KenGen mulls over Sh460bn rights issue to finance 5,000 MW projects

A plan by the government to add 5,000 megawatts of electricity to the national grid in the next 40 months is likely to send utility companies to the money markets in search of fresh financing.

Already, the Kenya Electricity Generating Company (KenGen) has announced that it plans to raise nearly half a trillion shillings during the 40-month period to finance construction of its power generation plants.

At an investor briefing held a week ago, KenGen’s acting managing director Simon Ngure said the company would raise the targeted Sh467 billion ($5.5 billion) through both debt and equity.

He said KenGen was likely to go back to its shareholders through a rights issue to get 30 per cent of the required amount from the bourse.

“KenGen needs to look for additional financial resources — in the region of $5.5 billion — in the next 40 months when we expect to be undertaking various projects. The debt component will be 70 per cent while the rest will be equity,” said Mr Ngure.

Additional capital

Early this year, the company announced that it would be issuing a 20-year bond, backed by its assets, such as the geothermal steam produced in Olkaria, in a move that is expected to help the company tap into additional capital from the market to build electricity generation plants.

KenGen posted a 86 per cent growth in net profits to Sh5.2 billion during the year to June 2013, helped by a Sh1 billion tax credit the company received for investment in four power generating plants completed during the period.

The positive financial results are likely to draw investors to the stock, making it easy for the company to acquire the desired finances.

Of the government’s target, KenGen is expected to generate up to 2,500 megawatts of electricity through joint ventures with interested investors.

In a telephone interview, the Kenya Electricity Transmission Company Ltd (Ketraco) said it was awaiting results of a study to determine the extent to which the company would have to increase its investment in construction of high voltage transmission lines.

These will be used to transfer electricity produced under the project from generators to substations for onward distribution by Kenya Power.

“We advertised for a feasibility study whose results will inform our search for funds. In about three months, we will be able to tell which of the projects lined up for the 5,000MW plan are viable,” said Mr Raphael Mworia, Ketraco’s head of corporate communications.

Ketraco was incorporated in 2008 and is tasked with developing high voltage electricity transmission infrastructure that constitutes the national grid.

Since its establishment, the company has spent an estimated Sh180 billion on various projects, sourced from both the government and development partners.

According to Mr Ben Chumo, Kenya Power’s acting managing director, the company will be sourcing for funds to enable it to meet its targets, spelt under the 5,000MW electricity programme.

Kenya Power has unsuccessfully petitioned the government to review its base tariff and fees for new meter connections, attempts the company has made to generate revenue to finance its projects.

Through the 5,000MW programme, the government hopes to triple the country’s total installed capacity for electricity generation and increase the population’s access to electricity from the current under 30 per cent.