Details have emerged on how cartels and other infrastructural challenges exposed water companies to a loss of up to Sh17 billion.
A new report by Auditor General Nancy Gathungu says the companies lost almost half of the water they produced in 2022.
The report summarises queries of 82 water firms.
Gathungu says while the firms produced 438 billion litres, only 235 billion litres was billed to customers.
This resulted in a loss of 202 billion litres - which is 46 per cent of the water produced. Water laws and regulations give an allowance of 25 per cent.
Had the water been sold as produced, the firms would have made Sh16 billion.
“The significant losses through non-revenue water pose a threat to the sustainability of water services by the affected water companies,” Gathungu said.
The losses were from illegal connections, the use of flat rates to bill water consumed, leakages from dilapidated infrastructure and faulty water metres.
“A review of water production and sales data revealed that the problem of non-revenue water cut across almost all companies,” she said.
Out of the 82 water companies in the country, up to 72 exceed the 25 per cent limit set by the Water Services Regulatory Board.
Nairobi Water made the biggest loss at Sh9 billion, accounting for more than half of the losses reported in the year under review.
It was followed by Mombasa Water which lost Sh677 million in sales from produced water versus that which was billed.
Ruiru Juja company lost Sh488 million, followed by Kilifi Mariakani at Sh482 million, Eldoret Water (Sh382 million), Nakuru Rural (Sh267 million), Gusii (Sh262 million) and Sh235 million in the case of Garissa Water.
Other huge losses were reported at Kirinyaga Water (Sh230 million), Gatundu (Sh222 million), Thika Water (Sh199 million), Embu Water (Sh187 million), Malindi (Sh183 million), Kitui (Sh178 million) and Elwak’s Sh175 million.
As the companies struggle to make ends meet, it is emerging they are owed debts to the tune of Sh14 billion.
“The significant balance of outstanding debtors is an indication of management’s inability to manage the debt portfolio which may result in bad debts and inability to deliver services,” Gathungu said.
Failure to collect amounts receivable contravenes the Public Finance Management (County Governments) Regulations, 2015.
The report says the companies owed suppliers and other service providers Sh16 billion.
In the outstanding payments were Sh13 billion in unremitted regulatory fees and statutory deductions such as NSSF, NHIF and PAYE.
“The significant balances pose a risk of incurring nugatory expenditure through interest and penalties that could arise from litigation by the creditors for failure to settle amounts owed within the contractual timelines,” Gathungu said.
At the time of the audit, Nairobi Water owed suppliers Sh5.5 billion. The amount could be higher.
Mombasa Water owed Sh1.3 billion, Taita Taveta Water (Sh527 million), and Malindi Water (Sh514 million).
Details show that the crisis is so bad that some 27 firms irregularly spent customer deposits to the tune of Sh324 million.
“Failure to obtain approval of the Board of Directors leads to irregular use of customer deposit and impedes the ability of the water companies to make refunds to customers as and when required,” the report says.
The audit established that 24 water companies were extremely broke, and therefore technically insolvent in the face of Sh4.4 billion negative working capital.
Gathungu said the adverse financial performance could be attributed to among others, the firms’ inability to realise their full revenue potential due to high rate of water losses.
Top on the list was Mombasa Water with a negative working capital of Sh1.6 billion, followed by Nairobi Water (Sh1.5 billion) and Wajir Water (Sh503 million).
"The financial statements for these companies were, therefore, prepared on a going-concern basis on the assumption of continued support from the county governments and creditors."
Gathungu also raised concerns that the firms use outdated water tariffs, meaning they are collecting less revenue.
During the year under review, all the water companies used outdated water tariffs to raise their own generated revenue totaling Sh25 billion.
“Information provided revealed that for various reasons, the revised tariffs had not been implemented,” the report says.
“Continued application of outdated water tariffs threatens the sustainability of the water companies as they may not be able to fully recover their operational costs.”
It has also emerged that at least 23 water companies paid workers excessive salaries to the tune of Sh1.6 billion, of which Nairobi Water alone accounted for Sh1.3 billion.
Other excess payments were at Nyahururu Water, where workers earned Sh74 million more than they deserved and Kericho where workers were paid an extra Sh47 million.
“The excess wage bill was above the allowable 30 per cent and was contrary to a circular which provides the maximum allowed proportion of personnel cost to total operation cost as 30 per cent.”
Nzoia Water Services paid excess salaries to the tune of Sh26 million while Thika Water accounted for Sh21 million of the queried payments.