Kenya Electricity Generating Company (KenGen) has imposed a hefty penalty of Sh364.6 million on Kenya Power for late payments in the fiscal year ending June, highlighting an ongoing trend of financial strain between the two state-owned entities.

In its latest annual report, KenGen revealed that this penalty is a continuation of a pattern, as it had charged Kenya Power Sh847.9 million for the same reason in the preceding year.

The late payments, coupled with associated penalties, have contributed to a rise in Kenya Power's overall costs.

KenGen explicitly outlined the nature of these penalties in its annual report, stating, “Interest income from the Kenya Power and Lighting Company Plc relates to interest penalties charged to Kenya Power due to late payments of invoices.”

Furthermore, the report clarified that interest in late payments begins to accrue 40 days after billing, or upon Kenya Power acknowledging the invoice or surpassing the credit period.

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Both KenGen and Kenya Power are majority-owned by the government, and their collaboration is deemed vital in the national energy sector.

During the reviewed period, KenGen's transactions with Kenya Power, encompassing electricity sales, amounted to Sh55.5 billion, a notable increase from Sh47.7 billion in the previous year.

As of June 2023, Kenya Power still owed KenGen approximately 40 per cent of the value of the electricity it had purchased.

Despite an uptick in electricity revenue, Kenya Power's trade receivables remained nearly constant compared to the prior year, rising marginally by Sh855 million from Sh20.59 billion in 2022 to Sh21.44 billion.

KenGen acknowledged the persistent delays in payment and made provisions for part of the claimed amounts, accounting for an impairment of Sh866 million during the review period, down from Sh1.2 billion the previous year.

Kenya Power, responsible for distributing a mix of hydro, thermal, wind, and geothermal-generated electricity, receives monthly invoices from KenGen for the power supplied.

According to KenGen, this financial interaction represents a considerable business risk for KenGen, as highlighted in its credit risk discussion, where it emphasizes the need to minimize concentration risk and mitigate financial loss due to potential counterparty failure.

“The company has one main customer — Kenya Power — however, limits are set to minimise the concentration of risk around Kenya Power and therefore mitigate financial loss through potential counterparty failure,” KenGen stated

Despite the challenges in payments, KenGen reported a robust 48.3 per cent growth in net profit, reaching Sh5 billion during the review period, driven by an impressive surge in net sales, which climbed from Sh37.7 billion to Sh45.8 billion.