Syndicate content

Add new comment

Submitted by Scubidu on
I believe your theme “importing too much and exporting too little” is quite informative. Though I’d like to address the moral hazard I believe exists in the energy sector that's a consequence of Kenya’s Guaranteed Loans Act, CAP 467. I have read in today’s paper (The Business Daily) that Parliament has approved a Treasury guarantee for an international loan for additional public power generators. Granted that these debts are financed largely in Yen it shouldn’t have that big an effect on the over BOP position. However, according to information I have available to me the current account deficit has virtually doubled over the last year due to slowing exports and service receipts. My main concern is don’t these guaranteed loans distort aggregate demand raising imports of machinery and by extension creating demand for oil (particularly due to the recent investments in thermal energy)? According to KenGen, under their current Power Purchase Agreement they’re not exposed to foreign currency translation exposure so their balance sheet includes recoverable foreign exchange adjustments amounting to Kenya shillings 13 billion in 2011 from Kenya shillings 4 billion in 2009. This means that the company has no exposure to currency mismatches, which is a scenario other private companies are finding difficult to cope with. The secondary effect of this is that these losses with have to be recovered from either taxpayers or electricity consumers (the general public). I believe this creates an unhealthy situation where a publicly held company contributes to further depreciation of our already overvalued currency, while its management are not being held accountable for their decisions. I would appreciate your views on this matter. Thank you.