Kenya Power has taken loans worth Sh105 billion, as it accumulates debt to fund its large infrastructure projects.
A breakdown of the loans in its 2016 financial statements shows that the company has been most aggressive in accumulating credit in the last three years, doubling its debt from the Sh53 billion it had at the end of June 2014.
The loan uptake has seen interest rates emerge as one of the main risks for the company to watch out for.
“To manage the interest rate risk, management has endeavoured to only sign and obtain borrowings from institutions that offer contracts with fixed interest rates,” Kenya Power said in its financial report.
In the last 10 years, the electricity distributor has been increasing its borrowings by an average of Sh10 billion, with the largest borrowings seen between 2014 and 2015.
Some of the current loans it is servicing include a 6.5 million euro (Sh695.5 million at current exchange rates) loan from the European Investment Bank for the Olkaria project.
Other loans are from the Nordic Development Fund, Agence Francaise de Development, and the Japan Bank for International Co-operation.
The most expensive debt is a short-term loan from Equity Bank that is accruing interest of 16 per cent.
“Standard Chartered Bank, Equity Bank, First Rand Bank and CfC Stanbic loans are secured by letters of negative pledge. All other loans are guaranteed by the Government of Kenya,” Kenya Power says.
An analysis of the borrowings shows that the company will pay Sh8.8 billion this year, with another Sh6.6 billion maturing in the next one to two years.
It will be required to repay Sh47.4 billion in the next two to five years, while the bulk of Sh50 billion will be due after the next five years.
The firm has been sinking the billions it has received in addition to grants into key infrastructure projects as part of its ambitious plan to connect all Kenyan households to electricity in the next four years.
It connected 1.2 million new customers last year, taking the total number of households connected to the national grid to 4.87 million. This translates to a 60 per cent access rate.
Last week, the utility firm announced it is constructing three major sub-stations within Nairobi at a cost of Sh18.4 billion ($180.5 million) in a bid to provide alternative sources of power supply to minimise outages.
Nairobi is a major power market, consuming more than 50 per cent of the country’s electricity supply and accounting for about 70 per cent of Kenya Power’s revenue.
“Provision of reliable and quality electricity supply to our customers in these areas is paramount to secure and grow our business,” Kenya Power CEO Ben Chumo told shareholders at the firm’s recent annual general meeting.
The sub-stations will be gas insulated, making them cost effective due to low maintenance costs, and their compact design will require less space than conventional sub-stations do.
The Nairobi Central Business District 400MVA, 220/66kV sub-station will offer alternative power supply to Likoni Road, Muthurwa, City Square, Cathedral, Nairobi West and Parklands sub-stations.
It will entail installation of underground cables to minimise challenges of wayleave acquisition associated with overhead power lines. They are also ideal for developed urban centres as they provide minimal exposure to human activities that disrupt electricity supply.
The Juja Road 132/66kV sub-station, which has been the main bulk supply point for Nairobi and the central hub for the national grid since its commissioning in 1954, will be overhauled at a cost of Sh2.7 billion to convert it to a gas-insulated sub-station.
The third sub-station, Thika Road 400MVA, 220/66kV, is strategically located to serve growing demand along the Thika superhighway. It is part of the 220kV Nairobi Ring Power Project designed to reinforce electricity supply to the city and its metropolis.
In the year to June 30, 2016, Kenya Power completed construction of 36 additional sub-stations across the country under its five-year Power Distribution Masterplan that runs to 2018.
These projects are financed by the Company as part of the Kenya Electricity Modernisation Project aimed at improving efficiency of the distribution network, reducing technical losses and enhancing capacity for uptake of additional power generation.