Consumers paid an additional Sh5.06 billion to Kenya Power in the year ended June for electricity theft and leakages from an ageing transmission network.
The extra cost came after the energy regulator gave Kenya Power more room to bill consumers the additional losses it incurs for electricity bought from generators such as KenGen that does not reach homes and businesses, technically known as system losses.
The Energy and Petroleum Regulatory Authority (Epra) in July last year allowed Kenya Power to recover system losses equivalent to 19.9 percent of the units it buys from generators, up from 14.9 per cent.
This saw consumers pay an extra Sh5.06 billion, pushing their total cost burden for electricity theft and leakages to Sh20.1 billion based on system losses of 24.14 percent for the year to June.
Using the previous recovery allowance of 14.9 percent, Kenya Power would have billed consumers Sh15 billion.
This underlines the impact of giving the company more headroom to make consumers pay for its inefficiencies.
“These losses contribute to high power charges to the consumers since the industry regulator allows the company to charge up to 19.9 percent of the power losses to consumers,” the Auditor-General said in her remarks on Kenya Power’s accounts.
Kenya Power brought 12,131 gigawatt-hours (GWh) in the review period but only sold 9,203 GWh or 75.86 percent of the units. This means that 2,928 GWh or 24.14 percent of the units was lost.
The company, however, billed consumers for 2,414 GWh out of the lost units, resulting in a charge of Sh20.1 billion under the 19.9 percent system loss recovery margin.
The utility absorbed losses above the regulatory margin of 19.9 percent, leading to lost earnings of about Sh6.7 billion had the power been billed on consumers.
The Auditor-General said the excess power loss above the approved recovery rate of 19.9 percent “constitutes unaccounted for power which though the cost is not passed on to the consumers, it increases the operating costs of the company.”
Analysis of the system losses and recovery is based on disclosures of the utility firm’s operations by the Auditor-General. Kenya Power is allowed to recover part of the system losses based on the cost of power purchase and not what it would sell the units to households and businesses.
Kenya Power’s system losses in the review period stood at 24.14 percent, significantly above the global benchmark of 15 percent.
The company says reducing electricity losses is part of its ongoing reform agenda.
“The turnaround strategy is premised on five key focus areas: improving customer experience, growing sales, enhancing revenue collection, reducing system losses, and managing costs,” Kenya Power said in a statement.
The combination of power theft and leakages from the ageing transmission grid, which stems from the long period of underinvestment, has continued to keep the system losses beyond the new higher target of 19.9 per cent.
The inefficiency in the power flow system happens in high voltage wires, substations as well as low voltage lines connecting households and businesses.
High voltage wires, above 132 kilovolts, are managed by the Kenya Electricity Transmission Company, with Kenya Power handling lower voltage lines.
Meter tampering or outright theft of electricity have also dogged Kenya Power, which is also hurting from vandalism of lines and transformers.
The company has fired more than 100 workers due to fraud and illegal connections to the grid carried out by people suspected to be its employees.
Hundreds of people have also been arrested and prosecuted for various crimes relating to electricity theft and fraud, with 115 convicted.
Without enhancement of the system loss recovery, Kenya Power’s finances would be in worse shape.
The company made a net profit of Sh1.4 billion in the year ended June, reversing a net loss of Sh939 million the year before on the back of higher revenue and lower costs.
Sales increased by Sh10.8 billion to Sh144.1 billion while transmission and distribution costs shrank by Sh8 billion to Sh39.8 billion.
“The strong performance was mainly driven by growth in sales and revenue, as well as a double-digit reduction in costs and expenses,” Kenya Power said.
The company’s financial position is, however, still weak as it struggles to meet its short-term obligations.
Its current liabilities in the review period stood at Sh116.1 billion, dwarfing the current assets of Sh49.6 billion.
The Auditor-General has flagged the negative working capital as a major concern.
“The company has remained in a negative working capital position for the fifth consecutive year. The board of directors and management in the past and in the year under review indicated strategic initiatives that were being undertaken to improve the financial results of the company,” the Auditor-General said.
“However, these initiatives appear not to have yielded the intended results as of June 30, 2021. As further stated in Note 2(a), this condition, along with other matters as set forth in Note 2(a), indicates the existence of material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.”