Kenya Power and Ketraco in $460m asset-swap deal
Sunday November 26 2023
A Kenya Power’s live line team during trimming of tree branches at a street in Uasin Gishu County, Kenya on November 06, 2023. PHOTO | NMG
Kenya Power is looking to transfer its power transmission assets valued at about Ksh70 billion ($460.52 million) to the Kenya Electricity Transmission Company (Ketraco), as part of an ambitious balance sheet-restructuring plan aimed at improving the utility’s wobbling cash-flow position.
Chief Executive Joseph Siror told The EastAfrican that the balance sheet clean-up will address the firm’s persistent negative working capital position, mitigate forex exposure and contain the mounting finance costs related to the depreciation of the local currency against the dollar and the euro.
Under the plan, Kenya Power, which is 50.1 percent owned by the state, will transfer transmission assets valued at over $460.52 million to Ketraco, which is 100 percent owned by the government.
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This amount is equivalent to the value of the loans that the government has negotiated and taken on behalf of the listed company, and which are partly blamed for its financial woes.
Kenya Power, which is operating on a negative working capital position of Ksh51.23 billion ($339.27 million), posted a net loss of Ksh3.19 billion ($21.12 million) in the financial year ended June 30, 2023, from Ksh3.26 billion ($21.58 million) last year.
The transfer of the lines to Ketraco was one of the recommendations by the Presidential Taskforce on Review of Power Purchase Agreements, which submitted its report to former president Uhuru Kenyatta in September 2021.
In October, Kenya Power issued an Expression of Interest for a consultant to evaluate the market value of the assets before they are sold to Ketraco.
This week, Dr Siror said the value of the assets to be transferred to Ketraco would be equivalent to the amount of loans that the government has taken on behalf of Kenya Power and which are sitting on the company’s books.
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These on-lent loans, according to the company’s annual report (2022), stood at Ksh64.11 billion ($421.77 million) as at June 2022, with a huge chunk of it — estimated at Ksh30.85 billion ($202.96 million) — coming from the International Development Association, the World Bank’s Development financing institution, and Ksh15.56 billion ($102.36 million) from the China Exim Bank.
But the debt, which is largely denominated in the dollars and euros, has climbed to over Ksh70 billion as a result of the depreciation of the Kenyan currency against these foreign units, according to Dr Siror.
As a result, the firm is incurring huge finance costs on debt repayments.
For instance, financing costs jumped by 89 percent to Ksh24.15 billion ($158.88 million) in 12 months to June 30, from Ksh12.76 billion ($83.94 million) in the same period last year, mainly as a result of the depreciation of the Kenya shilling against the international currencies.
The shilling lost 19 percent of its value against the dollar to Ksh140 against the greenback in June 2023, from Ksh118 in June 2022.
“We intend to value all our 220kV transmission assets to establish the value of each of these assets. KPLC has already sent out an Expression of Interest for valuation of the assets,” said Dr Siror.
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“We will then list the assets (in order of the least impact to revenues of KPLC) and cross the line where the total value equates to the amount of on-lent loans to the government extended to KPLC and have them transferred to Ketraco in exchange of extinguishing the loans from the books.”
“The asset transfer will mitigate the forex exposure and negative working capital to the extent of the forex exposure,” said Dr Siror.
As part of the balance sheet restructuring, the firm will fast-track completion of new connections that were impeded by lack of meters, which arose from incessant litigation and stoppages by court cases to increase sales.
It will also identify and isolate losses and encourage energy sector agencies to complete projects that will see reduction in system losses for their respective areas and work on vacating the position where Kenya Power shoulders all the losses not provided for in the electricity tariff.
“There are a number of projects for grid re-enforcement whose impact will result in better quality of supply and reduction in technical losses,” Dr Siror said.