Kenya Power and Lighting Company (KPLC) has reported a net profit of Ksh30 billion for the fiscal year ending June 30, 2024, marking a significant turnaround after several years of financial challenges. This profit announcement has opened the door for the company to declare its first dividends to shareholders in over seven years, signaling renewed financial stability and strategic growth in Kenya’s energy sector.

Financial Performance and Profit Drivers

The Ksh30 billion profit represents a notable shift in KPLC’s fortunes. For years, KPLC faced economic headwinds, mounting operational expenses, and challenges tied to the broader energy sector’s volatility. Announcing the financial results, Energy Principal Secretary Alex Wachira praised the company’s efforts in overcoming its obstacles and achieving profitability. “This year, Kenya Power has returned to profitability after facing numerous challenges in the energy sector and the economy,” Wachira stated. “The company’s decision to issue dividends not only rewards shareholders but also underscores our commitment to overcoming operational challenges and delivering value to the Kenyan taxpayer.”

This achievement is supported by a 21% increase in electricity sales, which rose to Ksh231.12 billion from Ksh190.98 billion in the previous fiscal year. Contributing to this growth was a boost in consumer connections, adding over 447,000 new customers to the grid, primarily from urban expansion and government rural electrification programs. The higher customer base has enabled KPLC to scale its operations and reduce dependency on a concentrated user demographic.

Strategic Initiatives Supporting Profitability

In recent years, KPLC has undertaken several strategic measures to reduce financial risks and operational costs. Key among these has been a reduction in financial costs by Ksh24.84 billion. A portion of this reduction, Ksh7.88 billion, was due to foreign exchange gains as the Kenyan shilling strengthened against the US dollar and Euro. As around 90% of KPLC’s debt portfolio is held in foreign currencies, currency fluctuations have historically impacted the company’s financial health. This year’s favorable exchange rates contributed to a reduction in debt obligations, allowing the company to reallocate resources toward operational efficiencies.

Another critical area of focus has been managing power purchase costs, which rose marginally from Ksh143.58 billion to Ksh150.61 billion, a 5% increase. This rise reflects Kenya Power’s continued investment in expanding and stabilizing its energy sources. Over recent years, KPLC has shifted its focus from fossil fuel-based power generation to renewable sources, such as geothermal, hydro, and wind energy. This move is aligned with Kenya’s broader strategy to increase renewable energy in its energy mix, reducing dependence on costly thermal power and making energy more affordable and sustainable.

Increased Operating Expenses: A Necessary Investment

KPLC reported an increase in operating expenses from Ksh37.28 billion to Ksh46.28 billion, mainly due to higher wheeling charges and the hiring of additional technical staff. Wheeling charges, the fees paid for transmitting power across regions, surged by 92%, which KPLC attributed to the expansion of its transmission network. This expanded network is crucial for stabilizing electricity distribution in underserved areas and responding to peak demand, especially in urban and industrial centers.

Kenya Power CEO, Dr. Joseph Siror, commented on the rising expenses, noting that these investments are essential for long-term operational efficiency. “This increase is attributed to expanding our network and recruiting additional technical staff to support business operations. Through careful cost management and zero-based budgeting, we aim to maintain stable margins despite inflationary pressures,” Siror emphasized. The company’s use of zero-based budgeting—a budgeting process where all expenses must be justified for each new period—has played a pivotal role in controlling unnecessary expenditures and aligning spending with strategic objectives.

Dividend Payout After Seven-Year Hiatus

One of the most notable outcomes of KPLC’s recent profitability is the decision to issue dividends, a move aimed at restoring investor confidence and rewarding shareholder patience. For the past seven years, shareholders have faced the dual challenges of economic instability and delayed returns, primarily due to KPLC’s financial restructuring efforts. Now, with renewed profitability, the dividend payout stands as a testament to KPLC’s commitment to creating long-term value. Shareholders, many of whom are Kenyan taxpayers, will finally see a return on their investment.

The announcement is also expected to positively impact KPLC’s stock performance, which has lagged due to concerns over debt levels and operational inefficiencies. With the dividend declaration, analysts anticipate an uptick in KPLC’s stock, as investors see the payout as a sign of the company’s fiscal health and stability. Additionally, this move is expected to bolster the Nairobi Securities Exchange by restoring faith in publicly-listed utility companies.

Addressing Operational Challenges and Public Perception

KPLC’s financial recovery has been met with optimism, but the company is also focusing on operational challenges that have plagued its service delivery. Power outages, fluctuating power supply, and high costs have affected consumer trust, leading KPLC to implement measures aimed at improving service quality. Recently, Kenya Power announced several initiatives to enhance reliability, including infrastructure upgrades and a focus on customer service.

A significant part of this effort is tied to the company’s ambition to transition Kenya into a low-carbon, energy-secure future. Through investments in renewable energy projects, KPLC aims to increase the share of green energy in Kenya’s energy mix, a goal closely aligned with the government’s Vision 2030 strategy. This not only positions Kenya as a leader in green energy within East Africa but also strengthens KPLC’s role as a critical player in sustainable development.

Furthermore, KPLC has been exploring digital solutions to optimize service delivery and address technical issues. The company recently rolled out an app allowing customers to track power outages in real-time, report issues, and make payments digitally. By leveraging technology, KPLC hopes to improve customer satisfaction, reduce service delays, and enhance its relationship with end-users. In addition to this, the company has also committed to investing in cybersecurity solutions to safeguard the integrity of its power grid from potential cyber threats, especially as it transitions to digital solutions.

The Path Forward: Challenges and Opportunities

Despite KPLC’s promising performance, several challenges loom on the horizon. High debt levels, compounded by exchange rate risks and fluctuating fuel prices, remain a critical concern. The company’s management has outlined a debt reduction plan, which involves refinancing some of its loans and seeking favorable terms with international creditors to ease debt repayment burdens. By managing debt effectively, KPLC aims to increase operational flexibility and reduce financial vulnerability.

Additionally, regulatory changes in Kenya’s energy sector could impact KPLC’s future operations. The government has been considering reforms to promote competition in the power sector by allowing private companies to enter the distribution space. If implemented, these changes could end KPLC’s long-standing monopoly and challenge its market share. However, some analysts argue that increased competition may drive innovation and improve overall service quality in the long term, potentially benefiting KPLC as it adapts to a more competitive landscape.

Conclusion: A New Era for Kenya Power?

Kenya Power’s Ksh 30 billion profit signals a possible turning point, driven by a combination of strategic financial management, operational efficiency, and investment in new customer connections. The dividend announcement, the first in over seven years, reflects the company’s commitment to rewarding its investors, many of whom are Kenyan taxpayers, and signifies a newfound stability.

The emphasis on renewable energy and digital solutions positions KPLC as a future-oriented player in Kenya’s power sector. If the company can sustain its focus on innovation and customer satisfaction, it is likely to maintain its position as a cornerstone of Kenya’s economic and industrial growth. However, navigating regulatory shifts, managing high debt levels, and adapting to a competitive landscape will be critical challenges that KPLC must address in the coming years.

The success of KPLC in this transformative period will depend on its ability to continue balancing profitability with social responsibility, ensuring reliable power delivery, and contributing to Kenya’s long-term development goals. For now, KPLC’s performance offers hope for a robust and more resilient energy sector in Kenya.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

30th October, 2024