Electricity distributor Kenya Power #ticker:KPLC cooked its books to the tune of billions of shillings in two years after it was roped into a political scheme to keep the electorate happy in the run-up to last year’s General Election.
Auditor-General Edward Ouko has, in his latest report, laid bare the full extent of the financial misrepresentation, whose aim was to keep electricity prices artificially low and help the Jubilee government get re-elected.
Kenya Power refused to restate its financial results for the years ended June 2017 and June 2018 as Mr Ouko had advised, underlining the level of impunity at the Nairobi Securities Exchange-listed firm.
Last year the company, acting on instructions from the government (which was seeking re-election in the August poll), suspended the collection of fuel cost charge on electricity bills, leading to a pile-up of uncollected cash.
The fuel cost charge — which is used to compensate diesel power generators — was held constant at Sh2.85 per kilowatt hour (kWh) in the seven months to August last year despite a steep increase in the amount of diesel-generated power on the national grid.
Consequently, the uncollected levy piled up to more than Sh10 billion, forcing the company to ramp up its recovery of the levy after the election, and causing a consumer uproar and litigation.
The Energy Regulatory Commission (ERC) approved Kenya Power’s ignore-and-bill-later strategy, which the utility firm earlier told the Business Daily was a short-term policy of the government.
Delaying collection of the fuel levy, which was meant to contain public disaffection with the government over the high electricity bills in the run-up to the polls, however, left Kenya Power’s financial statements in disarray.
To pull off the scheme, Kenya Power went against International Accounting Standards (IAS) to incorrectly report sales, receivables, liabilities and profits.
The electricity distributor irregularly recognised unbilled fuel costs as revenue, setting off a process that saw it manipulate the reporting of other items in its books in the quest to avoid disclosing lower earnings.
Mr Ouko says proper reporting would have left Kenya Power with a paltry Sh366.6 million in pre-tax profit for the year ended June 2017, and not the Sh7.6 billion it reported.
The company’s pre-tax profit for the year ended June 2018, on the other hand, should have been Sh6 billion and not the Sh3 billion it reported.
Incorrect financial position
Kenya Power’s newly released financial statements for the year ended June have not been corrected to reflect the company’s true financial position, an unprecedented disregard for good corporate governance practices by a publicly traded firm.
“Accordingly, had the company complied with the principles of IAS 18, the profit before income tax for the year ended June 30, 2017 and the trade and other receivables (current assets) as at June 30, 2017 would have decreased by Sh7.2 billion; and the profit before income tax for the year ended June 30, 2018 would have increased by Sh5.5 billion,” Mr Ouko says.
“The correction of the misstatements requires a restatement of the comparative balances for the year ended June 30, 2017.”
While Kenya Power was caught up in the fuel cost saga, it racked up major claims from power producers such as KenGen, another majority State-owned public listed firm.
KenGen disclosed that Kenya Power only recently paid it Sh18.5 billion, reducing its debt from highs of Sh21.8 billion.
Besides the controversial fuel cost charge, Kenya Power failed to write off Sh2.6 billion worth of unpaid electricity bills on its books.
The company also failed to disclose its financial distress after it breached terms attached to Sh59.9 billion worth of commercial loans.
Compliance should have seen the debt reclassified from long-term to short-term as of June but Kenya Power once again ignored accounting standards.
“Had management complied with IAS 1, an amount of Sh49.9 billion would have been reclassified from non-current to current. Accordingly, current liabilities and the net current liabilities would have increased by Sh49.9 billion,” Mr Ouko says.
Mr Ouko’s revelation makes Kenya Power the latest publicly traded firm found to have misled investors.
The list includes KenGen #ticker:KEGN, ARM Cement #ticker:ARM, Uchumi Supermarkets #ticker:UCHM, East African Breweries #ticker:EABL, KenolKobil #ticker:KENO and National Bank of Kenya #ticker:NBK.
KenGen, for instance, did not provide for a tax liability amounting to Sh963.3 million in its financial statements for the year ended June, arguing that it was lobbying the government to rescind the claim.
The Auditor-General, however, noted that the waiver had not been issued and there was uncertainty over what impact the delayed payment will have on the company’s finances.