Kenya Power risks losing Sh40bn in unpaid-for services

Struggling utility firm Kenya Power risks losing over Sh40 billion in goods and services it provided but which were not paid for.

The revelations are contained in a report by Auditor-General Nancy Gathungu for the year to June 30, reflecting a deep financial crisis at the State corporation.

The amounts included electricity receivables of Sh29.67 billion, prepaid fixed-charge receivables of Sh2.65 billion and others adding up to Sh26.5 billion.

“As at June 30, 2021 the company’s gross current trade and other receivables amounted to Sh62,597,075,000,” says the report, raising the issue as a “key audit matter”.

“The company recognised an allowance for Expected Credit Losses (ECL) on these trade and other receivables of Sh23,884,517,000 in accordance with IFRS 9. Focus was given to the ECL due to the materiality of these balances and the associated allowances for ECL.”

In Auditor-General reports, key audit matters refer to issues considered of great significance to the financial statements of a company, and which are communicated to those in its governance for action.

Of the Sh29.67 in electricity receivables, only Sh15.88 billion had been covered in the allowance for ECL, leaving out Sh13.78 billion. This is an increase from the Sh11.9 billion that was uncovered in the year to June 30, 2020.

A total of Sh75.8 million in electricity receivables that could not be recovered were written off during the year.

The report shows that 56.7 per cent of the receivables (Sh36.79 billion) had remained unpaid for more than three months after their due dates, raising worries that much of the debts could not be paid. Another Sh4 billion had been unpaid for periods between 31 and 90 days, while Sh24 billion was unpaid for a month after the due date.

“The main classes of electricity receivables are industrial, government ministries, local authorities, parastatals, commercial and domestic customers,” the audit report notes.

In anticipation of the expected losses, the company set aside Sh23.8 billion to cover them, under international financial standards, including Sh15.88 billion for electricity receivables, up from Sh15.49 billion it had set aside for the same purpose last year.

The report also notes that in the current electricity receivables is Sh7 million owed by customers in informal settlements who received electricity under a project between Kenya Power and the World Bank.

“The company continues to install prepaid and automatic meters as strategies to minimise the risk of non-collection. In addition, disconnections, use of debt collectors and focus on early identification and letters of demand higher security deposits,” Kenya Power says in the report.

The total amount of unpaid-for goods and services before including any allowance for expected losses has increased by Sh5.1 billion to Sh64.9 billion, up from the Sh59.8 billion reported last year.

After including the allowance, the amount increased from Sh36.3 billion to Sh40.9 billion.

Losses are likely to have huge ramifications for Kenya Power’s finances, particularly after it made losses of Sh900 million last year. In the year to June 2021, the utility firm made a Sh1.4 billion profit.

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