Editorials

Let Kenya Power meet its debt obligations to KenGen

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Technicians repair power lines. FILE PHOTO | NMG

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Summary

  • What the government ought to do is give Kenya Power a grace period to pay its debt as it seeks to get out of losses amounting to Sh7.04 billion, according to its June 2020 financial report.
  • The company also owes private power producers a total of Sh20.5 billion and it is not clear how much of that amount is in default.
  • It also owes Kenya Electricity Transmission Company (Ketraco), which has also been advised to go slow on pursuing its debt.

The government must find a middle ground in the KenGen #ticker:KEGN and Kenya Power #ticker:KPLC debt standoff. Asking KenGen and other suppliers of Kenya Power to stop pursuing collection of the billions of shillings owed by the electricity distributor exposes the companies to cash flow problems and potential losses.

What the government ought to do is give Kenya Power a grace period to pay its debt as it seeks to get out of losses amounting to Sh7.04 billion, according to its June 2020 financial report.

The company also owes private power producers a total of Sh20.5 billion and it is not clear how much of that amount is in default. It also owes Kenya Electricity Transmission Company (Ketraco), which has also been advised to go slow on pursuing its debt.

Such short-term fixes will continue encouraging a bad culture of unaccountability in government agencies. The government has an opportunity to start reforms at Kenya Power, which in the long-term will help steer it back to profitability, ensure performance contracts are enforced and make the agency more accountable, customer-focused and responsive to stakeholder needs.

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 huge debt is slowing down KenGen's expansion plans. Already KenGen has scaled down the interest or penalties it charges Kenya Power for default, following an intervention by the State. The power generator had levied interest of only Sh44.7 million on the Sh23.9 billion payment that was overdue by six and a half months as of June 2020.

Although Kenya Power cites costly wholesale electricity purchases from KenGen and higher financing costs that offset modest sales for its losses, the electricity distributor must seal loopholes that facilitate financial haemorrhage, improve its revenue collection and service delivery. It could start by installing smart meters for all its customers to improve billing and curb power theft.

Kenya Power must meet its debt obligations, lest it drags stable companies into insolvency.