Auditor raps utility despite Sh8.2b profit
Friday, November 12th, 2021 00:35 | 4 mins read
The Office of the Auditor General has laid bare the rot in the management of Kenya Power exposing loopholes through which power consumers have lost billions of shillings, a few days after the government moved to restructure the power utility.
In a report for the year ending June 2021, the Auditor General fingered the board and management of the Kenya Power for malpractice such as non-compliance with the Capital Markets Authority, losses due to stalled projects and failure to surrender unclaimed assets.
Critical factors like overpayment to the Independent Power Producers, lack of collections of funds owed to the company, weak IT system that does not call for accountability while leaving open logins that have been inactive for too long.
Overpayment to IPPs
This even as the firm which will mark a century of service to the Kenyan people on 6th January 2022 recorded a profit before tax of Sh8.198 billion for the period under review compared to a loss before tax of Sh7.042 billion the previous year, an increase of 216.4 per cent.
“The positive growth is attributable to an increase in sales and a decrease in operating, and finance costs,” said Rosemary Oduor Ag. Managing director and chief executive.
“Revenue from electricity sales increased by Sh9.755 billion to Sh125.927 billion, an increase of 8.4 per cent. The increase in electricity revenue is mainly attributable to a growth in unit sales by 400 GWh from 8,171 Gwh the previous year to 8,571 Gwh,” she said in a report at the Nairobi Securities Exchange.
However, in it’s report, the Auditor General said the utility will struggle to meet its short term obligations as it has fewer current assets and much more liabilities. The firm also bought faulty prepaid meters which will have to be written off.
The audit raises a longstanding issue where the utility has been procuring goods and services from shadowy dealers leading to loss of millions of shillings.
“Prepaid meters worth $10million (Sh1.1b) procured from a shadowy Chinese firm, are not working and will have to be written off. The board held 90 meetings, with directors pocketing hefty cash allowances,” the report says.
The government watchdog questioned why Kenya Power bosses were holding 90 meetings a year drawing heavy alliances from an ailing company.
The auditors report also wanted to know why KPLC was paying Independent Power producers three times more for power compared to Kengen. The power company buys power at Ksh15.3/kwh from shadowy IPPs while the same power from Kengen is bought at average of Ksh5.3/kwh.
Records availed by utility shows that it bought 8.4GW of electricity which is 70 per cent of the total power purchased with the rest coming from IPPs. However the utility paid Kengen Sh44 billion which is equal to 44 per cent of the total funds spent on power purchases while the same utility paid Sh56 billion to IPPs which is 56 per cent of the funds spent in power purchases.
“It was noted that the effective cost of acquiring power from IPPs was as high as Sh195/kw, Sh136 per kwh and Sh118 per Kwh while the same was sold at an average of Sh15 per Kwh.
The company entered into very expensive contracts with IPPs and was in some instances selling power below cost price,” the Auditor General ruled drawing the same conclusion with the Presidential Taskforce on IPPs published a few weeks ago. The company also reported having paid Sh159 million for projects the auditor was not able to verify as no work was done or shown to have been done.
“Management indicated that part of the impared amount totalling Sh159m related to fraudulent payments made to contractors which was a court case against former employees of the company,” the auditor noted.
The struggling utility that has become synonymous with graft is also illegally holding Sh691m of unclaimed assets yet to be surrendered to the responsible authority.
The delays in surrendering unclaimed assets can open up new opportunities for theft especially in a company with weak governance structures. The auditor also said the utility has breached its loan covenants with financiers due to its poor working capital conditions as its cashflow situation is worse.
The report also points to a possible loss of Sh274 million under the Last Mile Connectivity project which was spent on procurement of consultancy services for installation of prepaid meters and management of civil works.
“Sites visits by the audit team revealed no evidence of the presence of consultant’s personnel presence at the sites raising doubt on whether they had been deployed at the sites,” the Auditor observed.
The company is also losing 23 per cent of its electricity to system losses, the highest in Africa according to the International Energy Agency.
As a result the company is losing Sh25 billion due to system inefficiencies caused by a poorly maintained distribution network.
The regulator EPRA is allowing the utility to recover a whooping Sh19 billion from Kenyans via higher bills in a way allowing the company to maintain the status quo.
The company also did not provide to the auditor records of services procured under the last mile connectivity project, such as feasibility studies and surveys, progress reports, bills of quantities and other relevant materials for audits.
Kenya Power this year reported a profit of Sh8 billion compared to a loss of Sh7 billion at the same period last year.
The sudden shift in earnings has raised concern despite the fact that the company’s cashflow situation remains dire as current assets are way below current liabilities.
The government has appointed a taskforce that seeks to reduce inefficiencies in the system by among other things reducing the fees paid to IPPs as standing charge despite low output.
The recommendations also include.
Kenya Power will mark a century of service to the Kenyan people on 6th January 2022..