Economy

Uhuru tariff cut dims Kenya Power revenue by Sh4.8bn

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Benard Ngugi, new Kenya Power CEO. PHOTO | DIANA NGILA | NMG

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Summary

  • Kenya Power chairman Mahboub Mohamed said the revenue drop from the unplanned tariff review forced the company to take up short-term loans to cover for the resultant financial hole.
  • The Energy and Petroleum Regulatory Authority (Epra) in November 2018 reduced the retail prices of electricity after an order from President Uhuru Kenyatta.
  • The utility firm is currently pushing for an upward review of the tariffs to reverse its falling earnings, which have seen it issue a profit warning this year — the third one in a row.

  • The profit alert means the company’s net earnings will decline by at least 25 percent of last year’s Sh262 million — which was the worst in 16 years.

Electricity price cuts ordered by President Uhuru Kenyatta two years ago cost Kenya Power #ticker:KPLC Sh4.8 billion in revenue for the financial year ended June 2019, new disclosures by the firm show.

Kenya Power chairman Mahboub Mohamed said the revenue drop from the unplanned tariff review forced the company to take up short-term loans to cover for the resultant financial hole.

“The review dimmed the company’s revenue prospects by Sh4.8 billion of the total projected revenues in the tariff application, thereby necessitating stop-gap measures in short-term borrowings to enable the company meet its financial obligations,” said Mr Mohamed.

The Energy and Petroleum Regulatory Authority (Epra) in November 2018 reduced the retail prices of electricity after an order from President Uhuru Kenyatta in the wake of widespread complaints from domestic customers and small businesses over a costly tariff introduced earlier in July.

The July tariff adjustment almost doubled the monthly bills for higher-income households, triggering complaints that forced Epra to cut the tariff from November 2018 to July 2019 to Sh10 per kilowatt hour from Sh15.80 for customers who use below 100 kilowatts per month.

Hit by the tariff cut, Kenya Power took up short-term loan facilities—increasing its finance costs by Sh3.27 billion and contributing to the company’s worst financial performance in 16 years. “We operate in a regulated electricity pricing environment which has a major impact on our revenue margins,” said Mr Mohamed.

The firm’s net profit plunged 92 percent from Sh3.26 billion to Sh262 million in the year to June 2019— the lowest since it returned to profitability in 2004 after the 2003 loss of Sh2.89 billion. Kenya Power had before the tariff cut negotiated a rise spanning two years only to see it last three months.

The utility firm is currently pushing for an upward review of the tariffs to reverse its falling earnings, which have seen it issue a profit warning this year — the third one in a row.

The profit alert means the company’s net earnings will decline by at least 25 percent of last year’s Sh262 million — which was the worst in 16 years.

Kenya Power managing director Bernard Ngugi said the firm would continue to “pursue a cost-reflective and sustainable tariff.” The power utility argues that high tariffs would enable it to cover the costs of capital-intensive construction and maintenance of its nationwide distribution system.

The firm spends billions of shillings annually on power lines, transformers and labour operations, with customer numbers having grown to 7.067 million. Its transmission and distribution costs increased 14.1 percent to Sh39.6 billion in the year ended June compared to Sh34.7 billion the year before.

The law provides that electricity tariffs be reviewed every three years, but the timetable has been erratic as the regulator has often delayed or amended the rates.