From left: Energy CS Charles Keter, Energy Principal Secretary Joseph
Njoroge and Energy Regulatory Commission (ERC) Director General Pavel
Oimeke.
File Photo | NMG
Summary
- Auditor-General Edward Ouko has, in his latest report, laid bare the full extent of the financial misrepresentation.
- The aim was to keep electricity prices artificially low and help the Jubilee government get re-elected.
- Acting on instructions from the government, Kenya Power suspended the collection of fuel cost charge on electricity bills, leading to a pile-up of uncollected cash.
Electricity distributor Kenya Power 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.
Consumer uproar
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.
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.
Misled investors
Mr Ouko’s revelation makes Kenya Power the latest publicly traded firm found to have misled investors.
The list includes KenGen
, ARM Cement , Uchumi Supermarkets , East African Breweries , KenolKobil and National Bank of Kenya
.
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.
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