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Auditor General flags KenGen’s Sh95b outlay on stalled projects

By Patrick Alushula | November 26th 2021
By Patrick Alushula | November 26th 2021

One of KenGen's geothermal wells at Olkaria in Naivasha, Nakuru County. [Antony Gitonga, Standard]

Auditor-General Nancy Gathungu has put the Kenya Electricity Generating Company (KenGen) on the spot for spending more than Sh94.8 billion on stalled projects.

The Auditor-General in her latest audit report on the State-owned firm expresses concern that the projects, which are mostly financed through loans, have been costing the firm servicing costs without generating any income.

Gathungu says the projects were initiated several years back but have stalled for between two and 10 years without any explanation from the power generating firm’s management. They include transmission lines and geothermal power wells, which were financed using loans, meaning KenGen is still paying interest even as the projects lie idle.

“Management did not provide explanations on why the projects have not been completed and capitalised,” said Gathungu in the audit for the financial year ended June 2021.

The Auditor-General issued a qualified opinion on KenGen’s results on the back of insufficient or no explanation on the stalled projects and the failure to value property, plants and equipment since 2015 contrary to its own valuation policy of every three to five years.

A qualified opinion is an auditor’s opinion that the financials are fairly presented, with the exception of specified areas due to inadequate disclosures.

Gathungu notes that KenGen incurred Sh79.32 billion to drill wells for geothermal power between 2011 and 2015, but the wells have not been connected to any plant to start generating electricity.

The project was financed through a loan from the Export-Import Bank of China (Exim), meaning KenGen continues to pay the principal sum and interest without any corresponding revenues coming in.

“The management has not given the details of when the wells are likely to be utilised in generation of power. As a result, there is no value for money obtained on the investment of Sh79.32 billion on drilling wells,” said Gathungu.

The audit report further discloses that KenGen spent Sh4.48 billion on constructing transmission lines during the 2008/2009 financial year, but the lines have never benefited the firm.

Instead, the Auditor-General notes, the lines are used by “another company” for revenue generation. KenGen told the Auditor-General that it is still in negotiations for the transfer of assets to the company in question.

“KenGen continues to service a loan and accruing interest in respect of these assets, thereby increasing the operation costs of the company and cash flows without corresponding revenue being realised,” observes Gathungu. The firm also carries in its books Sh645.98 million incurred on feasibility studies for wind power projects.

Some Sh592.92 million was spent on the Meru Wind Power Project in the 2011/2012 financial year, while Sh82 million was used on the Karura Hydro Power Plant Project in the 2013/2014 financial year. Gathungu says KenGen failed to provide any contract documents showing the amount was indeed spent on feasibility studies for the two projects.

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