Kenya Power, the national utility company, has announced its commitment to settle a substantial debt of Sh19.4 billion owed to the Rural Electrification and Renewable Energy Corporation (REREC) before the close of the current fiscal year.

This debt represents outstanding revenue collected by Kenya Power through the Rural Electrification Programme (REP) levy but has not been fully remitted to REREC.

The REP levy, constituting five per cent of the power consumed, serves to fund rural electrification initiatives.

The International Monetary Fund (IMF) has disclosed that Kenya Power is on track to fulfil its obligation and clear the debt by December, aligning with the action plan endorsed by the Cabinet in May.

This plan aims to restore the utility's medium-term profitability and address its liquidity gaps.

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"In line with the action plan, KPLC will by end-December 2024, settle the outstanding Rural Electrification Schemes (RES) operations and maintenance cost deficit of Sh19.4 billion (assessed as of June 2022)," stated the IMF.

As part of the resolution, Kenya Power and REREC are set to enter into a commercial contract for the future maintenance costs of RES schemes. Kenya Power, responsible for operating and maintaining REREC's network, has also been implementing projects on behalf of the corporation.

However, the debt settlement poses a fresh challenge for Kenya Power, which is already grappling with escalating commercial debts.

In the financial year ending June 2023, the utility's outstanding debt surged by 10.2 per cent to Sh115.4 billion, with a significant portion denominated in foreign currency.

The depreciation of the Kenyan shilling has exerted additional pressure on the company.

The weakened shilling had a profound impact in the financial year 2022/23, leading to Kenya Power incurring a net loss of Sh3.2 billion.

This loss resulted from a substantial forex hit, causing a spike in debt service costs to Sh24.15 billion, up from Sh12.76 billion in the previous year.

To offset on-lent loans, primarily dollar-denominated, Kenya Power is considering transferring some of its assets to the State-owned Kenya Electricity Transmission Company.

For REREC, the settlement of this debt comes as a welcome relief amidst its own financial challenges.

The corporation plays a pivotal role in connecting thousands of customers in rural areas to the electricity grid annually.

Notably, REREC has advocated for the autonomy to bill its customers directly, bypassing the current revenue funnelling through Kenya Power.