Kenya Power had attempted to avoid paying the interest on grounds of Covid-19 disruptions, but KenGen denied the request.
The electricity generating company counts Kenya Power as its only client, making it reliant on the utility company’s ability to pay on time.
KenGen has put in the contract a clause to protect its revenues by charging interest on any outstanding balances that are due 40 days after the end of each year.
Electricity generator KenGen has rejected a bid by Kenya Power #ticker:KPLC to avoid paying Sh936.2 million penalty accrued due to late payments for sales.
Kenya Power had attempted to avoid paying the interest on grounds of Covid-19 disruptions, but KenGen denied the request saying the power distributor had failed to demonstrate that failure to pay was due to circumstances beyond its control, formally known as force majeure.
A declaration of force majeure excuses a company from contractual agreements when an extraordinary event that is beyond its control occurs.
The electricity generating company counts Kenya Power as its only client, making it reliant on the utility company’s ability to pay on time.
KenGen has put in the contract a clause to protect its revenues by charging interest on any outstanding balances that are due 40 days after the end of each year.
“There was a dispute with Kenya Power over force majeure related to Covid-19. Our power purchasing agreement specifies that after 40 days interest kicks in. We felt they had not met the force majeure threshold,” said KenGen finance and ICT director John Mudany during the firm’s annual general meeting yesterday.
In the wake of the Covid-19 pandemic, Kenya Power was saddled with idle electricity as power generators continued production amid reduced consumption by homes and businesses.
Kenya Power was unable to sell all the energy it bought from generators like KenGen who demanded payment under the take-or-pay clause contained in contracts signed between government and power producers.
The contract compels Kenya Power to buy the agreed amount of electricity regardless of whether or not consumers use it.
KenGen now says Kenya power paid Sh936.2 million interest on late payments this year, an increase from Sh800.2 million in 2020.
However, according to Kenya Power's annual report, the utility firm said it paid Sh773.3 million this year and Sh707.3 million in 2020 as interest on late payment of invoices.
Business Daily could not establish whether the dispute has since been settled.
Kenya Power has also been struggling to make payments on other power purchases on time due to cash flow constraints.
US power company Ormat says Kenya Power was late in making payments by 83 days on average last year, which has come down to 73 days this year.
As of September 30, 2021, the amount overdue from KPLC owed to Ormat was Sh3.8 billion ($33.8 million) compared to the amount overdue of Sh5.9 billion ($52.9 million) as of September 30, 2020, according to the company fillings at the US Securities Exchange.
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.
