Upgrade to help Kenya Power save Sh2bn a year

Kenya Power is targeting to save up to Sh2 billion over the next two years through upgrade of the electricity distribution network at a cost of Sh52 billion.

The money will be used to instal new substations and power lines to reduce power loss from the current 17.5 per cent to 15 per cent by 2016.

“We want to reduce the length of lines by putting up additional substations so that we can achieve the target of lowering system losses to 15 per cent in two years,” said Kenya Power managing director Ben Chumo.

Power loss is the difference between the amount of electricity generated and what is sold to customers.

ACCEPTABLE LEVEL

According to industry estimates, one per cent system loss translates to Sh1 billion loss in revenue a year. The acceptable level of system loss varies with the size of a country’s network.

On Wednesday the power distributor signed an agreement with Standard Chartered Bank Group for a Sh17 billion ($190 million) loan that is part of the total amount it intends to spend on upgrading the network.

Part of the money will be used to settle an outstanding loan of Sh6.2 billion ($70 million) it has with the bank.

Kenya Power is also in talks with Exim Bank of China for a Sh9.2 billion ($103 million) debt. The rest of the funds are set to come from the World Bank.

“Kenya Power will use the money to invest in acquisition of additional transformers and other construction materials in the next one year. These materials will be used to build new substations and power lines while upgrading others,” said Mr Chumo.

Although the interest rate on the loan remains undisclosed, commercial loans are often priced higher than concessional loans from bilateral lenders such as the World Bank, which also allow longer repayment periods.

INCREASED BORROWING

Kenya Power will repay the debt to Standard Chartered bank in seven years.

Mr Chumo defended the company’s increased borrowing from commercial banks, saying “bilateral lenders take longer to settle on how much they will lend.”

Stanchart emerged the winner in a bid carried out by Kenya Power which attracted both local and international financial institutions.

In the first half of this year, Stanchart Kenya income from loans and advances grew to Sh7.8 billion, compared with Sh7.6 billion earned during the same period last year.

The bank expanded its loan book by 11.2 per cent, from Sh118.4 billion to Sh131.7 billion, during the period under review.

The planned network upgrade is in readiness for absorption of 5,000 megawatts of electricity that the government plans to add to the grid by the end of 2016.