High operation costs and defaults deepen Kenya Power woes

Kenya Power is staring at deeper financial problems as the coronavirus pandemic hits the firm’s bottom line from different fronts - reducing its earnings while pushing up its operational costs.

The power distributor has experienced a sharp decline in revenues over the three months to June, following the reduction in demand for electricity.

This is as companies slowed down on activities as they adhered to government guidelines aimed at taming the spread of coronavirus. This saw Kenya Power’s revenue during the April to June quarter decline by Sh5.6 billion.

The firm has further been hit by high default rates among its consumers, who have been affected by Covid-19, and stopped paying their power bills.

Energy Cabinet Secretary Charles Keter said the company had to spend more over the period, equipping its employees with proper equipment to enable them to respond effectively to emergencies.

“The Covid-19 pandemic has significantly and adversely impacted on the business operations of the company with the impact recorded in the last quarter. Widespread interruption of commercial and industrial operations – including the closure of small and medium enterprises has had an immediate impact on electricity consumption,” said Keter.

He was responding to queries by the Senate Committee on Energy about the impact of the pandemic on the power firm.

“Between March and June 2020, electricity consumption declined by about 14.8 per cent corresponding to a decrease in energy consumption by about 341GWh. Consequently, electricity sales revenue reduced by about Sh5.6 billion.”

CS Keter estimated that customer defaults on payment of monthly electricity bills had reached 8.7 per cent - resulting in reduced revenue by Sh3.9 billion.

“The customers defaulted on their monthly bills given their deteriorated socio-economic environment and the reduced and restricted revenue collection activities by the company. Besides, some of the defaulting customers included essential service providers such as water distributors and health facilities,” he said.

The firm recently issued a profit warning, projecting that its profit for the year to June 2020 would decline by at least 25 per cent due to the effects of Covid-19.

A 25 per cent drop in profit would mean making a net profit of less than Sh196.5 million this year, or worse, even slide into a loss.

In June 2019, the power distributor posted a Sh262 million profit after tax, a significant drop from Sh3.27 billion that it made in the year ending June 2018.

Weighed by the impact of Covid-19, the firm recently warned thermal power producers it might not buy electricity from them - invoking force majeure clauses in their contracts.

Other than the revenue loss, Keter said Kenya Power has hda to spend more to respond effectively to the pandemic. The firm has had to acquire equipment for its staff while creating shifts to achieve social distancing.

“As an essential service provider, staff are required to play a great role in maintaining uninterrupted electricity services during this period, hence increased operational costs. The increased cost was about Sh1.2 billion arising from increased activities in support of critical services and in procuring materials and equipment necessary to facilitate uninterrupted staff operations,” Keter told senators.  

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