Kenya Power Endures a Sh2 Billion Loss due to Tariff Discount

Kenya Power lost Sh2.1 billion in last year’s 15% tariff discount because other state-owned electricity companies refused to lower their rates as agreed with the government.

The Auditor-General disclosed the revenue loss in its report on the electricity distributor’s financial statements for the fiscal year ended June 2022.

Kenya Electricity Generation Company (KenGen), Kenya Electricity Transmission Company Limited (KETRACO), and Geothermal Development Company Limited (GDC) were the companies that were supposed to reduce their billing in order for the tariff cut to become a reality.

However, they failed to uphold their end of the bargain, allowing Kenya Power to carry out the tariff reduction while taking the hit.

“KPLC implemented the tariff reduction from January 2022 but the other agencies did not implement the cost reduction measures as per respective commitments which were estimated to translate to Sh2.1 billion,” the government auditor said.

“Consequently the company did not realise full revenue support occasioned by the 15 percent tariff reduction directive.”

According to a second examination of the power producer’s financial records, KenGen failed to give Kenya Power the greatest billing discount of Sh1.75 billion.

According to the Kenya Power report, the national government used a significant amount of money to accomplish the tariff reduction.

The State disbursed a total of Sh7 billion to the electricity distributor to support the initiative which was designed to offer financial relief to consumers.

The other government-owned players in the energy sector including KenGen offered partial discounts to Kenya Power compared to their commitments.

“The board of directors agreed to contribute an amount of Sh3.5 billion through fair reduction of invoices to Kenya Power who would, in turn, transfer the benefits to consumers,” the auditor said in its review of KenGen’s accounts for the year ended June 2022.

“However, management of the company did not implement the cost reduction measures as per the commitments, which implies that the reported revenues are overstated by Sh1.75 billion which would have been the company’s contribution due to Kenya Power, which has already implemented the full reduction on behalf of other energy sector players.”

The Auditor-General also stated that this is a violation of the contract. This makes it possible for Kenya Power to demand payment from the generator.

Kenya Power would incur losses as a result of the previous administration’s implementation of the policy, which was intended to provide consumers with financial assistance.

Kenya Power now faces a bigger liquidity gap as a result of the State-owned companies’ Sh2.1 billion discount withholding, which coincides with a worsening of the utility’s financial position during the review period.

On the advice of the International Monetary Fund, the government stopped the program at the end of December 2022 due to the revenue damage from the subsidies on electricity tariffs (IMF).

Despite an increase from Sh69 billion in June 2021, Kenya Power had a negative working capital of Sh47.8 billion at the end of June 2022 as a result of the January rate drop, which caused an annual loss in income of Sh26.3 billion.