The Rural Electrification Scheme, a non-profit scheme set up by the government in 1973 to expand power access to the rural poor, has accumulated losses of Sh55.9 billion, threatening its sustainability.
The plan, run by Kenya Power on behalf of the government, has projected a loss of Sh9.87 billion in the year to June 2023, extending its losing streak.
Auditor General Nancy Gathongo said the scheme was technically insolvent as its current liabilities stood at Sh35.5 billion against Sh5.3 billion in current assets.
The Energy Development Authority also reported negative working capital for eight consecutive years, even as Ms Gathongo raised questions about whether this situation could be sustained in the long term.
This program is funded by the government through annual financial support. These allocations are supported by grants from donors.
The accumulated deficit comes at a time when government finances are suffering from spending pressures, especially the burden of rapidly growing debt.
This has forced the government to slow down spending on development projects as well as non-essential items amid revenue pressure that has seen tax revenue collection fall short of target for two consecutive years.
The auditor said: “The above circumstances indicate the existence of a material uncertainty which may cast significant doubt on the ability of the scheme to continue as a going concern unless satisfactory measures are taken to reverse the trend.”
According to the Auditor General, the government must take urgent measures to reform the way the system is managed to stop the financial bleeding.
Renewable energy is one of several schemes run by the government to expand access to electricity in rural areas with the aim of achieving universal access by 2030.
All electricity customers are currently charged a levy when purchasing energy to cover part of the scheme’s operating costs.
But these schemes are not economical because they require huge expenditure to build and maintain electricity transmission and distribution networks.
Moreover, beneficiaries are often low-income, which means they cannot use enough electricity in the long term to recoup the investment.
“Renewable energy projects are often sub-economic, with operating and maintenance costs exceeding their revenues,” Kenya Power says in its latest annual report.
The Auditor General also raised questions about how the costs associated with operating renewable energy sources are allocated to the system.
Ms. Gathongo said the cost sharing formula incurred by the utility company to manage the entire power grid as well as renewable energy customers is based on the Mercados Formula (Cost Sharing Formula) adopted by the Kenya Energy Board on August 19, 2010.
However, changes in operations between 2010 and 2023 are not taken into account in the formula.
“For example, the Mercados formula does not explicitly cover foreign currency adjustments, transfer fees and financing costs for KPLC to the system,” she said.
Ms. Gathongo said that recharging costs without an agreed basis could lead to incorrect data on costs allocated to renewables as a result of ineffective internal controls and governance on the part of the company.