The Treasury has cut Kenya Power bailout this financial year by nearly three-quarters on the back of improving revenue and the expiry of the 15 per cent tariff cut that will ease liquidity challenges, disclosures to the International Monetary Fund show.
The State-controlled utility will get Sh2.35 billion in support from taxpayers to partly offset the liquidity gap emanating from January 2022 electricity tariff reduction compared with Sh9.05 billion in the year that ended last June.
The near-monopoly electricity distributor estimates annual loss as a result of a tariff cut ordered by the previous regime of President Uhuru Kenyatta to ease living costs for households and businesses at Sh26.3 billion, injuring its cash flow position.
The 15 per cent drop in power tariff ends this month, portending higher bills from January.
“The tariff cut is set to expire at the end of December 2022, and if implemented, KPLC’s liquidity situation will drastically improve to a point where GoK support may no longer be necessary,” Treasury Cabinet secretary Njuguna Ndung’u wrote in a memorandum to the IMF.
The Treasury further sees cost-cutting measures such as the renegotiation of Power Purchase Agreements (PPAs) with independent power producers (IPPs), further lowering the firm’s fiscal risks and enhancing its future sustainability.
“Going forward, thanks to cost-saving measures, the necessary government support will be lower at Sh2.35 billion in FY2022/23,” Prof Ndung’u wrote. “KPLC’s working capital will remain in deficit in the medium term, which needs to be further addressed by specific cost-saving measures as part of a turnaround strategy.”
Kenya Power's negative working capital position improved to Sh47.8 billion in the year ended June 2022 from Sh69 billion a year ago.
As a result of improved revenue, the firm paid some of its overdue bills and invoices, including all bank overdraft accounts in the year under review.
“The updated 2022 financial evaluation reveals some success in reducing operating costs in FY2021/22, yet large sums remain outstanding on payables (liabilities) and receivables (assets), including from GoK for the rural electrification scheme,” the Treasury chief says.
“Despite the improvements, the company’s ability to meet its current liabilities with its current assets is substantially below par, resulting in an estimated liquidity gap of Sh69 billion (0.5 per cent of GDP, down from one per cent in 2021).”
The 15 per cent cut implemented in January saw the cost of buying 200 units of electricity drop from Sh5,185 in December to Sh4,373 in January.
Those consuming 50 units a month and who are subsidised by the State paid Sh796 in January from Sh945 in December, representing a 15.7 per cent decline.
President William Ruto’s administration in September restored monthly adjustments in passthrough of variable costs to electricity consumers in line with his policy shift from costly consumption subsidies.
“Considering the fiscal risks posed by KPLC, by end-December 2022, we will submit to the relevant Cabinet Sub-Committee an action plan to restore KPLC’s medium-term profitability and cover fully any financing gaps (pre-existing and new) through end-20230,” Prof Ndung’u told the IMF.
“This plan will be jointly prepared by the National Treasury and the Ministry of Energy and informed by the findings of the Presidential Taskforce report and the updated KPLC’s 2022 financial evaluations.”