New tariff lifts Kenya Power to Sh319 million half-year profit

Kenya Power Managing Director and CEO Dr (Eng) Joseph Siror speaking during the Q2 operational report. [Wilberforce Okwiri, Standard]

The new power tariff that came into effect in April last year and increased electricity consumption by Kenyans have lifted Kenya Power back to profit-making over the half year to December. 

The firm also shrugged off a major hit from the weakening of the shilling last year that had the impact of doubling its finance costs over six months. 

Kenya Power reported a net profit of Sh319 million over the half, an improvement from a loss of Sh1.1 billion recorded during the previous half year to December 2022.

“The improved profitability was driven by growth in revenue resulting from increased electricity sales as well as the implementation of a cost-reflective tariff,” said Kenya Power when it published its financial results.

The Energy and Petroleum Regulatory Authority (Epra) put in place a new tariff on April 1 last year that led to an increase in the cost of power for consumers. Kenya Power also said there was an increase in power consumption.

Revenue over the period grew 31 percent to Sh113.55 billion from Sh86.67 billion the previous half. 

The profit, the firm said, could have been higher were it not for the impact that the weak shilling had on its finance costs. 

Over the period, finance costs doubled, increasing by Sh7.63 billion rising from Sh7.39 billion incurred over a similar half in 2022 to Sh15 billion. 

“This increase is attributed to the rise in unrealised foreign exchange losses on loan revaluations, a consequence of the weakening of Kenya shilling against major foreign currencies in which most of the loan portfolio is denominated,” said Kenya Power. 

Foreign currency-denominated loans account for 90 percent of the Company’s loan portfolio. 

Most of the power purchase agreements that Kenya Power has signed with electricity producers are also denominated in foreign currencies and a weak shilling meant an increase in the amount that it pays these power producers when compared to the previous half. 

“We are happy to note that the shilling is gaining against the dollar and other major currencies in the current period. We hope that this positive trend continues in the remaining part of the year to ease our forex exposure and enable us to finish the year at a stronger financial position,” said Dr Joseph Siror Kenya Power’s chief executive. 

He added that the company is looking into how it can mitigate the impact of currency volatility. It expects that the balance sheet restructures where proceeds from the transfer of part of the transmission line assets will be applied to offset on-lent loans which are entirely denominated in foreign currency and contribute a significant portion of the unrealized forex loss. The Cabinet last year approved the sale of some of Kenya Power’s transmission assets to the Kenya Electricity Transmission Company (Ketraco).

The company is also in the process of formulating a new forex mitigation strategy and has recently started the search for a consultant to develop a foreign exchange risk management solution

Over the half, operating costs also increased by Sh1.7 billion during the half to Sh19.7 billion. Kenya Power said this was driven by higher electricity wheeling charges - which are fees paid to Ketraco for the use of its electricity transmission network – provided in the tariff as well as higher staff costs following the hiring of new staff to reinforce its field operations.

Kenya Power said there had been a significant reduction in the amount of expensive thermal power fed to the national electricity grid following the heavy rains over the period. This led to a Sh2.05 billion reductions in the amount Kenya Power paid to thermal power producers as fuel cost charges.

“Over the six months under review, there was a 240GWh (gigawatt hours - equivalent to 240 million kilowatt hours or tokens) increase in electricity units purchased and dispatched from renewable energy sources,” said Kenya Power. 

“Following increased uptake of energy from renewable sources, consumption of thermal generation reduced by 93GWh from 650GWh in the similar period in 2022 to 557GWh leading to a Sh2.05 billion reductions in fuel cost charge on customer bills.”

The firm said it had fast-tracked metre installation for new customers across the country in a bid to drive customer connectivity and grow electricity sales, which saw it increase customers by 225,000.