Kenya Power is set to transfer a section of its transmission assets to the Kenya Electricity Transmission Company (Ketraco) as part of measures by the government to restructure the utility’s balance sheet. On Tuesday, the Business Daily caught up with Kenya Power managing director Joseph Siror to respond to all the major questions regarding the deal.
Why is Kenya Power transferring some of its electricity transmission assets to Ketraco?
The real reason for the transfer of assets is for restructuring our balance sheet. Once we have done the valuation, we will be able to identify the assets that we need to transfer to meet the specific obligation.
What are the assets to be transferred?
The assets in question are only at the level of 220kV. We are talking about transmission lines, substations, and land that these assets occupy.
Kenya Power separately disclosed that 11 substations had been earmarked for the transfer among them Thika Road GIS, City Centre, Kamburu, Gitaru, Kiambere, Turkwel, Olkaria II, Or-Power, Weru, Ngeria/Selenkei-Cedate and Kipeto. Some 14 transmission lines have also been identified, while two parcels of land, namely that hosting the Thika Road GIS and City Centre substations will also be transferred to Ketraco. The Kisumu Depot located at the Kisumu Port and eight parcels of Kenya Power land that was developed by Ketraco will also be transferred.
What is the preliminary valuation of the assets to be transferred?
We are only valuing the 220kV assets. The way they appear on our books is mainly based on the historical costs that were used to build them. Why we are valuing them now is that we have never planned in the past to transfer or sell them, so it did not serve any purpose to do market valuation.
But now we are at a point where we are considering disposing of some of the assets to offset some loans. The real reason that we are considering valuation and subsequent transfer is against a particular obligation that we want to offset it against.
If you look at your books the valuation shows about Sh20 billion. But this is just for two substations, one at Juja Road and one in Keiyo. That really shows you the extent of what we have as the book value is not really representing the actual value of the assets to be transferred.
Will the money that Kenya Power owes Ketraco be used to offset the purchase price?
What Ketraco owes us is about Sh1.7 billion and we owe them about Sh2.5 billion. Even if you offset it the difference is less than Sh1 billion. Initially we used to owe them about Sh7 billion but we have been paying monthly to cover for some of the arrears.
Why will Kenya Power still operate and maintain the transmission assets for 10 years after the transfer?
We have a power purchase agreement (PPA) obligation with power generators. We do not want a situation whereby after we have transferred the assets, the current limited capacity of Ketraco does not come to affect service provision.
If you look at the technical capacity of Ketraco vis-à-vis the assets they have, it may be adequate for them to maintain the assets they have now, but the moment we start moving so many assets to them they might have a challenge to operate and maintain them; this may expose Kenya Power.
Will Kenya Power receive cash for the assets sale?
There is an on-lent facility which is in the books of Kenya Power. By transferring these assets to Ketraco, that particular loan is going to be offset by that value of the assets so that going forward, it will not be the responsibility of Kenya Power to pay those loans, the government is now going to take over the loans.
What size of debt does Kenya Power envisage to offset by the transfer?
The on-lent loan was about Sh64 billion, but because the loan is dollar-denominated, we may be looking at about Sh83 billion. That is the value of assets that we intend to dispose of. At the point which we will hit this target, we will draw a line there on the transfer.
What is in the deal for private shareholders of Kenya Power?
Our business is not selling of assets. The main reason we are doing the transfer is just to offset our loans. In any case, we do not expect to see any cash movement, it is just a book transaction. This is why we want to ensure that what we sell is what is absolutely necessary to offset the loans.
How will Kenya Power’s financial performance be impacted by the transfer?
Most of our loans are dollar-denominated. When you have a situation where the shilling is depreciating, this hits our books directly. The moment we do away with the debt, that impact from the exchange rate will not impact our balance sheet.
This will play a big role in improving our profitability. By BRIAN AMBANI