The government has committed to support insolvent Kenya Power whose liabilities now exceeds its current assets by Sh70.9 billion, with the Auditor General casting doubt on its financial soundness.
The power utility firm has an asset base of Sh44.2 billion, for the year ended June 30, 2019, against a liability of Sh115.2 billion, a figure likely to have gone up, meaning the listed company is technically insolvent.
In her audit of the company, Auditor General Nancy Gathungu, who took office in July, notes Kenya Power has remained in a negative working capital position for the third consecutive year.
Though the board and management indicate they have been undertaking strategic initiatives to improve its financial position, the efforts have not yielded the intended results, the Auditor General notes.
“These conditions indicate that a material uncertainty exists, which may cast significant doubt on the company's ability to continue as a going concern,” AG Gathungu notes in her opinion of the company.
The electricity distributor’s debt to its various independent power producers and suppliers was at a Sh47.9 billion by June.
This includes Sh23.7 billion owed to KenGen, Sh19.5 billion owed to Independent Power Producers(IPPs), and another Sh4.7 billion owed to Kenya Electricity Transmission Company (KETRACO).
Its profit for the year to June 2019 dipped 91.9 per cent to Sh262 million, from Sh3.3 billion the previous year, blamed on an increase in power purchase costs which went up by Sh18.1 billion to Sh70.9 billion, from Sh52.8 billion in a similar period in 2018.
Its commercial debt is to the tune of about Sh60 billion.
Energy PS Joseph Njoroge has however affirmed the government's support for the troubled company,ruling out any possibilities of its nationalization, which is an option the government has considered in trying to salvage national carrier Kenya Airways.
Njoroge on Friday told shareholders that the Energy Ministry is in talks with the National Treasury to cushion the firm through among others, debt restructuring and moratoriums, which will ease pressure on the company.
“At the moment there is no intension by the government to nationalise Kenya Power. The government is making sure that there is a recovery process in force with a lot of initiatives to wade off insolvency,” Njoroge told shareholders during the 98th(Virtual) Annual General Meeting.
Shareholders, who will miss dividends for the the third straight year over poor performance, had sought an explanation on the company's insolvency status, which the PS acknowledged, but assured the company will recover.
“Yes, from the figures that have been shown, there is that fear (of insolvency) but I want to confirm that the various initiatives, including debt restructuring, should give a lot of relief to Kenya Power,” Njoroge said.
He said the government has further given Kenya Power, together with KenGen, a break on reimbursement of monies paid by the exchequer on their behalf.
“This is quite an impactful initiative towards the recovery of Kenya Power,” the PS said.
The firm has so far secured debt relief from 14 lending institutions, cutting interest costs.
It has access to a one-year moratorium on its 18 foreign commercial and government guaranteed loans from lenders such as China Exim Bank, Japan Development Bank and World Bank’s International Development Agency (IDA).
The company has also been engaging a financier to shoulder its commercial debt, a move managing director Bernard Ngugi said will help convert it into a longer period and gain fresh momentum to recover.
The government is also supporting Kenya Power in revenue collection, the PS said, especially from public entities and state agencies , which are among the biggest defaulters of power bills.
Parastatals, national and county governments had a pending electricity bill of Sh4.7 billion as at the end of June 2020, a figure that has hit a new high as of today.
County governments, health facilities and other devolved services alone had unpaid bills of Sh2.4 billion as at June 30.
The debt by government agencies adds more pain to the utility firm which has already issued a profit warning for the year to June 2020, saying it expects its full year earnings to drop by at least 25 per cent.
It attributes this to the impact of the Covid-19 which has led to a major drop in industrial and commercial power demand.
Meanwhile, the company is focused on growing its electricity sales, enhance revenue collection, manage costs and improve system efficiency as part of its recovery strategy, MD Ngugi has said.
“Our target this financial year is to increase sales by three per cent. This growth will be driven by new customer connections,” Ngugi said.
Kenya Power currently has a customer base of more than 2.6 million, having grown the numbers from 680,000 about ten years ago.
In 2015, the government announced the 'Last Mile Connectivity Programme' which focused on rural areas and slums, as it targeted universal access to electricity by this year(2020), an ambitious goal that is yet to be achieved.
The country's electricity access rate is currently at 72 per cent, which is however a major improvement from 29 per cent a decade ago.