Save Kenya Power from in­sol­vency

Business Daily (Kenya) - - IDEAS & DEBATE - JAINDI KISERO

oing through Kenya Power’s lat­est au­dited ac­counts, the first thing that struck me

the big drop in pre-tax prof­its.

Ac­cord­ing to the au­dited ac­counts, prof­its fell from Sh7.6 bil­lion in the pre­vi­ous year to Sh3 bil­lion­inthe­fi­nan­cia­lyearend­ing June 2018. I de­cided to comb through the ac­counts to find out what had caused such a mas­sive re­ver­sal in the for­tune­sof the­com­pa­ny­within one fi­nan­cial year.

Two items caught my eye im­me­di­ately. First, some mas­sive amount of Sh7 bil­lion the Au­di­tor­gen­eral de­scribes in mumbo jumbo as un­billed fuel cost charges. In­trigu­ingly, the phrase un­billed fuel cost charge is put in quotes in the au­di­tor’s com­ments, sug­gest­ing that even the Au­di­tor-gen­er­al­while look­ing at the books- found that th­ese charges in­deed rep­re­sent monies that were un­billed as re­port­ed­bythe­m­an­age­mentofthe com­pany.

So, I de­cided to comb through the ac­counts in more de­tail to find outif th­ese‘un­billed­fuel’costchargeswere in­cluded­in­what ac­coun­tants called re­ceiv­ables- or monies owed to the com­pany. I found that the Sh 7.2 bil­lion fig­ure is recorded as ow­ing to the com­pany.

To my sur­prise, an amount of Sh4.4 bil­lion is im­me­di­ately writ­ten off from this fig­ure ‘as a credit pro­vi­sion’es­sen­tial­ly­mean­ingthat those­un­billed­fu­el­costcharge­shave been writ­ten off against in­come.

It means that Kenya Power does not ex­pect any pay­ments from them. I went to the notes on the ac­counts to find out what this pro­vi­sion was all about and why such a large amount ow­ing was be­ing writ­ten off. I wanted to see the ac­tu­al­coun­ter­par­tieswhoowekenya Pow­ertheamountsthathave­been pro­vided for and writ­ten off the com­pany’s in­come. How­ever, the note­shaven­o­clear­in­for­ma­tionon the strange an­i­mal called ‘un­billed fuel cost charges’. For the record, thisitem‘un­billed­fu­el­costcharges’ is the main rea­son why the Au­di­tor­Gen­eral has given a qual­i­fied opin­ionon­the­fi­nan­cial­state­ments of the com­pany.

Thenex­titemthat­caught­my­eye is how the Au­di­tor-gen­eral went about throw­ing a tantrum on the com­pany’s bor­row­ings. That had causedamas­sivedebt­load-awhop­ping Sh113 bil­lion.

Thenau­di­tor-gen­er­al­pro­ceeds tomake the­p­oint­that the­com­pany is in breach of fi­nan­cial con­di­tions on­com­mer­cial­loansamount­ingto Sh60 bil­lion. Ac­cord­ing to the Au­di­tor-gen­eral, the com­pany is in a pre­car­i­ous sit­u­a­tion­be­cause-tech­ni­cal­lythese com­mer­cial lenders are en­ti­tled to de­mand im­me­di­ate pay­ment of their debts.

You can imag­ine the cri­sis that can hap­pen to the com­pany’s al­readys­trained­work­ing­cap­i­tal­po­si­tion­were thesec­om­mer­cial­len­ders to de­mand pay­ment in line with time frames stip­u­lated in ex­ist­ing loan agree­ments. The short-term fi­nan­cial po­si­tion of the com­pany would be very pre­car­i­ous in­deed.

When you in­clude over­drafts and other short-term bor­row­ings, the debt in the com­pany’s books comes close to Sh120 bil­lion. This means that the debt load is nearly 40 times Kenya Pow­ers an­nual in­come of Sh3 bil­lion. Clearly, the com­pany’s long- term sol­vency is now in doubt. In the medium, I see the gov­ern­ment be­ing forced to im­ple­ment a rad­i­cal balance sheet re­struc­tur­ing.

I don’t want to pre­scribe to the gov­ern­ment what to do. But when a strate­gic paras­tatal is in this sit­u­a­tion, the play­book is the same every­where:in­ject­cap­i­tal tore­cap­i­talise the com­pany and con­sider forg­ing an al­liance with a strate­gic part­ner that can bring tech­ni­cal ex­per­tise and man­age­ment.

It all begs the ques­tion: does it re­ally make sense for Kenya Power and oth­er­strate­gic­com­mer­cial­state cor­po­ra­tions to re­main listed on the stock ex­change? I ask the ques­tion­be­cau­seifore­see­a­sit­u­a­tion-in fu­ture- where the gov­ern­ment- as the­main­share­holderin thesec­om­mer­cial state cor­po­ra­tions--will be forced to pump in cap­i­tal and –in the process- end up di­lut­ing the mi­nor­ity share­hold­ers.

Kenya Power is the monopoly elec­tric­i­ty­dis­trib­u­torinthe­coun­try. It is the only buyer of elec­tric­ity from in­de­pen­dent­pow­er­pro­ducer mean­ing that its fi­nan­cial health has im­pli­ca­tions to the flow of in­vest­ment in the elec­tric­ity sec­tor.

The com­pany’s fi­nan­cial health for­tunes have im­pli­ca­tions to the per­for­mance­oftheecon­omy.ifthe gov­ern­ment­does­not­come­up­with rad­i­cal so­lu­tions to re­store its prof­itabil­ity, it will not take long be­fore it dips into even deeper fi­nan­cial prob­lems.

Its inan­cial health has im­pli­ca­tions to the low of in­vest­ment in the elec­tric­ity sec­tor” AUTHOR

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