State opts not to inject fresh capital in KenGen’s cash call

The government will not inject fresh capital in KenGen during the planned rights issue, Energy Cabinet Secretary Davis Chirchir has said.

Instead, the state, which holds a 70 per cent stake in the Nairobi Securities Exchange (NSE)-listed firm, will convert part of a debt that KenGen owes the government into equity. At the moment the electricity generator owes the government a total of Sh27 billion.

“We will propose to the Cabinet to allow government to convert its debt to equity,” Mr Chirchir said in an interview.

Come in before borrowing

At an annual general meeting held in December, shareholders approved a proposal to raise Sh15 billion through a rights issue and an additional Sh15 billion through debt.

To keep a hold of its 70 per cent stake, the government needs to inject about Sh11 billion. The rights issue is planned to be concluded before June.

“The equity we are looking to raise needs to come in before we borrow. We could also invite a strategic investor,” said KenGen managing director, Mr Albert Mugo. The money will be used to fast-rack its multibillion shilling projects in power production.

A consortium led by Barclays, Dyer and Blair Investment Bank, KPMG and law firm Hamilton Harrison & Mathews — currently arranging a Sh430 billion ($5 billion) through bonds and loans — will shepherd the cash call.

Among the projects lined up are two coal plants at Lamu and Kitui’s Mui Basin area, the grand 280MW geothermal project and some 100MW of wind power near the border of Meru and Isiolo counties.

Overall, the power firm seeks to generate an extra 700 units of power within three years with the Olkaria geothermal plant set to be completed by the second quarter of 2014.

Current peak power demand is 1,800MW against KenGen’s installed capacity of 1,250MW with additional energy obtained from the costlier diesel-powered generators, which currently account for a quarter of the electricity production market.

Under an ambitious programme, the government seeks to add 5,000 megawatts of mainly geothermal, coal and Liquefied Natural Gas energy to the national grid to cut use of the costly diesel engines.

“We plan to double the installed capacity and aim for a 40 per cent reduction in the cost of power within three years,” said Mr Chirchir
At US5 cents per kilowatt hour, hydro-generation is the cheapest source of power closely followed by geothermal (US7 cents/kwh) which compared to thermal costs, is five times expensive at US36 cents per unit of power.

KenGen’s stock has declined by 26 per cent since the beginning of the year to trade at Sh12.60 apiece at yesterday’s trading from last December’s high of Sh17. Analysts are cautious about performance in the short-term.

“The search for additional capital may have a positive impact on the share price which has been declining. The share has now picked momentum with the news of additional capital and change of management,” said Ms Agnes Achieng’, research analyst at Sterling Capital.