Too Little Too Late? Treasury Agrees to Bail Out Troubled Kenya Power

By Soko Directory Team / Published October 19, 2021 | 2:34 pm

KEY POINTS

KPLC can never hope to repay its massive debt. This is supported by their current leveraging, highest profits ever made, ability to bring in new investors, and their massive cashflow needs.

In a surprising turn of events, the Treasury has agreed to inject cash into Kenya Power, yet it hadn’t allocated any bailout for the firm in the current financial year.

The Treasury’s cited the role the Kenya Power and Lighting Company (KPLC) plays in supporting economic recovery from the effect of Covid-19.

The absence of the bailout allocation in the national budget, in the first place, was because the government didn’t have enough money. This raised concerns that it would worsen the company’s cash flow position, hurt operations, and slowdown the recovery in economic activity.

In recommendations presented in the Budget Review and Outlook Paper (BROP) in September, stakeholders faulted the Treasury for not outlining a recovery plan for KPLC.

They argued that Kenya Power fuels economic growth and the creation of employment and should be supported financially through the budget.

Remarkably, the Treasury responded with “This is duly noted and will be done during sector allocations” in the final BROP report factoring in public input.

It then opened a public hearing forum that seeks to inform sectoral budget proposals to be considered in the Appropriation of the Budget Bill for the next financial year.

ALSO READ: Government Takes Control of KPLC in Reforms to Cut Electricity Costs

Once ready, probably by end of March 2022, the bill will be passed for approval in parliament. This will be a month earlier than the legal timeline because of the 2022 elections in August.

One question still remains though, will the bailout save the broke Kenya Power?

In the past three years, the risks of defaults have been growing bigger and bigger. The KPLC bosses have perpetually been busy writing letters to banks, one after the other, asking for approval to breach terms and conditions without punishment.

The reason is clear. It is broke. In 2020, it registered its biggest ever loss of 7 billion shillings. By August 2021, it reportedly had an accumulated debt of 118.7 billion shillings, comprising both commercial and on-lent debt.

If it wasn’t largely owned by the state, commercial banks would be circling around KPLC, ready to strip it to the core in terms of assets, and selling them to recover their money.

But since it is a parastatal, bailout was the only way out. After all, the reasons for this state of affairs mirrors that of all faltering parastatals – grand larceny, fraud, and complete mismanagement.

Of course, the coronavirus, without a doubt, made things worse for KPLC, and so with other companies across Kenya. The truth is, kenya Power was already in this mess even before the prevalence of Covid-19.

And that is why we can all agree that even as the economy recovers, the end of the pandemic will not reverse the damage already done.

The reason why it may be a little too late is that a company like KPLC remains functional because the state injects money into it. This financial help is used to pay recurrent expenses, which means there is zero progress there.

Of course, we can acknowledge that the government declaring KPLC as its “special project” is all for a good cause, but even with the coming up reforms, the firm remains largely unsustainable.

History has also shown that companies that are heavily indebted often collapse into an embarrassing heap. It is inevitable.

If the government fails to implement a radical restructuring of Kenya Power, there is no hope of reversing the downhill trajectory it’s been undergoing. Harsh and unforgiving decisions need to be made.

ALSO READ: Magoha Starts Another Drive Targeting 250,000 Kids Out Of School

It is also worth noting that the government itself is heavily indebted. Its serious financial constraints mean the capital injection may not be sustainable as well.

By the way, KPLC can never hope to repay its massive debt. This is supported by their current leveraging, highest profits ever made, ability to bring in new investors, and their massive cashflow needs.

The money the Treasury is hoping to use to make this huge bailout for KPLC just isn’t there.

Well, let us know what you think. Will the bailout save Kenya Power?

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team