Auditor-General unearths Sh2.5bn irregular pay at Kenya Power

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Auditor-General unearths Sh2.5bn irregular pay at Kenya Power

Wednesday October 26 2022

Kenya Power staff carry out repair works on a transformer. PHOTO | NMG

The Auditor-General has flagged Sh2.5 billion worth of irregular spending at Kenya Power in the year to June, including an expenditure of Sh1.2 billion to cover salaries without the approval of the Treasury.

The latest audit questions suggest that the State-backed electricity utility is yet to resolve the procurement problems that have cost top executives their jobs in recent years.

Reading: Kenya Power seeks firm to headhunt new executives

The bulk of the queries are around a Sh2.06 billion supplementary budget that was passed by the firm’s board in May but not approved by the Treasury.

These funds were meant to reinforce the company’s systems, transformer repairs and staff costs.

“The board on May 4, 2022 approved a supplementary budget of Sh2.06 billion, comprising of Sh860 million for system reinforcement, trace maintenance and transformer repairs and Sh1.2 billion for staff cost deficit by June 2022,” says the Auditor-General in a report yet to be made public.

“However, there was no evidence that management has sought approval of the National Treasury for the supplementary budget as provided for in the law. There is a likelihood of incurring unauthorized expenditure contrary to public finance management laws,” adds the report seen by Business Daily.

The Auditor-General further accuses the company of violating public procurement rules by hiring generators for its Mandera and Lodwar power stations through a direct tender to power producer Aggreko Kenya for Sh185 million.

Reading: Kenya Power procurement staff suspended last year resume work

Kenya Power argued that it acted within the Public Procurement and Asset Disposal Act in issuing the direct tender, citing the need to ensure standardization and compatibility of the generators within its system.

The Auditor-General, however, points out that the generators could have been sourced from other providers as well. Other queries raised by the auditor are over an expenditure of Sh114 million paid to a consultant to provide legal services for renegotiation of power purchase agreements.

Given that the consultants were not asked to provide performance security, the Auditor-General says, non-performance of the contract would expose the power company to losses.

The power distributor is also accused of overpaying for insurance services by Sh50.6 million, having paid Sh810.6 million against an approved budget of Sh760 million.

In addition to expenditure queries, the auditor has put Kenya Power on the spot for keeping 59 procurement officers who had been suspended in November 2021 pending investigation on full pay for the duration of their stay in the cold. The employees remained suspended until October this year, when they were brought back into the fold following the conclusion of investigations by the electricity distributor.

The company’s regulations stipulated that they ought to have been on full pay for the first two months of the suspension, half pay for the next two months and no pay thereafter until their cases were resolved.

“The company may have overpaid employee staff on suspension and those on compulsory leave, leading to overstatement of employee costs and misuse of public funds,” says the report.

The audit queries have once again shone a spotlight on potential revenue leaks at the utility, largely linked to irregular procurement.

The firm was a decade ago on the list of the Nairobi Securities Exchange’s most liquid firms, boasting large cash reserves that allowed it to roll out significant projects to expand its distribution network.

However, a series of procurement scandals and accusations of holding dead stock have eaten into the firm’s reserves, and reduced its profitability.

The company has been reviewing its processes to stop the cash leaks, as it looks to turn around its fortunes.

Kenya Power’s net income increased 27.6 times to Sh3.8 billion in the six months ended December from Sh138 million a year earlier on the back of higher electricity sales and lower operating costs.

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