Imagine buying a phone charger today to use in the next 1000 years. Sounds funny, right? But this is exactly what utility firm Kenya Power did between 2006 and 2012.
An audit of the power distributor’s stock data seen by the Star shows it purchased power distribution accessories to last between 13 and 8,050 years based on average monthly consumption.
From systemic losses, ghost workers to over-billing customers, Kenya Power has become an example of how a giant can easily lose its way and fall into a financial hole.
The end result is a firm struggling to stay afloat, doling out high power bills to every Kenyan consumer and constant power blackouts. These are some of the company’s attributes Kenyans will be reflecting on when the firm hits a century next year.
Starting today, the Star will tell you just how the once-profitable government-owned power firm has been mismanaged by senior employees, top government officials, politicians and their cronies.
Although the firm’s financial woes came to the fore in 2018 when police arrested top managers on suspicion of economic crimes after the company was hit by a series of tender scandals involving questionable tenders and suppliers, it is the recent audit by the board that revealed the true extent of the financial woes.
This was after the company posted a historic Sh7 billion loss in 2020.
Its total debt as at end of last June stood at Sh118.73 billion, made up of Sh65.96 billion commercial debt and Sh53.26 billion on-lent debt.
About 77.3 per cent or Sh51.02 billion of the commercial loans are dollar-denominated, making the level of repayment costs susceptible to currency fluctuations.
The firm’s main commercial lenders include Standard Chartered Bank, Rand Merchant Bank, Equity, Stanbic Bank and Agence Franchaise Development.
According to the company, the result was largely impacted by the effects of the Covid-19 on the operating environment and a one-off increase in impairment for inventories amounting to Sh3.65 billion.
”This follows a business decision to take a more prudent approach in accounting estimation for slow-moving and obsolete stock,” the then managing director Bernard Ngugi said in a press statement.
He resigned from the company early this month, barely two years after his appointment. He was under pressure from the board, shareholders, government and trade unions over turnaround plans amid a streak of losses at the state utility. The board picked Rosemary Oduor to replace him in acting position.
IDLE STOCK
For instance, stockholding increased from Sh8.6 billion at the end of June 2020 to Sh10.7 billion at the end of June 2021 despite specific instructions by the board to management to reduce the stockholding down to Sh7 billion by the end of June.
The high idle stock forced the company to incur an impairment cost of Sh4 billion.
According to our source, the management had asked to dispose of at least Sh1 billion in stock aged over three years in the last financial year and has instead disposed of only Sh130 million.
“These instructions have not been followed, and to make it worse for customers, there are shortages of critical components to fulfill connections on a timely basis. There appears to be no control over the supply chain function at Kenya Power,’’ the source said, requesting not to be named for fear of reprisals.
General stores and transformers make up the bulk of the valuation. Yet, there are many complaints about the lack of critical components including transformers and meters to enable the connectivity Kenyans need.
Even so, the power utility firm insists that materials are fast-moving given their strategic importance to the business and are therefore consumed within a short time.
In response to our queries, Kenya Power said that by the close of the last financial year, its entire stockholding stood at Sh9.7 billion out of which critical materials, such as meters, cables and transformers, accounted for 50 per cent.
“It is important to note that these materials are fast-moving given their strategic importance to the business and are therefore consumed within a short period of time,” the firm said in a statement.
It attributes the increase in stock value to receipt of materials for use in the relocation of the network to pave way for the Nairobi Expressway, and other network maintenance materials, which arrived late due to the effect of the Covid-19 restrictions in the second half of the last financial year, which hampered inter-country and intra-country movement.
“The balance comprises strategic and slow-moving items, such as sub-station transformers and related equipment, which are critical for network operations, and non-moving items some of which will be repurposed and reused within the network,’’ Kenya Power said.
POWER METERS
According to documents seen by the Star, laxity by Kenya Power management continues to cost the firm billions in unremitted power bills, which are overlooked.
The firm’s Internal Audit Division carried out an analysis focusing on non-vend and zero vends meters, zero billed accounts.
It was reported that 487,612 prepaid meters had never vended from the time of meter installation (some over three years) and 79 per cent of which were discontinued accounts.
Another 1.108 million prepaid accounts had not vended for more than three months. Furthermore, a total of 224,546 post-paid accounts had zero bills, denying the company revenue.
While it cannot account for the millions of idle meters, the management placed a request to the board, seeking Sh2 billion for nearly 500,000 additional meters in the current financial year.
“There is no proposal from management to salvage meters which are non-vending, zero-vending and have had zero consumption,’’ our source said
According to a report in our possession, non-compliance with SAP licensing rules over the last few years resulted in a bill from SAP of approximately Euros 6.3 million (Sh812 million).
Management did not act on this quickly enough, and it was only after the board’s intervention that the negotiation with SAP took place, and the total exposure will now be Euros 2.8 million (Sh361.2 billion).
Out of this, Euros 1.3 million can be utilized against future purchases from SAP if done before October 31 this year.
However, as a result of negligence and lack of compliance with laid down licensing rules by SAP, the company lost Sh370 million in the year ended June 30.
POWER THEFT
Most of the revenue arising from power sales is secretly shared between technicians and heavy users.
In tomorrow’s edition of the Star, we will illustrate to you just how the billions are siphoned out of the business.
Most heavy users in the manufacturing sector like steel and cement have power sub-stations at their installations. While those stations are a preserve of Kenya Power, some technicians collude with those companies to manipulate meter readings hence end up paying half the price.
Management did not systematically and comprehensively address this problem. This has seen system losses remain in the 24 per cent range as of June 30, 2021, against a budgeted figure of 20.5 per cent by the end of June 2020. This saw Kenya Power lose Sh4 billion in one year.
Due to power theft and poor collection mechanisms, the firm has been forced to incur billions to cover the losses. Additionally, provisioning for debtors amounted to Sh2.6 billion for the year ended June 30, 2019, and Sh3.25 billion for the year ended June 30 last year and further provisioning of Sh3 billion for the period to June 30 this year.
The total provisioning since 2018 has been Sh8.25 billion. The company has currently provided in excess of Sh18 billion out of its total debt.
Every year, Kenya Power spends almost 15 times more to buy power from independent power producers (IPPs) compared to that from KenGen, passing the high bill to consumers.
Most of those power purchase agreements (PPAs) came with rigid terms. Efforts to retire some of those PPAs have been met by tough resistance from politically connected investors.
Kenya Power’s board intervention saw President Uhuru Kenyatta form a task force to look into those PPA contracts with the view of collapsing those that are not viable.
According to Kenya Power’s electricity purchase costs summary for 2018 seen by the Star, the electricity distributor spent Sh64.8 billion to buy 10.7 billion kilowatts of power from 19 producers up from Sh60.4 billion in 2017.
Although almost a half of the money went to KenGen, which sold 7.9 billion kilowatts at Sh37.02 billion, the listed power producer offered the lowest rate per kilowatt compared to IPPs.
For instance, Kenya Power bought a kilowatt of power from Triumph Power Generating Company at Sh69.26 compared to Sh4.63 from KenGen, almost 15 times more. Other IPPs including Gulf Power Limited, Iberafrica Power, Power Technology Solution and Tsavo Power sold a kilowatt at Sh26.34, Sh16.96, Sh14.70 and Sh11.77 in that order.
Orpower 4 Inc, a subsidiary of OrmatTechnology, an Israel-owned power firm listed on the New York Securities Exchange, sold each kilowatt at Sh9.68, more than double that of Kengen.
In the latest finding, the power distributor was forced to buy at least 11,000 megawatts of power in the period to June 30, 2021, against a total demand of 8,000 megawatts, which means Kenya Power is paying for power for which there is no demand and cannot be sold.
In the second part of this report, we will highlight some of those PPAs, owners and contracts that seem to work against Kenya Power.
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