KenGen's five-year penalties to Kenya Power rise to Sh4 billion

KenGen Olkaria One additional unit six steam turbine installation. [James Wanzala, Standard]

Kenya Electricity Generating Company (KenGen) has hit Kenya Power with Sh3.78 billion in penalties for the past five financial years over delayed payments for electricity supplied.

The amount has come on the back of Kenya Power flouting a 40-day window of paying for electricity received from KenGen amid continued working capital strain.

KenGen, in the financial year ended June 2021, charged Kenya Power Sh936.28 million, up from Sh800.25 million in the preceding financial year — highlighting the price for the mismatch between short-term assets and short-term liabilities.

The latest penalties bring to Sh3.78 billion the amount that the State-controlled utility firm owes KenGen in the past five years — the highest being Sh1.02 billion in the 2017/2018 financial year.

The figures disclosed by KenGen as interest income were averaging below Sh60 million annually in the years to June 2016. They however rose sharply and remained elevated on the back of Kenya Power’s negative working capital.

“Interest income from Kenya Power relates to interest penalties charged to Kenya Power due to late payments of invoices. Interest on late payments accrues after 40 days,” says KenGen in the latest annual report.

Kenya Power’s current liabilities exceeded its current assets by Sh67 billion as at end of June 2021, making it commercially insolvent.

KenGen supplied 8,443 gigawatt-hours (GWh) to Kenya Power in the review period, up from 8,237 GWh in the previous period, making up 69.8 per cent of the units of electricity received by the utility firm.

As at the end of June 2021, Kenya Power owed KenGen Sh25.14 billion, pointing to accumulated debts that will eat into the profit through high finance costs.

Kenya Power’s squeezed working capital has partly come on the back of government and select parastatals delaying payments running into billions of shillings.

KenGen currently sells its generated electric energy to a single off-taker, Kenya Power, exposing it to a single customer risk. “This comes with the attendant risk of late or delayed payment for electricity sales which could have adverse effects on KenGen’s cash flow and revenue,” KenGen noted in the annual report.

Kenya Power’s electricity sales to government ministries rose 41 per cent to Sh4.91 billion, while sales to strategic parastatals remained flat at Sh1.97 billion.

However, by the end of June 2021, the net amount owed to Kenya Power by the State stood at Sh7.22 billion — doubling from Sh3.16 billion in the previous financial year.

Ministries alone were owing Kenya Power Sh2.77 billion, a near tripling compared to Sh941.13 million in the financial year ended June 2020.

Kenya Power has been seeking faster repayment of debts from customers including the government as well as restructuring debts to cut pressure on its working capital.

The firm received a partial restructuring of Sh6.75 billion overdrafts into a 12-year term loan with a repayment moratorium of 36 months from September last year.

National Treasury last year approved a debt repayment moratorium on Sh5.7 billion as a temporary measure to boost working capital.

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