Kenya Power, Kenya’s electricity distribution company, has settled $61 million (KSh7.9 billion) it owed US-based Ormat Technology for electricity supplies over the last eight months.

This payment reflects improved liquidity for the majority state-owned company, which has struggled with financial challenges in recent years.

Kenya Power’s debt

Ormat’s Kenyan subsidiary, OrPower 4, operates four geothermal plants in Olkaria, Naivasha, and is Kenya’s second-largest geothermal power producer, supplying a total of 150 megawatts to the national grid.

By the end of 2023, Kenya Power owed Ormat Technology $62.8 million (KSh8.17 billion) for electricity supplies. With this recent payment, the utility has cleared 97.1% of that debt.

Despite this, Ormat revealed that Kenya Power still owes $20.5 million (KSh2.6 billion) due to additional power purchases in 2024.

Kenya Power has been gradually paying off its debts in instalments throughout this year to ease its exposure from the debt accumulated last year.

The utility first paid $32.2 million (KSh4.1 billion) in January and February, followed by $12.4 million (KSh1.6 billion) in April. The most recent instalments, amounting to $16.4 million (KSh2.1 billion), were made in July and August. These payments have significantly reduced the company’s debt.

“As of June 30, 2024, the amount overdue from KPLC in Kenya was $36.9 million (KSh4.7 billion), of which $16.4 million (KSh2.1 billion) was paid in July and August 2024,” said Ormat.

Why Kenya Power has been struggling financially

Kenya Power is one of Kenya’s largest purchasers of foreign currency. The power company relies heavily on forex to meet its power purchase agreements with Independent Power Producers (IPPs) like Ormat.

However, this dependence on foreign exchange means that the company is often exposed to currency fluctuations. Notably, it is these fluctuations that impacted the utility’s financial standing last year.

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In 2023, the depreciation of the Kenyan shilling drove up Kenya Power’s finance costs to $188.37 million (KSh24.15 billion), almost doubling from $98.86 million (KSh12.7 billion) the previous year. These high costs contributed to a net loss of $24.83 million (KSh3.19 billion) for the year, erasing the $25.45 million (KSh3.26 billion) profit recorded the year before.

The forex shortage that hit Kenya last year further worsened Kenya Power’s financial woes, causing the company to default on billions of shillings owed to IPPs, including Ormat. However, a recent strengthening of the Kenyan shilling, gaining 22% against the US dollar in the last seven months, has given the utility a boost to begin settling its debts.

That said, although Kenya Power has made progress in clearing its debts, it remains under financial pressure, with outstanding arrears still owed to Ormat and other power producers.

Moreover, the utility’s losses from illegal connections and inefficient transmission systems have recently exceeded the threshold set by the Energy and Petroleum Regulatory Authority (EPRA), further compounding the firm’s financial struggles.

“In terms of what is specific to transmission, the losses are somewhere between 4.5 to 5%. Then now the balance is distribution and commercial,” Kenya Power CEO Dr. Eng. Joseph Siror said in April.

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