Mystery of Sh18bn hole in Ketraco budget books

Details have emerged on the financial mess at electricity transmission agency Ketraco. The company’s debts have exceeded its assets by Sh18.5 billion, leaving it exposed to lenders.

Auditor General Nancy Gathungu has flagged the uncertainty in her review of the company’s books as of June 30 last year.

She said company had Sh20 billion in current assets when its liabilities are in excess of Sh39 billion.

“This is an indication that the company was in a net liability position and may not be able to settle liabilities when they fall due,” Gathungu said.

“These conditions indicate material uncertainty regarding the company’s ability to continue as a going concern.”

Ketraco’s liquidity challenges have been laid bare against the backdrop of concerns it is carrying out multibillion-shilling tenders.

The company has been in the news lately over the controversial Sh96 billion transmission project deals with Indian conglomerate Adani Holdings.

A court at the weekend stopped its subsidiary Adani Energy Solutions from executing the tender amid outrage from members of the public.

Despite the allure of the big money tender, the new audit shows the situation is not rosy.

Part of the debt is Sh9.2 billion which an arbitrator awarded a contractor who was engaged to build a transmission line.

Gathungu said the award, if not settled, may further adversely affect the liquidity of the company.

“It is likely to have a negative impact on service delivery,” she said.

It is not clear if it is the same award that has accrued a Sh2.4 billion interest.

Management has been operating with the hope that an appeal it instituted against the award will succeed.

Gathungu is further alarmed that Ketraco could be declared insolvent after a creditor filed an insolvency petition against it at the High Court in May this year.

The matter was awaiting determination at the time of the audit review, the report says.

The Auditor General warns Ketraco could possibly lose Sh1.7 billion in ongoing court cases arising from unsettled wayleave compensation and contractors’ claims.

She cast doubt on management’s explanation that it is evaluating the exposures regularly to assess the probability of incurring related liabilities.

“If these contingent liabilities crystallise, the company may be exposed to unforeseen project cost overruns, resulting to inability to meet its obligations when they fall due and impair service delivery capacity. My opinion is not modified in respect of these matters,” the report reads.

On wayleave, the audit unearthed cases of double compensation to project affected persons of Sh10 million during the year under review.

“Although management has made full provision for the amount, the circumstances leading to double payments were not confirmed.”

Gathungu says the recoverability of the expenditure was in doubt and that value for money could not be confirmed.

Ketraco owes project-affected persons more than Sh6.4 billion, some of which date back to 2012.

While this persists, some of the debts relate to projects which were complete and commissioned and hence have no new budgets.

“It was not clear why the amounts had not been prioritised in the subsequent budgets over the most recent ones,” the auditor said.

She warns that delays in compensation contributed to delay and stalling of projects, which ended up escalating project costs.

Details are also a recipe for litigations and contractor extension of time claims.

“Management was in breach of the law,” Gathungu said.

The audit has also flagged irregularities in the procurement of air tickets, catering services, and a commercial data centre.

Irregularities have also been pointed out in the procurement of security services where the tender was allegedly doctored to accommodate a non-responsive bidder.

Management also irregularly hired an airline company to provide hired helicopter services through direct procurement.

Ketraco is further on the spot for paying a contractor Sh417 million after the company failed to commission a complete project.

The contractor completed the works in February 2020 but the commissioning could not be done due to delays in completion of associated contracts.

“The cost would have been avoided had the associated contracts not been implemented in a staggered schedule,” Gathungu said.