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Connecting the poor hands Kenya Power Sh3bn debt




A beneficiary of the Last Mile project in Uasin Gishu. file photo | nmg 

The Jubilee government’s race to connect poor households to the national electricity grid in the run-up to last year’s election left Kenya Power #ticker:KPLC with Sh2.8 billion bad debts, the latest audit of the company’s books found.

Kenya Power found itself in the deep financial hole after more than 880,000 households that were supplied with electricity and had prepaid meters fitted did not consume the power, and did not pay for it.

The firm said most of the debts relate to households that benefited from the Last Mile connectivity programme, which was launched in 2014. The power distributor has only managed to recover Sh120 million of the outstanding balance, a paltry average of Sh137 from each connected household in the last three years.

“We have recovered approximately Sh120 million so far. Our aim is to recover the outstanding amount in 24 months,” said the power distributor which sank into cash-flow shortfalls after consumers failed to Sh12 billion bills for more than 30 days by end of June.

The idle meters mean that Kenya Power has increased the cost of maintaining additional lines that do not contribute to growth in revenue. This is despite intensive field inspections targeting all prepaid installations countrywide.

In the financial year ended June 2018, the company added 578,808 customers to hit a total of 6.761 million, a growth that acting CEO Jared Othieno attributed to the Last Mile connectivity. Basic revenue, however, grew by just three per cent to Sh95.5 billion from Sh91.95 billion.

Kenya Power has been in a race to increase the number of household connections, in line with the Jubilee administration’s election pledges. Mr Othieno said the national electricity access had risen to 73 per cent at the end of June compared to 27 per cent five years ago.

President Uhuru Kenyatta and his deputy, William Ruto, have been criss-crossing the country to drive the Last Mile connectivity programme even as additional connections failed to translate into more revenue.

Mr Ruto was recently in Garissa to launch the second phase of the Last Mile programme.

“We have expanded electric power generation capacity through clean power. Since 2013, electricity connection to households has risen to 6.9 million up from 2.2 million through the Last Mile connectivity programme,” he tweeted.

The outstanding balance relating to electricity and fixed charge on the non-vending meters was part of the reason the Auditor-General, Edward Ouko, offered a qualified opinion on Kenya Power’s books, insisting that there was a material misstatement on provisioning for receivables.

“Had the company consistently applied its policy for determining the provision for impairment loss on receivables, the profit before income tax and trade and other receivables would have decreased by Sh2.604 billion,” Mr Ouko said.

Kenya Power’s expanded network has increased the cost of commercial services such as meter reading and maintenance, according to acting General Manager, Finance Ambrose Lamaon.

“When you come to commercial services, because of expanded network that requires meter reading and checking on connectivity, costs increased by a whole Sh2 billion from Sh4.2 billion to Sh6.3 billion,” he said.

The high cost of maintaining non-paying households saw Kenya Power discontinue pre-loading electricity units for new customers to avoid further accumulating outstanding bills. It said in an email that it has had to intensify field inspections to recover the outstanding fixed charges.

Mr Lamaon said the company would intensify its debt collection procedures even as it made a Sh6.1 billion provisioning for bad debts, a surge from Sh700 million the previous year.
“Every person or firm that is struggling financially is also struggling with our debt. We are putting in all effort to recover the whole amount,” he said.

Kenya Power has hired 200 new staff to help in debt recovery but Mr Lamaon reckons that it will have to be “soft” on customers from Last Mile connectivity since their levels of income is low. The outstanding bills from non-vending meters, a term used to refer to installed prepaid meters that are not paying any tokens, remain in Kenya Power’s books at a time fixed charges have been scrapped.

“Fixed charges were scrapped in the new harmonised tariff adopted in August 2018. We are actively engaging with our customers in a bid to recover the outstanding fixed charge amounts as they vend,” Mr Lamaon said. With its profits having touched a 10-year low at Sh1.92 billion and with a negative working capital of Sh51.7 billion, the Kenya Power management said it will now not extend its lines in the financial year that started July.

“Capital expenditure will be for system upgrade and internal operations –nothing to do with extension unless extensions are able to provide revenues to the company,” said Mr Othieno.

During the year ended June 2018, the company completed eight new substation projects worth Sh16.5 billion and upgraded 23 others at a cost of Sh3.3 billion to strengthen and expand the network.