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World Bank lines up Sh40bn soft loan for Kenya Power
Wednesday May 03 2023
Signage of the World Bank. FILE PHOTO | POOL
The World Bank will provide a Sh40.8 billion ($300 million) interest-free loan to Kenya Power to help the utility pay debts, revamp its ageing transmission network and expand the national grid.
Disclosures by the Bretton Woods institution show that the billions will be released through the Treasury under a seven-year programme dubbed Green and Resilient Expansion of Energy (Green).
Kenya Power’s debt to electricity producers and other suppliers was Sh87.5 billion in the year ended June 2022 and it had Sh103.84 billion in loans from local and foreign banks in the same period.
The billions will be released in tranches and will cement the World Bank’s position as a critical financier of the utility that plunged into a half-year net loss in the period that ended last December.
Read: World Bank expands Kenya loan kitty to Sh129 billion
“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 debt to KenGen for electricity supplies as of June last year was Sh22.93 billion, making it the biggest amount owed to a single power producer.
Kenya Power owed other electricity producers Sh22.94 billion in the period.
Other debts on the utility’s books include Sh14.48 billion to suppliers of other goods and services and Sh12.16 billion due to the Rural Electrification and Renewable Energy Corporation (Rerec).
The World Bank says the billions will also allow Kenya Power to continue with the Last Mile connectivity besides helping the utility to set up smart meters and a two-way communication system with big power consumers to lower system losses.
The Last Mile Connectivity has been hampered by the Treasury’s delays in releasing cash to boost funding from institutions such as African Development Bank (AfDB).
Kenya Power had a funding gap of Sh1.51 billion for the project as at June last year.
“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.
The project is aimed at extending the low voltage system throughout the country so that counties with low electricity penetration rates benefit the most.
The project saw Kenya Power add more than a million new connections per year between 2015 and 2019.
The World Bank funds will also boost Kenya Power’s efforts to revamp its transmission line and weed out illegal connections as part of reducing system losses.
Read: World Bank clout rises as China cuts Kenya loans
System losses that are blamed on increased transmission network and power theft deny Kenya Power billions of shillings every year.
Kenya Power puts its system losses at 19.4 percent currently and has an ambitious target of cutting this to 13.4 percent in the next three years, highlighting the critical role of the billions from the World Bank.
“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.”
Kenya Power plunged into a net loss of Sh1.1 billion for the half year ended December, blamed on the weak shilling and the 15 percent electricity tariff cut that was implemented in January last year.
Operating costs increased from Sh19.1 billion to Sh21.7 billion, with Kenya Power linking it to increased foreign exchange losses arising from the revaluation of outstanding payments to power producers for foreign currency-denominated electricity purchases.
