said.
Kenya Power reckons that the forecast state of the country’s forex market will leave the company exposed, especially when servicing its dollar-denominated obligations.
The company saw its finance costs, which are related to loan repayments, increase to Sh7.39 billion in the six months to December compared to Sh6.8 billion in a similar period a year earlier.
It blamed the weakening of the shilling for the increased cost.
Total borrowings by Kenya Power closed the review period at Sh103.8 billion, falling slightly from Sh105.97 billion.
About Sh17.1 billion of the debt is due to mature before the end of June, with a further Sh12.3 billion falling due in the next 12 to 24 months.
The bulk of Kenya Power’s debt is denominated in US dollars at Sh76.2 billion while shilling-based loans stand at Sh17.5 billion, highlighting the impact of the stronger US currency on the utility’s finances.
Those in euros stood at Sh10.1 billion. Kenya Power posted a Sh1.1 billion net loss for the six months that ended December, marking the first half-year loss in at least 10 years, blamed on the weak shilling and the 15 percent tariff cut that was effected in January last year.
It posted a net profit of Sh3.82 billion in a similar period a year earlier.
“This drop is attributable to increased foreign exchange losses, and the implementation of the 15 percent reduction of the end-user electricity tariff as recommended by the government in January 2022,” Kenya Power said on Monday.