The government has asked KenGen and other suppliers of Kenya Power not to enforce collection of billions of shillings they are owed by the electricity distributor.
The move comes after the utility firm defaulted on the suppliers as its finances deteriorated further.
The government has asked KenGen and other suppliers of Kenya Power not to enforce collection of billions of shillings they are owed by the electricity distributor, exposing them to cash flow problems and potential losses.
The move comes after the utility firm defaulted on the suppliers as its finances deteriorated further, culminating in a net loss of Sh939.4 million in the year ended June 2020.
KenGen, whose sole customer is Kenya Power, had not been paid Sh23.9 billion by the electricity distributor as of June 2020 and has one of the largest exposures in the debt restructure being championed by the government.
“The State and energy sector public organisations through the Ministry of Energy (MOE), have been requested to ease pressure on supplier dues payable by KPLC i.e. the amount to be settled on a payment plan including a moratorium on dues payable,” Kenya Power says in its latest annual report for the year ended June 2020.
The company also owed private power producers a total of Sh20.5 billion and it was not immediately clear how much of the amount is in default and whether they will also be subject to debt restructure.
The move to delay and stretch out payments to suppliers is the clearest indication of the depth of the company’s financial crisis which will get worse as the debt balloons with ongoing electricity generation and offtake.
KenGen’s interim results shows that its current assets –comprising receivables from Kenya Power— had increased by Sh7.5 billion to Sh41.5 billion in the six months to December.
Both KenGen and Kenya Power have the National Treasury as their majority shareholder at 70 percent and 50.1 percent ownership respectively, giving the government the influence to interfere in their commercial operations.
Besides KenGen, other State-owned suppliers that will now go slow in collecting their dues from Kenya Power include Kenya Electricity Transmission Company (Ketraco) in which the government owns 100 percent stake.
The State intervention may explain why KenGen has scaled down the interest or penalties it charges Kenya Power for default.
The power generator levied interest of only Sh44.7 million on the Sh23.9 billion payment that was overdue by 6.5 months as of June 2020.
This is in contrast to the interest of Sh722.3 million in the previous year when the delayed payment was Sh19.3 billion.
The move to protect the electricity distributor from its creditors raises issues of conflict of interest on the part of the government, with minority investors in KenGen having no say in the decision.
KenGen has long acknowledged the risks in the single buyer model but is helpless in enforcing collection of dues from Kenya Power.
“KenGen and Kenya Power are majority owned and heavily regulated by the Government of Kenya through the Ministry of Energy and Petroleum and the National Treasury,” KenGen says in its annual report.
“In assessing Kenya Power’s credit quality, management has used the Government of Kenya’s sovereign rating probability of default as a proxy to Kenya Power’s and other government entities’ credit rating.”
The Nairobi Securities Exchange-listed firm, however, has no choice but to continue supplying Kenya Power regardless of the power distribution monopoly’s default.
Unlike other troubled State-owned firms like Kenya Airways that have received government bailouts running into billions of shillings, there has been no indication that Kenya Power will receive direct financial assistance from the National Treasury.
The government is, however, seeking to help the electricity distributor by squeezing its commercial partners including financiers and suppliers.
Kenya Power, for instance, is being backed by the government in its quest to lower fixed charges in contracts signed with electricity generating companies.
Capacity charges, paid to power producers and recovered from consumers, are meant to help the companies to earn a return on their capital investment which runs into billions of shillings.
Review of the power purchase agreements (PPAs) comes after it emerged that Kenya Power has signed contracts committing it to take more electricity than it can sell, leaving it to pay onerous capacity charges to energy producers even when their plants are idle.
The company is also seeking to retire expensive bank loans earlier than expected by replacing them with cheaper credit facilities from development finance institutions.
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