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    State chokes Kenya Power with Sh28billion debt

    June 9, 2023 - Nation


      The government is yet to compensate Kenya Power some Sh5.3 billion for a 15 per cent subsidy on electricity prices, raising its overall debt to the financially wobbly utility firm to Sh27.8 billion.

      The electricity cost cut arrears has partly contributed to the financial woes the utility has faced in the current financial year which saw it sink into a net loss of Sh1.14 billion net loss for the six months to December 2022.

      The National Assembly's Budget and Appropriations Committee (BAC), in its report to the House for the budget for the financial year 2023/24, shows the arrears have increased the total debt owed to the utility by the State to Sh27.8 billion.

      The debt includes arrears amounting to Sh22.2 billion for the rural electrification scheme partly undertaken by the company on the government's behalf.

      The programme was started by the government in partnership with the utility in 1973 where the government would subsidize it to connect rural households to the grid.

      To intensify the expansion of the underdeveloped regions, the government subsequently created the Rural Electrification Authority (REA), which is now the Rural Electrification and Renewable Energy Commission (Rerec).

      Kenya Power, however, continues to operate and maintain the whole network, in addition to implementing projects for Rerec on a contract basis.

      Read: Puzzle of State firm selling electricity to Kenya Power in dollars

      The government subsidy covers the losses the company incurs for developing, operating and maintaining the rural electricity network as the project is economically unviable considering that the expenditure for rural households on electricity is low.

      'The national government owed KPLC Sh27.8 billion of which Sh22.2 billion is for the rural electrification schemes projects maintenance due to the use of the current Mercado model in cost capture, and Sh5.3 billion for tariff compensation subsidy,' said BAC.

      Uhuru power price cuts

      Retired President Uhuru Kenyatta cut power prices by 15 per cent in January last year, a move that is estimated to have caused the utility Sh26 billion in revenues.

      The reduced tariffs were to end on December 31 but were extended until March 31 this year as the Energy and Petroleum Regulatory Authority (Epra) effected new three-year tariffs.

      As part of the cut, the government agreed to reimburse Sh14 billion to the utility for lost revenues while Kenya Power would shoulder an estimated Sh7 billion which it ought to have achieved through strict cost-cutting measures.

      To further support the plan, KenGen agreed to give a discount of Sh3.5 billion to Kenya Power, while Ketraco and GDC agreed to give discounts of Sh800 million and Sh500 million respectively.

      In March, the company revealed that it had received credit notes from the parastatals to settle their part of the power cut deal.

      A credit note is a formal document issued by a seller to a buyer to notify them that credit is being applied to their account.

      'We have received credit notes from Ketraco and GDC for payment of the discounts. We are in talks with KenGen and we also expect to receive a credit note from them anytime soon,' said Kenya Power finance manager Stephen Vikiru.

      The utility last month issued a profit warning signalling that its profits for the current financial year will be at least 25 per cent lower than the Sh3.5 billion net profit it earned in the year to June 2022.

      The firm attributed the diminished performance to a weak shilling which inflated its huge debt servicing and power purchase costs.


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