Kenya Power, the national utility firm, is grappling with a staggering Sh23 billion loss for the year ending June 2023, attributing the financial setback to the Energy and Petroleum Regulatory Authority (EPRA) for utilizing the Central Bank of Kenya's (CBK) foreign exchange rates rather than market transactions rates when settling debts with lenders and electricity suppliers in foreign currencies.
Auditor General Nancy Gathungu reveals that Kenya Power incurs significant losses due to the disparity between the CBK rate used for passing exchange rate fluctuation costs to consumers and the prevailing market rate employed for payments to power producers.
This inconsistency has cost the utility company billions of shillings.
As of June 2023, Kenya Power faced combined obligations of approximately $1 billion (Sh153 billion), with 70 per cent attributed to forex-denominated debt and 30 per cent to power purchase obligations, resulting in a substantial Sh23 billion forex exchange fluctuation impact.
"The company currently bears the difference between the actual forex rate used for payments and the CBK mean rate used by the regulator [Energy and Petroleum Regulatory Authority] for the pass-through costs," states the Auditor-General report.
"There is no forex compensation mechanism to ensure that the market rate applied at the time of making payments is mitigated against the impact of the forex rate fluctuation."
Despite a Sh16.87 billion revaluation on loans and a Sh5.32 billion revaluation on power purchase obligations, Kenya Power's misaligned exchange rate prevented the full amount eligible to be passed to consumers.
The CBK's mean exchange rate for the shilling against the dollar consistently appears stronger than the market rate. For instance, CBK quoted the buying and selling rates at 153.1 units and 153.3 units against the dollar, while banks like NCBA and Satellite Forex Bureau quoted weaker positions at 152.50/157.5 and 155/157, respectively.
Kenya Power, witnessing a significant financial downturn, reported a loss after tax of Sh3.19 billion in the year to June, a stark contrast to the Sh3.26 billion net profit of the previous year.
The primary factor contributing to this performance shift was an 89 per cent surge in finance costs, rising from Sh12.76 billion to Sh24.15 billion.
To rectify the situation, the Auditor-General recommends that Kenya Power reviews its approach to power purchase contracts to mitigate substantial foreign exchange exposure, considering its entire revenue is in local currency.
Gathungu emphasizes engaging existing power generators for sustainable currency-related solutions to resolve the accumulation of overdue obligations.