KenGen’s Sh84 billion unprofitable projects

Power generator KenGen is spending millions servicing loans for projects worth Sh84 billion that don’t bring in revenues.

Some of the projects have stalled for 10 years and others are being used by different companies to generate revenue but are not benefiting KenGen.

Auditor-General Nancy Gathungu’s report on KenGen for the year to June 2021 shows that the company has entered into expensive capital investments that it cannot earn money from, ending up with huge operational expenses because of loans and interest on debt even as its profits shrink.

“Included in the capital work in progress balance of Sh99.3 billion are projects totalling Sh94.8 billion in respect of capital projects initiated several years back but had no movement over the last 2- 10 years and which may have stalled,” the report says.

“Management did not provide explanations on why the projects have not been completed and capitalized.”
Ms Gathungu, for instance, questions why the company spent Sh4.5 billion to set up transmission lines in 2008/09 but the infrastructure is used by another firm.

“Although the management indicated that there has been negotiation for transfer of the assets to the other company, KenGen continues to service a loan and accruing interest in respect of these assets, thereby increasing the operations costs of the company and cash outflows without corresponding revenue being realised,” Ms Gathungu says.

In 2020/21, KenGen recorded a 94 per cent fall in profits from Sh18.4 billion last year to Sh1.2 billion, on the basis of a return of full taxes after the government’s waiver last year. Interest expenses increased by Sh73.3 million to Sh2.35 billion.

No value for money

The Auditor-General also cited wells drilled between 2011 and 2015 for Sh79.3 billion that are not being used, with no revenue being generated. The projects were financed with a loan from the Export-Import Bank of China (EXIM) and the debt continues to accrue interest.

The wells have not been connected to any plant to generate power.

“As a result, there is no value for money obtained on the investment of Sh79,324,783,562 on drilling wells,” the report says.

The report does not name the affected wells or where they are located, but KenGen has been on a well-drilling spree in and out of Kenya. Its ongoing drilling services in Tulu Moye, Ethiopia, are credited for contributing Sh1.78 billion to its Sh45.9 billion revenues during the year.

The Auditor-General also notes that even though the company indicates it paid Sh645.9 million for feasibility studies on the Meru wind power and Karura hydropower projects in the years to 2014, no proof of the expenses was provided.

No contract documents and reports of feasibility studies were provided for audit verification, the report says. “The management has not provided reasons for the delay in (concluding) the feasibility studies for over eight years,” it says.

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