Recognition of a Sh4 billion liability for the Government-funded street lighting project saw Kenya Power report a negative working capital position in the year ended June 2016.
The utility company had a negative net working capital of Sh763 million at the close of the 2016 financial year, down from a solid Sh20.4 billion it had at the beginning of the financial year.
A company has a negative working capital whenever its current liabilities exceed its current assets. This means that the liabilities that need to be paid within one year exceed the current assets that are monetisable over the same period.
Depending on the industry a company operates in, a negative working capital can be a good or bad thing. Kenya Power, however, allayed fears that it was experiencing any cash flow problems, explaining that the negative position only came about because it had to recognise having received money in advance for the street lighting project before implementing it.
“We have Sh4 billion that we owe the Government as the contractor for street lights. We must acknowledge that liability because we are yet to do that work. This is what increased our current liabilities to make us have that negative equity,” Ken Tarus, Kenya Power general manager finance told The Standard in an interview yesterday.
The company’s current liabilities increased from Sh45 billion to Sh50 billion in the year under review. Some of the liabilities it recognised include Sh8.3 billion owed to KenGen, Sh490 million owed to Aggreko and Sh6.8 billion owed to other suppliers.
In the previous year, the company had accumulated smaller and expensive loans from several banks, some of which were sitting as deposits in banks, making it lose money on both ends.
“We reduced our cash holdings. We were holding cash, projects were delaying and we were paying interest on those funds. We were losing outright by holding cash. That is what we were trying to clear from our balance sheet,” said Mr Tarus.
Kenya Power also said it took a cheaper loan of Sh55 billion from the World Bank, which it used to retire several small loans and restructure its balance sheet. It paid off loans worth Sh53.2 billion. “We restructured our balance sheet towards the end of the financial year after the World Bank gave us the loan to pay off the expensive debt,” he said.