Kenya Power loses Sh2 billion in tariff discount

Kenya Power offices on Aga Khan Walk in Nairobi.

Kenya Power offices on Aga Khan Walk in Nairobi.

Photo credit: File | Nation Media Group

Kenya Power lost Sh2.1 billion in the 15 percent tariff discount implemented last year as other State-owned firms in the electricity sector refused to lower their charges as agreed with the government.

The revenue loss has been disclosed by the Auditor-General in its report on the electricity distributor’s financial statements for the year ended June 2022.

Kenya Electricity Generation Company (KenGen), Kenya Electricity Transmission Company Limited (KETRACO) and the Geothermal Development Company Limited (GDC) were the companies that were to reduce their billing to make the tariff cut a reality.

They however did not keep their end of the bargain, leaving Kenya Power to implement the tariff cut while absorbing the loss.

“KPLC implemented the tariff reduction from January 2022 but the other agencies did not implement the cost reduction measures as per respective commitments which were estimated to translate to Sh2.1 billion,” the government auditor said.

“Consequently the company did not realise full revenue support occasioned by the 15 percent tariff reduction directive.”

KenGen denied Kenya Power the largest discount of Sh1.75 billion in its billing, a separate audit of the power producer’s accounts shows.

The national government spent heavily to implement the tariff reduction, according to the Kenya Power report.

The State disbursed a total of Sh7 billion to the electricity distributor to support the initiative which was designed to offer financial relief to consumers.

The other government-owned players in the energy sector including KenGen offered partial discounts to Kenya Power compared to their commitments.

“The board of directors agreed to contribute an amount of Sh3.5 billion through fair reduction of invoices to Kenya Power who would, in turn, transfer the benefits to consumers,” the auditor said in its review of KenGen’s accounts for the year ended June 2022.

“However, management of the company did not implement the cost reduction measures as per the commitments, which implies that the reported revenues are overstated by Sh1.75 billion which would have been the company’s contribution due to Kenya Power, which has already implemented the full reduction on behalf of other energy sector players.”

The Auditor-General added that this amounts to a breach of the agreement. This opens the possibility of Kenya Power claiming the amount from the electricity producer.

Failure to collect the amount will see Kenya Power suffer loss from the policy that was designed to offer financial relief to consumers and which was implemented by the previous administration.

The Sh2.1 billion discount withheld by the State-owned firms has exposed Kenya Power to a wider liquidity gap with the utility liquidity position deteriorating in the review period.

Given the revenue hit from the subsidy on electricity tariffs, the government ended the initiative at the end of December 2022 on the recommendation of the International Monetary Fund (IMF).

The January tariff cut resulted in an annual loss in revenue of Sh26.3 billion leaving Kenya Power with a negative working capital of Sh47.8 billion at the end of June 2022, albeit an improvement from Sh69 billion in June 2021.

This article was first published in the Business Daily.