Challenges Kenya Power Sector

Goals

To identify 2-3 challenges in the Kenyan power sector, why they are a challenge and the government is addressing the issue.

Early Findings

Challenge # 1: Financial Sustainability KPLC and KenGen

  • The challenge is the poor financial state of Kenya Power and KenGen. Often the poor financial state or financial creditworthiness of key power utilities forms a critical obstacle to executing investment programs. Due to the poor financial state, utilities remain or become even more dependent on government subsidies.

Kenya Power (KPLC)

  • Kenya Power also known as Kenya Power & Lighting Company (KPLC) has faced/is facing serious financial issues. "Its problems became apparent when it was tasked by the government to significantly expand access to electricity through a major capital expenditure (capex) program, which proved to be too much of a financially-challenging endeavor."
  • Upon review of its financial situation, it became clear that the company had a "fast-increasing, short-term, and expensive debt" that was placing pressure on its "liquidity position and making it difficult to meet its short-term payment obligations." Also, its inability to secure long-term concessional loans contributed to make matters worse.
  • To help KPLC, the World Bank put together a support package that consisted of (i) $250 million of International Development Association (IDA) credit; and "(ii) $200 million of IDA guarantee, which mobilized $500 million of commercial finance."

KenGen

  • Because of its efforts to diversify its power generation mix, KenGen's financial performance has been impacted. The company's cash flow from operations was not sufficient to cover investment requirements, therefore, external financing was always needed.
  • As highlighted by the World Bank: "On May 2016, KenGen launched a rights issue with the objective of converting KES20 billion (US$200 million) of the GoK on lent loans into equity. While successful in helping to improve some financial indicators, the rights issuance failed to achieve full subscription, thus increasing GoK’s ownership to 72 percent. This was due to primarily lack of investors’ appetite to invest in KenGen, as a sign of perceived heightened risk profile for the company."
  • The rights issuance provided short-term relief, however, financial forecasts showed that, "unless complemented with additional measures, the temporary financial relief provided by the rights issues is not enough to ensure the financial sustainability of KenGen."
  • An IDA Guarantee was proposed to restructure KenGen's debt. "The proposed IDA Guarantee will leverage $300 million of commercial finance providing a US$180 million of IDA Guarantee (US$45 million from country allocation) that will backstop KenGen’s debt payment obligation, thereby enhancing KenGen’s credit quality and enabling it to raise approximately US$300 million of new commercial debt with lower interest rates and longer tenors than those currently available to it"

Financial Outlook

  • Despite "regulated and cost-reflective tariffs" and debt restructuring, it seems as though the financial outlook for KPLC and KenGen is still perceived as mixed. However, no analysis could be found on this, except perhaps what is mentioned in the Kenya Power Report 2019/20, which needs to be purchased.

Other Challenges Not Expanded On

  • KenGen is also facing challenges with local communities (particularly the Maasai Community).
  • "The government has set ambitious targets for universal electricity access by 2020, but these are unlikely to be achieved."
  • "The future of the planned 1,050MW Lamu coal-fired plant has been thrown into doubt after a tribunal deemed Chinese-funded project's environmental impact assessment inadequate. Among its several problems are its siting within a UNESCO-listed World Heritage Site."

Summary of Findings

  • During the initial hour of research, we sought challenges being faced in the power sector in Kenya.
  • Though some challenges were identified, there was only sufficient time to provide information on one issue, namely the poor financial capacity of two key institutions in the power sector.

Proposed next steps:

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