Kenya Power now Banking on Goodwill to Pay Dollar Electricity Bills

Kenya Power has scrapped plans to bill customers in dollars and euros after the sector regulator said the move would not be approved.

The utility says that, while it will continue to bill in Kenyan shillings, it will negotiate with large customers who want to settle their bills in dollars on an individual basis to help replenish its forex reserves.

The state-owned company says it has opened bank accounts in the currencies and will begin talks with large power consumers in a month, paving the way for payments in US dollars.

It believes it does not need the Energy and Petroleum Regulatory Authority’s (Epra) permission to accept payment in dollars.

“In the next month, we will start engaging with some of our customers who have huge dollar inflows because this will boost our dollar reserves. Remember we need dollars to pay our dollar-denominated loans and pay independent power producers,” Kenya Power’s General Manager, Finance, Stephen Vikiru, said Monday.

“We will continue billing in Kenya shillings, but we will now give customers an option to pay in dollars or euros. We have now opened accounts for these two.”

Currency scarcity

The utility is dealing with a severe currency shortage and high rates that surpassed 145 last week, ballooning its dollar-denominated loans and increasing the likelihood of defaulting on monthly payments for power supplies.

Yesterday, the shilling fell to a new low of 130 units per dollar, raising the cost of servicing dollar-denominated loans and making imports more expensive.

The forex crisis has increased the debt portfolio of Kenya Power’s dollar-denominated loans, as well as the risk of failing to pay Independent Power Producers on time for electricity supplied.

Receiving payments in dollars and euros will help Kenya Power avoid exchange losses on wholesale electricity purchased from hard currency generators.

It will also assist in covering the additional costs of loan repayments, the majority of which are denominated in dollars and euros.

Kenya Power has not defaulted on paying IPPs with dollar-denominated power purchase agreements, but Mr Vikiru said the risk of not being able to make timely payments is significantly increasing due to the worsening forex crisis.

Kenya Power’s quest for foreign currency payments comes just weeks after Epra said it would not allow the utility to begin billing customers in dollars and euros.

Compensation in two parts

Allowing Kenya Power to bill customers in dollars and euros, according to Epra, amounts to double compensation for exchange rate losses.

According to the regulator, Kenya Power is currently compensated for hard currency fluctuations through the foreign exchange surcharge every month.

The foreign exchange fluctuation adjustment in February electricity bills increased to Sh1.85 per kilowatt hour (kWh) from Sh0.73 in August last year, highlighting the impact of the weakening shilling.

According to Mr Vikiru, unlike billing customers in foreign currencies, Kenya Power does not require regulatory approval to accept payments in dollars and euros.

“The engagement with Epra is just for information, not really approval considering the billing remains in Kenyan shilling,” he said yesterday.

The preference for dollar payments points to the increased dollarisation of the economy, with firms and traders who are paid in dollars being the biggest beneficiaries.

Finance expenses

The utility’s finance costs (loan repayments) increased to Sh7.39 billion in the six months to December last year, up from Sh6.8 billion in the same period the previous year due to a weakening shilling.

Kenya Power claims that the shilling’s continued depreciation against major currencies is harming its financial performance due to exchange rate losses.