More bad news for Kenya Power investors

Kenya Power is facing a probe over opaque electricity pricing. The probe threatens to put further pressure on Kenya Power shares that have been struggling this year. Many investors have been avoiding the shares recently as the company’s financial results continue to weaken.

The Energy and Petroleum Regulatory Authority (Epra), which regulates the energy sector, wants to know why Kenya Power has stopped giving customers a detailed breakdown of their electricity bill. The probe comes after the Business Daily reported that Kenya Power was hiding some details from customers’ bills.

What are the likely consequences of the Kenya Power pricing probe?

The probe could trigger a wave of lawsuits against Kenya Power from consumer protection groups. Such lawsuits may not only cost Kenya Power money to settle but also distract the company’s management from focusing on the more important matters.

Kenya Power could also face Epra penalties if the probe finds it to be on the wrong. And that could in turn complicate the company’s bid to electricity prices. Kenya Power is seeking the regulator’s approval to hike electricity price to make up for the demand shortfall and rising costs that have dealt blows to its financial results.

Lawsuits and regulatory penalty arising from the probe could in turn spark more selloff in Kenya Power shares, dealing further blow to investors. Moreover, if the probe causes Epra to turn down Kenya Power’s electricity price hike request, the company could a harder time reviving its business.

Kenya Power’s financial results and share price

Kenya Power’s financial results have been weakening in recent years. It made a loss of about Ksh3 billion in its financial year ended June 2020. That marked a sharp reversal from a profit of Ksh262 million in the financial year ended June 2019. But even the 2019 profit dropped sharply from Ksh3.3 billion in 2018.

The deteriorating financial results are scaring off investors from Kenya Power shares. At Ksh1.46 apiece at Thursday closing, the shares are down 52% this year. Moreover, the shares are down 88% from their high of Ksh12 in August 2017.