World Bank lines up Sh40bn Soft Loan for Kenya Power

Kenya Power will receive a Sh40.8 billion ($300 million) interest-free loan from the World Bank to help it pay off debts, upgrade its dated transmission network, and broaden the country’s grid.

According to information provided by the Bretton Woods institution, the Treasury will release the billions as part of a seven-year program called Green and Resilient Expansion of Energy (Green).

In the fiscal year that ended in June 2022, Kenya Power owed Sh87.5 billion to electricity producers and other suppliers, and at the same time, it had outstanding loans from domestic and international banks totalling Sh103.84 billion.

The billions will be released in instalments, and they will solidify the World Bank’s status as a significant financier of the utility that fell into a half-year net loss in the time that followed.

“The Program will also support gradual clearing of outstanding dues of KPLC to other sector agencies such as KETRACO and REREC towards achieving financially sustainable sector operations. KenGen, IPPs and other suppliers will benefit from reduced arrears,” World Bank says.

The largest sum owed to a single power producer as of June of last year was Sh22.93 billion, which was owed to KenGen for electricity supplies.

During that time, Kenya Power owed other electricity producers Sh22.94 billion.

Other debts held by the utility include Sh12.16 billion owed to the Rural Electrification and Renewable Energy Corporation (Rerec) and Sh14.48 billion to suppliers of other goods and services.

In addition to assisting the utility in setting up smart meters and a two-way communication system with significant power consumers to reduce system losses, the World Bank claims that the billions will also allow Kenya Power to continue with the Last Mile connectivity.

The Treasury’s inability to release funds quickly enough to supplement funding from organizations like the African Development Bank (AfDB) has hampered the Last Mile Connectivity.

As of June of last year, Kenya Power still needed to raise Sh1.51 billion to complete the project.

“It (Green Project) will also have an increased pro-poor access focus, mainstreaming targeted subsidy mechanisms to make the connection affordable for disadvantaged and vulnerable groups like female-headed households,” the Bretton Woods Institution says.

In order to benefit counties with low rates of electricity penetration the most, the project aims to expand the low voltage system across the entire nation.

Between 2015 and 2019, the project saw Kenya Power add more than a million new connections annually.

As part of reducing system losses, Kenya Power will use the World Bank funds to revamp its transmission line and eliminate unauthorized connections.

Kenya Power loses billions of shillings every year due to system losses that are attributed to an expanded transmission network and power theft.

With an ambitious goal of reducing system losses from 19.4% percent to 13.4% percent over the next three years, Kenya Power highlights the crucial role that the billions from the World Bank have played.

“It is expected that the Automated Metering Infrastructure rollout expansion and metering at distribution feeders supported under the Program will further help to improve monitoring of energy flow and reduction of losses.”

For the six-month period that ended in December, Kenya Power suffered a net loss of Sh1.1 billion, which it attributed to both the weak shilling and the January 2016 electricity price cut of 15%.

Kenya Power attributes the increase in operating costs, which went from Sh19.1 billion to Sh21.7 billion, to higher foreign exchange losses brought on by the revaluation of unpaid power producers’ invoices for electricity purchases made in foreign currencies.