Kenya Power revamp plan feasibleFriday May 26 2023
Initially, I was inclined to treat the Kenya Power balance sheet restructuring action plan the Cabinet has come up with as mere financial engineering gimmicks reminiscent of the games played by investment bankers.
But on closer examination of the plan, I see a very good first step at cleaning up the balance sheet of the troubled utility. In brief, the plan is in three parts.
First, KPLC sheds the entire transmission assets to the State-owned Kenya Electricity Transmission Company (Ketraco) at a market value of Sh20 billion.
The second part: the government pays to KPLC Sh19.4 billion owed to it by the State-owned Rural Electrification scheme. This will be extra cash in Kenya Power’s balance sheet.
In the third part of the triple play, the shareholder addresses the thorny issue of on-lent loans to the balance sheet which are a major millstone on the company’s neck.
These loans are large and a big burden to the company in terms of high interest costs.
When a listed company has large shareholder loans on its balance sheet, the market tends to discount the value of the stock.
In other words, the innovation by the shareholder here is as follows: utilise the on lent loans due from Kenya Power to pay for the transmission and distribution assets being transferred to Ketraco.
The company’s profitability was consistently eroding because-first- the balance sheet was heavy with non-revenue – generating assets- and secondly- Kenya power has been groaning on the sheer weight of mountains of debt milling around its net. The shareholder had to address non-earning assets and the debts.
Still, whether the experiment will work remains to be seen.
First, with government finances still in the deep red, the National Treasury will struggle to raise the billions to pump into Kenya Power.
Secondly, success will depend on progress in implementing a key part turnaround strategy the Cabinet has come up with-namely reduction of power losses.
According to a recent Cabinet memo on the subject matter, the plan is to reduce system losses from the current level of 22.4 percent to a level of 14. 4 percent.
This is broken down into reduction of five percent on commercial losses, two percent on technical losses and one percent in transmission losses.
Yet to succeed in bringing down transmission losses, Kenya Power will have to overcome longstanding vulnerabilities in the supply chains of critical material- meters, transformers and poles.
Indeed, procurement of meters and transformers have in recent years been riddled with accusations of corruption.
Over the years, Kenya Power had totally lost control of management of critical stocks and inventory.
An internal audit conducted in July 2021 could not even reconcile rudimentary data on the accurate number of meters purchased, the number of installed meters- and the metres that despite being registered as installed, were found not to be vending.
Many ex-Kenya Power staffers who had been engaged by the company as contractors were found to be holding huge stockpiles of pre-paid meters, which they were selling directly to post-paid customers.
It remains to be seen whether the influential elite in President William Ruto’s administration will accept the replacement of some of the current directors with board members. Boards of strategic parastatals are usually filled by cronies of powerful politicians and serve in the position as long as your political sponsor continues to wield power.
The idea of guaranteeing board positions to minority shareholders is fresh indeed. All said and done, this new turnaround plan makes a great deal of sense to me.
The writer is a former managing editor of The East African Newspaper.