Sh3 billion loss: Auditor explains why Rivatex is on its knees

State-owned textile firm, Rivatex East Africa Limited is facing an imminent collapse amid revelations of massive losses amounting to more than Sh3 billion.

Auditor General Nancy Gathungu cast doubt on the continued existence of the firm due to losses and huge debts in the latest audit report.

The report for the financial year ending June 30, 2023, reveals that the company incurred an accumulated loss of Sh3.04 billion.

“The management attributes the poor performance to constant lack of raw materials such as cotton” the report said.

The firm cited high cost of inputs such as labour, electricity, water, fuel, spares, repairs and maintenance as the cause for firm's inability to produce and supply products on time.

In addition, the firm has accrued debt of more than Sh140.92 million.

The debt comprises Sh56.88 million owed to suppliers, accrued expenses of Sh2.13 million, Sh4.33 million retention monies and some Sh67.29 million owed to Moi University Pension Scheme deductions.

The firm also owes Rivatex East Africa Limited Sacco Sh10.27 million in unremitted deductions.

“In the circumstances, the ability of the company to settle its obligations as and when they become due is in doubt,” the report said.

Gathungu said the firm is unable to pay its debts amounting to Sh111.35 million.

“Review of the debtors' ageing analysis reveals that out of the total debtors’ balance of Sh111.35 million, Sh29.14 million were more than one year old. This implies that the company is unable to collect its debts as and when they fall due,” she said.

“In the circumstances, the company’s continued existence as a going concern may depend on the goodwill and support from the government, bankers and creditors.”

The Eldoret-based company is owned by Moi University and  was incorporated on August 16, 2007. The institution was to utilise the facility for training, research, extension and commercial purposes.

However, the firm has run into headwinds with constant losses threatening its existence.

According to the report, Rivatex is also suffering from acute underfunding amounting to Sh31.47 million during the year under review.

“In the circumstances, the underfunding affected planned activities of the company and may have impacted negatively on service delivery,” the report said.

The audit said construction of godowns by the company in key cotton-growing areas has been delayed or stalled, affecting delivery of services.

For instance, the firm awarded a Sh49.41 million tender for the construction of a godown in Nyando. The project was to be completed in 24 weeks.

The contract was signed on February 2, 2022 and the site handover was done on February 28, 2022.

The contract completion was delayed and an addendum was signed on August 3, 2022, extending the contract period by a further one year to give the contractor time to complete construction.

At the time of the audit in December last year, the company had paid the contractor Sh34.56 million and the project was still incomplete.

“In the circumstances, value for money on the expenditure of Sh34.56 million on the project could not be confirmed,” the report said.