Kenya Power explores dollar payments for large customers to mitigate currency risks

Kenya Power is considering collecting payments in dollars or euros from its larger consumers to reduce its exposure to foreign currency risks and the ongoing dollar crisis.

The company's Finance General Manager, Stephen Vikiru Kinadira, said that although billing will still be in the local currency, they will collect payments in dollars where possible, which would help the company meet some of its dollar-denominated obligations.

“Trying to get internal dollar flows is another measure of dealing with the challenge. We will not be billing in dollars, we are billing in shillings as per approved tariffs but collecting in dollars where possible.

[FILE] Kenya Power and Lighting Company (KPLC) live line experts dismantle power cables to relocate power lines to pave way for the construction of the Nairobi Expressway in Westlands, Nairobi, on September 24, 2020. (Photo by SIMON MAINA/AFP via Getty Images) Pulse Live Kenya

“In the next month or so we will start engaging directly with some of our clients who we know have dollar flows based on the nature of their business," Mr Kinadira said.

A significant portion of the firm's purchase obligations, particularly for Independent Power Producers (IPPs), are in foreign currency.

Kenya Power's monthly foreign currency requirement is $50 million (Sh6.5 billion) and €20 million (Sh2.8 billion), while its quarterly loan obligations are $30 million (Sh3.9 billion), resulting in higher finance costs due to the higher foreign exchange rates.

The availability of foreign exchange poses a risk of default, and Kinadira believes that collecting payments in dollars would help the company obtain the foreign exchange it needs to meet its obligations.

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How KP is planning to finance its debts

In the short term, Kenya Power (KP) is seeking to refinance some of its commercial debts that are in foreign currency, while in the long term, they plan to structure loans and power purchases in Kenya shillings, as well as non-tariff revenues that are multi-currency.

They are also engaging banks to explore the possibility of putting rolling orders to obtain the best rates possible for the required dollars.

However, the strategy to collect payments in dollars or euros may not be feasible as the Energy and Petroleum Regulatory Authority (EPRA) opposed the plan due to concerns that the utility would be compensated twice for exchange rate losses.

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KP's Finance General Manager, Stephen Vikiru Kinadira, has acknowledged that the government's decision to source fuel on credit to ease the pressure on the dollar would be helpful, especially during thermal generation.