Geothermal Development Company (GDC) could face a major financial blow that may affect its operations and service delivery, according to a recent audit by Auditor General Nancy Gathungu.
The review indicates that the steam power producer might have to pay up to Sh2.3 billion following a legal dispute with a firm, a case already ruled against GDC by a tribunal and the High Court.
The ruling includes a 14 per cent annual interest until full payment. GDC has appealed the decision and is awaiting the outcome.
“The company is subject to several legal claims incidental to its operations, the outcome of which cannot at present be foreseen, and possible loss or range of loss of which cannot at present be meaningfully quantified,” Gathungu said. She noted that the firm remains at risk until the court delivers its verdict.
“In the event that those liabilities crystallise, the company may be exposed to huge cash outlay,” the auditor added, warning that such developments could limit the firm’s capacity to meet its obligations and deliver services.
The audit, covering the period up to June 30, 2024, also flagged other financial weaknesses that could affect taxpayers and delay critical projects.
It noted that GDC received Sh4 billion from KenGen as steam charge payments but recorded only Sh1 billion as revenue, labeling the rest as a capital grant.
Management argued that the payments were appropriations in aid rather than sales revenue.
“Accounting for the payments should follow International Financial Reporting Standards (IFRS) on revenue recognition,” the report stated.
“The accounting policy adopted by management constitutes a departure from the requirements of IFRS on revenue from contracts with customers.” Proper recognition of the funds could have added Sh3.34 billion to GDC’s revenue, increasing income tax and profit after tax for the year.
“In the circumstances, the accuracy and completeness of the revenue from steam charge payment totalling Sh1 billion couldn’t be confirmed,” Gathungu noted.
The misclassification, according to the auditor, distorted the company’s true financial position, including profitability and tax obligations.
The review also highlighted that GDC failed to pay Sh27 million owed to the Kenya Energy Environment and Social Responsibility Programme Fund over four years, a liability not reflected in its financial statements.
Additionally, the agency had not recovered a Sh86 million debt, pointing to weak credit controls and potential bad debts.
