KPLC brief shows sharp rise in unpaid customer bills

Electricity distributor KPLC is unable to recover nearly half of unpaid consumer bills totalling Sh10 billion, it said Tuesday in a note to shareholders that is likely to unsettle investors warming up for the company’s rights issue which starts Wednesday morning.

The power company is contemplating writing off Sh4.7 billion or 47 per cent of the unpaid bills as at June this year and has already put the debts in a provision for impairment account.

In addition, Kenya Power and Lighting Company faces legal liabilities and tax bills amounting to Sh6.6 billion.

Details of the power firm’s unnerving financial exposure are contained in an information memorandum for the Sh9.2 billion rights issue, in which the Nairobi Stock Exchange listed firm says the irrecoverable debts have been piling up due to billing disputes with customers.

“A large portion relates to rebilling as a result of meter tampering,” says KPLC in disclosures on credit risks in the company’s balance sheet.The irrecoverable bills have doubled in the past two years, jumping from Sh2 billion in 2008 to the current Sh4.7 billion.

The total amount of electricity receivable in this period has increased at a lesser speed, growing by 49.3 per cent from Sh6.7 billion as at the end of June 2008. The disclosures come at a time when KPLC is also facing a barrage of suits from customers who have won an estimated Sh100 million in compensation after contesting bills sent by the power firm.

The Energy Regulatory Commission (ERC), which arbitrates disputes in the energy sector, said in an interview last week that it is receiving on average two new customer complaints against KPLC every month, most of them stemming from faulty meter installations or inaccurate billing.

KPLC says defaulters in its books include industrial consumers, government ministries, local authorities, parastatals, commercial and domestic customers.

“The decision to impair overdue amounts is assessed on the probability of recovery based on the customer’s risk profile,” said KPLC, adding that disconnection of supply is done after three months default.

The power company has contemplated several avenues of improving its debt recovery efficiency, among them the use of debt collectors, intensifying disconnections for defaulters and increasing the upfront deposit payments for first-time customers.“The company is exploring the employment of pre-paid metering and automatic meter reading as strategies to minimise the risk of non-collection.”

Rural areas

The mounting wave of customer complaints has exposed KPLC to costly suits with its customers, exposing the company’s dual problem of an aging infrastructure and poor workmanship at a time when consumers’ awareness has been heightened by last year’s spike in monthly power bills.

The customers have used parallel meters to prove faulty billing by the power firm.

“The rising cases of billing disputes should be a cause for concern for the management. At the end of the day this is lost revenue,” said Francis Mwangi, an energy sector research analyst with African Alliance Investment Bank. KPLC’s customer base has leaped by an estimated one million to a total of 1.5 million in the past decade, exposing the company to possibilities of increased customer defaults.

Most of the new customers are in rural areas and low income urban centres where illegal power connections are rampant, partly explaining the surge in unpaid bills.

“The management should find a way of making illegal power connections highly punitive to act as a deterrent, it should also look at ways of resolving the rising customer complaints before they get out of control,” said Mr Mwangi.

In disclosures on contingent liabilities facing the company, KPLC reports that some employees were laid off in 2003 have sued the company for additional compensation of up to Sh3.3 billion.

The Tana & Athi River Development Authority (TARDA) is also claiming Sh1.3 billion from the power company for lease charges on the Masinga and Kiambere Power Stations incurred more than a decade ago.“In 2005, the parties, together with the parent ministries, Treasury and Office of the President agreed to settle the matter administratively. Resolution of this matter is being discussed with the government,” says KPLC.

Matic General Contractor is claiming Sh367 million in a contract dispute, while Grand Holiday Hotel Ltd has sued for Sh300 million as compensation for “loss of business, good will and all the losses it alleges it incurred as a result of closure of its premises,” states the information document.Power generator Kenya Electricity Generating Company (KenGen), which was hived off from KPLC in 1998, is claiming Sh826 million to cover for an actuarial deficit determined on separation of staff retirement benefit scheme of the two companies in 2004.

“The outcome of these suits cannot be determined as at the date of signing of these financial statements,” says KPLC.

The Kenya Revenue Authority is claiming Sh353 million from an additional corporate tax assessment raised in 2008, which the company has disputed.