Auditor General flags Kenya Power’s purchase deals as lopsided


Auditor General flags Kenya Power’s purchase deals as lopsided

In Summary

  • In an audit report covering the year running to June 30, 2020, the auditor says the utility firm’s PPA costs may have adversely affected the company’s performance resulting in its first full-year loss in nearly one two decades.
  • For every Ksh.100 in revenues collected from electricity sales, Kenya Power is paying Ksh.64 to offset fees from the power deals according to the audit.
  • In addition to the flagging of PPAs, the Auditor General has continued to raise material concerns over the continuity of Kenya Power warning initiatives to turn around the performance of the firm are yet to yield results.
 

The Auditor General has flagged Kenya Power’s existing power purchase agreements (PPAs) attributing their calibration for the utility firm losses.

In an audit report covering the year running to June 30, 2020, the auditor says the utility firm’s PPA costs may have adversely affected the company’s performance resulting in its first full-year loss in nearly one two decades.

“The financial statements reflect cost of sales of Ksh.87.5 billion. Included in these power purchase costs is Ksh.47.5 billion which relates to capacity charge as per PPAs. These charges which account for 64 per cent of the total cost of sales are significant and considering their fixed nature, may have adversely affected the company’s performance resulting into losses,” stated an extract of the report published on Wednesday.

This means that for every Ksh.100 in revenues collected from electricity sales, Kenya Power is paying Ksh.64 to offset fees from the power deals.

Experts have in recent years sharply criticized the power utility firm for signing on the agreements whose charges are largely denominated in foreign currency and require Kenya Power to disburse payments even when the PPAs output is not connected to the grid in a clause dubbed as take or pay.

From the PPAs, Kenya Power financing costs in the year to June rose by 21 per cent to Ksh.12.5 billion on the back of unrealized foreign exchange losses after the depreciation of the Kenya shilling early last year.

The higher financing costs pushed Kenya Power to its first loss in 17 years with the company booking a Ksh.7.1 billion loss for the year before tax.

The damage was however cushioned by government tax credits resulting from relief on corporation tax reversing the expanded Ksh.7.1 billion pre-tax loss to a lesser Ksh.939 million loss after tax.

In its response to the flagging, the management of Kenya Power has indicated plans to re-negotiate capacity charges on existing PPAs in addition to re-aligning the commercial operation dates for the PPA’s with the company’s medium term power demand to cut off excess power generation.

“Until these strategies are implemented, the company will continue bearing the high-fixed capacity charges,” added the Auditor General’s report.

In addition to the flagging of PPAs, the Auditor General has continued to raise material concerns over the continuity of Kenya Power warning initiatives to turn around the performance of the firm are yet to yield results.

For instance, the Auditor general has noted the company’s current liabilities at Ksh.117.5 billion continue to exceed current assets at Ksh.42.6 billion by Ksh.74.5 billion meaning the company is struggling to meet its short-term commitments including debt repayments.

Similarly, Kenya Power has reported negative working capital for the fourth consecutive year.

Kenya Power’s financial woes have continued to evolve into 2021 with its half year profit to December 31,2020 plunging by 80 per cent to Ksh.138 million on bloated financial costs.

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Story By Kepha Muiruri
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