Electricity bill defaulters escape CRB listing order

Electricity bill defaulters can breathe a sigh of relief after Kenya Power said it would not forward their names to the credit reference bureaus (CRBs) due to a lack of clarity in the law.

The utility reckons that it is unclear if the law targeted electricity bill defaulters or individuals granted credit to connect their homes to the national power grid.

The legal dilemma comes as the State-owned firm struggles with mounting unpaid bills, which has hit Sh24 billion that is equivalent to 21.4 per cent of sales in the year to June last year.

Changes to the banking law in 2017 allowed utility firms (water and electricity) as well as savings and credit cooperative societies (saccos) to share information with credit bureaus.

“The intention of the law was to allow Kenya Power list defaulters with CRBs, but there is ambiguity in the law because it mentions the word credit,” Kenya Power said. “Although the option is available to use, it is not one that we are presently pursuing.”

The new regulations require third party players like Kenya Power to first seek Central Bank of Kenya (CBK) approval before sharing information with Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International.

Utility payments data was meant to increase the pool of information available to lenders for use in determining customers’ creditworthiness.

Defaulters are punished by either getting locked out from accessing loans or paying higher interest rates than good borrowers.

Kenya established the CRBs in 2010 to help banks gauge the risks of lending and reduce the cost of credit for consumers.

The use of utility bills in determining creditworthiness was also expected to push customers to settle bills promptly.

In 2017, Kenya Power then chief executive Ben Chumo termed the law change that allowed listing utility defaulters with CRBs as significant in debt management particularly to post-paid customers.

Households or domestic power users top the list of Kenya Power defaulters, with their unpaid bills accounting for Sh8.16 billion or 34 percent of the Sh24 billion.

This marks a shift given that large power users – mostly manufacturers – have been top in the defaulters list in the past.

The Energy ministry recently revealed that more than half a million customers had failed to pay electricity bills in the three months to June, highlighting households’ financial struggles in the wake of Covid-19.

The pandemic has triggered jobs cuts, unpaid leave and closure of businesses on reduced customer demand for goods and services.

Energy Cabinet Secretary Charles Keter said the new defaults had increased by Sh3.9 billion in the quarter to June.

The defaults have mounted despite a majority of domestic users being on Kenya Power’s pre-paid metering.

Kenya Power Managing Director Bernard Ngugi said converting more customers to the prepaid metering was a solution against power defaults.

But the option will only be pursued when revenues improve, he added.

“It is good business policy to have a mix of different metering technologies (pre-paid, post-paid and smart meters) as a way of risk mitigation,” said Mr Ngugi.

“It is also important to note that most of the customers under post-paid are commercial or industrial customers.”

Kenya Power has already received a debt relief from 14 foreign-based lenders as it races to cut costs and protect itself from dipping into losses.

The utility company has secured a 12- month moratorium on the foreign loans and is in talks with local banks to reschedule its multi-billion shilling debt.

The firm is seeking to make savings from the Sh6.8 billion it paid banks and other lenders as interest expense in the year to June 2018.

Kenya Power was also in talks with five commercial lenders to restructure its debt, which stood at Sh68.3 billion in June 2018.

It has issued its third profit warning in a row, citing reduced electricity consumption due to coronavirus control measures and rising cost of buying wholesale power from firms like KenGen.

The alert means its net earnings will decline by at least 25 percent of last year’s profit of Sh262 million — which was the worst in 16 years.