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State-run electricity producer KenGen penalised Kenya Power Sh710.17 million for late payment of electricity it supplied for the year ended June 2024, the latest disclosures show.
KenGen says earnings from interest penalties charged on Kenya Power nearly doubled from Sh364.70 million the year before, a jump of 94.73 percent.
This emerged in a period — the year ended June– when Kenya Power posted a net profit of Sh30.08 billion, allowing it to resume paying dividends ending a six-year drought.
The fines paid by Kenya Power marked the first growth in three years, helping boost cash flows for KenGen.
“[This] relates to interest penalties charged to Kenya Power due to late payments of invoices. Interest on late payments accrues 40 days after billing and Kenya Power acknowledging invoice or lapse of credit period,” KenGen wrote in the latest annual report for the period ended June.
The two companies have a contract which stipulates a 40-day credit period, meaning Kenya Power has to pay for electricity supplied within that period to avoid a penalty. KenGen applies a credit period of 30 days for other entities.
The contract is governed under power purchase agreements (PPAs).
The PPAs compel Kenya Power to buy the signed capacity of electricity regardless of whether the near-monopoly utility needs the energy.
KenGen’s total income from transactions with Kenya Power in the year ended June 2024 amounted to Sh60.68 billion, the report shows, a growth of 9.31 percent over Sh55.51 billion in the prior year.
Sale of electricity accounted for Sh41.25 billion of the transactions, with the remainder of the billings largely coming from fuel and water charges, steam revenue, realised foreign exchange losses and interest income.
Kenya Power owed KenGen Sh16.63 billion as at June 2023, a drop of 22.47 percent compared with nearly Sh21.45 billion the year before.
The two firms are strategic national assets in the energy sector and are, therefore, majority-owned by the government.
“In assessing Kenya Power’s credit quality, management has used the Government of Kenya’s sovereign rating probability of default as a proxy to Kenya Power’s and other government entities’ credit rating,” KenGen wrote in the report. “The Standard and Poors (S&P) cumulative average default curves have been used to obtain the probability of default and have been applied to all debts whose counterparty is a government agency.”
The drop in outstanding debt to KenGen came in a period when Kenya Power posted a net profit of Sh30.08 billion, a historical turnaround from net loss of Sh3.19 billion in the year ended June 2023.
Kenya Power added 427,251 new connections in the just ended financial year, bringing total customers to 9.7 million. Consumption of electricity grew 2.76 percent to 19,516 gigawatt hours (GWhs), amid increased demand mainly from large consumers (factories and industries).
Large consumers used 5,415 GWh in the recently ended financial year, marking a rise of 5.41 percent from 5,137 GWh a year ago while homes consumed 2,768 GWh, which was a growth of 5.37 percent.
Electricity sales were also driven by a higher tariff that came into force from April last year, with the lowest price for a unit of power rising to Sh12.22 from Sh10.
Kenya Power was allowed to charge consumers higher prices for electricity under a three-year tariff cycle that the firm reckons has been critical in pulling it out of a financial distress.
On the other hand, increased collections from penalties slapped on Kenya Power partly helped KenGen more than double finance income to Sh4.2 billion from Sh1.69 billion a year earlier.
The biggest boost, however, came from interest earnings from banks, which jumped more than two-fold to Sh3.15 billion, reflecting the elevated interest rate regime in the review period.
KenGen’s profit hit Sh6.79 billion, marking a growth of 35.5 percent from Sh5.01 billion a year earlier.
The firm’s earnings were largely boosted by the strengthening of the shilling which reduced the burden of its debt denominated in hard currencies, with the positive movements captured as finance income.
KenGen, whose shares are publicly traded on the Nairobi Securities Exchange, reported that net revenue rose to Sh48.2 billion from Sh45.8 billion, adding that hydro and geothermal plants helped it to capitalise on growing energy demand.
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