The multi-billion losses that Kenya Power has been incurring have been blamed on the USD currency rates given by the Central Bank of Kenya.
Apparently, the CBK currency rates that Kenya Power has been using are not what is available in the market, with the spread between these rates and the commercially available rates costing the utility firm billions of money.
This comes as it emerged how the power utility firm has been incurring billions of losses when paying local independent power producers in US dollars.
According to Auditor General Nancy Gathungu Kenya Power uses the CBK rate when passing the exchange rate fluctuation costs to its customers. However, it pays independent power producers at commercial market rates which have a wide spread with the CBK rate.
“The company currently bears the difference between the actual forex rate used for payments and the CBK mean rate used by the Energy and Petroleum Regulatory Authority for the pass-through costs,” the Auditor-General said in a report.
“There is no forex compensation mechanism to ensure that the market rate applied at the time of making payments is mitigated against the impact of the forex rate fluctuation.”
Kenya Power reported a Sh. 3.19 billion net loss for the year ended June 2023 as it took a hit from a sharp rise in financing costs on its hard currency obligations due to the weakening of the shilling.
The company claimed that it could have reported a net profit of Sh. 3.26 billion in the year to June 2022, but an 89 per cent jump in financing costs to Sh 24 billion from Sh. 12.7 billion previously hurt its bottom line, despite a 12 per cent rise in operating profit to Sh. 19.2 billion.
“We had unrealised foreign exchange losses increase from Sh. 6.5 billion to Sh. 16.8 billion and this is the key driver in the Sh. 24 billion financing costs. There was also a significant increase in fuel prices, which applies also to the heavy fuel used in power generation,” said Kenya Power general manager- finance Stephen Vikiru.
“There was also an impact of the forex rate movement on power purchases, because we have about 65 per cent of our cost of sales in foreign currency based on the contracts for independent power producers.”