Kenya Power’s minority shareholders are set to get slots in the company’s board of directors by the end of next year when the firm expects to complete a planned major overhaul.
The restructuring, which was approved by Cabinet in May, is set to see the government cede control of the firm through inclusion of minority shareholders in the company’s board.
Minority shareholders will in December 2024 begin to vote in their preferred board directors, as opposed to the current scenario where all the directors need to have government backing during elections at the firm’s annual general meetings.
Treasury, in disclosures to the International Monetary Fund (IMF), said these reforms will be complete by the end of next year, although it said the implementation had experienced delays.
Treasury said it would “establish a new governance structure at KPLC to give private shareholders fair representation, reflecting the company’s shareholding structure.”
The government has a 50.09 per cent stake in the company, while the other half is held by more than 31,700 shareholders, according to Kenya Power’s annual report for the year to June 2022.
The restructuring will also result in a reduction in Kenya Power’s debts, the transfer of assets worth Sh20 billion to the Kenya Electricity Transmission Company (Ketraco) and reduce system losses to 14.4 per cent from 22.4 per cent.
“KPLC will…by the end of December 2024, transfer all transmission assets or lines to Ketraco and pay through the use of on-lent loans from the government upon valuation,” Treasury told IMF.
The transmission lines that have been earmarked for transfer to Ketraco have in past reports been estimated to have a value of Sh20 billion.
Treasury added that Kenya Power would receive a Sh19.4 billion payment owed by the Rural Electrification and Renewable Energy Corporation (Rerec) for the work done under the Rural Electrification Scheme (RES).
It added that “KPLC and Rerec enter into a commercial contract for the future RES maintenance cost.”
Through the reforms, the State also expects to delink its development initiatives — including implementation of rural electrification programmes such as the the last mile connectivity project — from Kenya Power operations and instead let the firm operate on commercial principles.
Treasury also said Kenya Power and Ketraco will develop and implement a turnaround strategy that will result in system losses going down to 14 per cent.
The reduction, the government has in the past said, could yield a saving of Sh6 billion. Some of the power lost between point of generation and consumption is recovered from consumers, which is partly to blame for the high cost of power.
System losses are made up of two components — technical and commercial losses. Technical losses occur during transmission and distribution of electricity while commercial losses are theft by consumers, who are in some instances helped by Kenya Power staff.
In the report to IMF, Treasury said Kenya Power is projected to make a Sh5.55 billion loss in the financial year to June 2023.
It, however, expects the firm to recover and report a profit before tax of Sh10.57 billion in the year to June 2024.
The recovery will be supported by the higher cost of power that was effected in April this year following a new tariff by the Energy and Petroleum Regulatory Authority (Epra).
“Further, the preliminary restructuring undertaken so far, and the review of the tariffs is expected to generate a positive trajectory in the financial performance of KPLC."
"We estimate that with support from the new tariff structure, continued passthroughs of variable costs, and effective and timely implementation of the Action Plan, KPLC’s liquidity gap will see an accelerated reduction by FY2025/26,” said Treasury.
Kenya Power in May issued a profit warning, indicating that it expects its profit for the period to June this year to decline by more than 25 per cent.
It attributed the drop to foreign exchange losses incurred on account of the weakening of the shilling against the US dollar as well as the 15 per cent reduction in power prices implemented in January 2022 and remained in place until April when Epra announced the new tariff.