Why Kenya Power-Ketraco Sh20b assets transfer deal may be off

The plans to transfer some of Kenya Power’s assets to the Kenya Electricity Transmission Company (Ketraco) may have been overtaken by events and may no longer be necessary. 

In a 2023 deal that had been okayed by the Cabinet, the firm was expected to transfer transmission lines that were estimated to be worth Sh20 billion to Ketraco.

The exact value of the infrastructure was, however, set to be ascertained by a valuation that is still a work in progress.

The conclusion of the deal, which was to start later in 2023 and be concluded by December 2024, was expected to give Kenya Power a stable footing as it fought to stay afloat amidst losses and also weighed down by debts.

Kenya Power was to be compensated at market rates, with the money going towards the repayment of some of its debts.

Two years on and with Kenya Power getting back to profitability, it now says the factors that may have necessitated such a plan may have been overtaken by events.

The firm reported a net profit of Sh30 billion for the year to June 2024 from a loss of Sh3.2 billion in the year to June 2023. Over the half to December, the firm again posted a Sh9.7 billion net profit. 

In both instances, the profitability has been shored by a stable shilling that saw its finance costs drop significantly. These costs relate to repayment of loans, most of which are denominated in foreign currency.

While it is still in the red, with its working capital still being negative - where the money owed to creditors remained higher than its current assets - this has over the last few years improved.

Over the half to December, the firm’s working capital position improved by 30 per cent to negative Sh18.99 billion from negative Sh27.4 billion in June 2024. 

The company has been in a negative working capital position for the past eight years. In June 2020, it had sunk to its lowest at negative Sh74.85 billion. 

It is against this backdrop that Chief Executive Joseph Siror notes the power distributor is currently in a far much better shape than it was in 2023 when the proposal was mooted.

While Siror said the deal is still on the table and a valuation of the assets earmarked for transfer to Ketraco is expected to be completed by the end of its financial year in June, after which the process of the transfer will be executed, he also insists that this is not necessary at this point.

“If you look at what was driving the need to transfer the assets, it was necessary for balance sheet restructuring. It happened at a time when KPLC’s balance sheet was in bad shape. We were making losses and there did not seem to be any other option of turning around the company other than disposing of some of the assets to offset the debts,” he said. 

He, however, said Kenya Power would not walk away from the deal despite the changes in circumstances.

“We are still determined to pursue the same path in terms of valuing some of the assets and identifying those that can be transferred to Ketraco. We are still on that track. We are targeting to complete the valuation and then identify those that will be transferred,” he said.

Other than the transfer of transmission assets, Kenya Power was set to hand over the role of systems operator to Ketraco.  The State-run electricity transmission firm was in December 2021 designated as the system's operator by the Energy and Petroleum Regulatory Authority (Epra). 

The changes were necessitated by the Energy Act, 2019 law that provides that the system's operator should neither be a power plant operator nor the electricity off-taker. This is due to concerns of conflict of interest. The systems operator decides which power generating plants supply electricity to Kenya Power at any particular point in time, matching the supply from power sources to demand by consumers. In selecting the power plants to feed the grid, the system operator is required to prioritise the cheapest plants.

Ketraco is, however, yet to take over as the system's operator. The delays have been attributed to the lack of a control centre by Ketraco.

Kenya Power expects to continue using the control centre on Juja Road in Nairobi for management of its assets and as such says it cannot hand over the control centre to Ketraco. 

“Under the new act, every licensee must have their control centre. To that extent, KPLC will still have its own control centre to manage its assets. Ketraco also has transmission assets that require its own control centre but it will also be managing the entire grid at the top level,” said Siror.

Ketraco recently leased land in Embakasi and awarded a contract for the construction of what will be the new National System Control Centre (NSCC). The centre has been projected to cost Sh12 billion, which the agency has secured through a concessional loan from the French Development Agency (AFD) and the French National Treasury.

The construction of the control centre is scheduled for completion in 36 months, which could mean that Kenya Power continues to play as the system operator despite having been stripped of the role in 2021.