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Kenya Power to repay World Bank dollar loan in shillings
Kenya has for the past three years stepped up efforts to lower the cost of electricity, mainly by lowering wholesale prices at which IPPs sell electricity to Kenya Power.
Kenya Power will repay the $300 million (Sh38.7 billion) at current exchange rates) on-lent loan from World Bank in shillings, in what offers the utility significant relief from the burden of servicing foreign-currency-denominated debt.
The firm disclosed on Friday, that the National Treasury is now set to absorb any forex costs if the shilling weakens against the dollar by the time the loan repayment starts.
World Bank approved the performance-based loan in 2023, where Kenya Power qualifies to draw billions of shillings in tranches upon hitting some parameters that are meant to boost the firm’s operations, and ultimately ensure it remains on the profitability path.
Foreign currency-denominated loans have been a headache for Kenya Power, a situation that got worse two years ago when a fast-depreciating shilling led to a spike in the utility’s finance costs.
“Although the World Bank loan is dollar-denominated, there is an agreement with the National Treasury for us to pay in Kenyan shillings. This is key to reducing our exposure,” Kenya Power said.
The move to allow Kenya Power repay the loan in shillings is key to the utility firm, given that it had been significantly exposed in its foreign-currency-denominated debt amid the shilling’s woes against the dollar.
For example, Kenya Power sank into a net loss of Sh3.2 billion in the year to June 2023, largely due to a surge in the cost of servicing dollar-denominated loans, underscoring the need for the company to pursue ways of easing the impact of its debts that are denominated in foreign currency.
A strengthening shilling against the dollar helped turn around fortunes to post a net profit of Sh30 billion in the year to June 2024.
Kenya Power has since announced an end to fresh loans that are denominated in foreign currency in a bid to ensure that the firm is not exposed when the shilling takes a beating against the dollar.
The World Bank loan is a seven-year interest-free facility, with Kenya Power accessing the money in tranches upon attainment of several targets set by the Bretton Woods institution.
Some of the conditions that Kenya Power must attain under the World Bank credit facility include reducing the time taken to pay power producers for electricity supplies and connecting more Kenyans to the Last Mile Connectivity project.
Kenya Power is also expected to reduce the amount of electricity lost along the transmission network to access the World Bank funds.
The utility has already drawn down Sh3.8 billion under the facility and anticipates to tap more upon attainment of the performance-tied parameters.
Kenya Power is on the profit path on significant reductions in payment of foreign currency-denominated loans and increased electricity sales.
The firm posted a net profit of Sh9.97 billion in the half-year ended December 2024, marking a jump of over 30 times from the Sh319 million net profit posted in the same period of 2023.
