Kenya Power, the country’s power distribution company, is actively seeking the assistance of the government to convert a portion of its dollar-denominated debt into Kenyan shillings. This strategic move is aimed at mitigating the adverse impact of the local currency’s depreciation against the US dollar. Joseph Siror, the Managing Director of Kenya Power, revealed that as much as 30 percent of its foreign currency loan portfolio could be considered for redenomination if negotiations with the government prove fruitful.
Siror emphasized the ongoing discussions with the National Treasury, particularly focusing on historical debts. He highlighted the company’s liquidity in Kenyan shillings and the challenge posed by foreign exchange debt. Converting a portion of the dollar-denominated debt into local currency would help offset the currency risk.
The Kenyan shilling has witnessed an 18 percent depreciation against the US dollar since the beginning of the year, reaching a rate of 144.5 against the dollar as of August 23.
Kenya Power’s latest annual report indicates a total borrowing of Ksh 103.8 billion in the fiscal year ending June 2022. Among this, Ksh 76.2 billion was in US dollars, forming a significant portion of the debt. The remaining debt was divided between the Kenyan shilling and the euro at Ksh 17.5 billion and Ksh 10.1 billion, respectively.
In the first half of the fiscal year ending December 2022, Kenya Power reported a loss of Ksh 1.1 billion. This was attributed to Sh7.4 billion in debt service obligations, which offset the company’s operating profit of Ksh 5.7 billion.
Kenya Power is also pursuing discussions with independent power producers (IPPs) to consider redenominating contracts that mandate payment in US dollars to Kenyan shillings. The utility has managed to reach agreements with some IPPs for payment in the local currency, utilizing prevailing exchange rates.
The power distributor’s operating costs surged from Ksh 19.0 billion to Ksh 21.7 billion in the first half of 2022 due to increased foreign exchange losses stemming from the devaluation of the Kenyan shilling against foreign currencies.
Additionally, Kenya Power is exploring avenues for liquidity support, including engagement with the World Bank, to mitigate potential foreign exchange-related shocks. Reforms within Kenya Power are part of the broader agenda tied to the $1.0 billion loan secured by the government from the World Bank in May.