Slamming the brakes on new investments has not helped Kenya Power’s slide in profits after the monopoly warned its earnings will significantly decline for the second year running.
The electricity distributor Thursday issued a warning saying earnings for the year ending June 2019 will be more than 25 per cent lower than the Sh1.92 billion net profit posted in the financial year ended June 2018.
Kenya Power acting managing director Jared Othieno said the decline was tied to costs related to electricity generation from renewable energy as alternatives to thermal power, which will pay dividends in the future on cleaner and cheaper energy.
“The drop in profits is attributed to, among others, an increase in non-fuel costs in line with the company’s long-term strategy to grow cheaper and cleaner renewable energy,” he said.
The firm said revenues have grown but non-fuel costs have expanded by a higher margin. This is as a result of a tariff delay and structure.
Last year, Kenya Power issued a similar warning and the shock decline was up to 63.7 per cent from the Sh5.3 billion declared in 2017.
This saw it slide into technical insolvency as at June 2018, where current assets stood at Sh54 billion, less than current liabilities of Sh106 billion, resulting in negative working capital of Sh51 billion.
“Kenya Power’s underlying problem is the negative working capital as a result of over-investing, which has slowed down in 2019. We are, however, financially sound and have managed to run the working dynamics, pay debts and paying salaries efficiently,” Kenya Power said via email.
The firm said it was keen on addressing the negative working capital and as a result, is not taking up any new investments – only critical maintenance.
The firm says it is on an ambitious financial recovery strategy, which has already been approved, but the company faces resistance from the regulator to allow it to recover extra costs from consumers.