2011 Annual Report & Financial Statements - Kengen

Notes to the Financial Statements(Continued)
Notes to the Financial Statements(Continued)
KenGen
KenGen
80
2011 ANNUAL REPORT & FINANCIAL STATEMENTS For The Year Ended 30 June 2011
For The Year Ended 30 June 2011 2011 ANNUAL REPORT & FINANCIAL STATEMENTS
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33 Cash Generated From Operations
34. Emergency Power Project (Continued)
(a) Reconciliation of operating profit to cash generated from operations
2011 2010
Shs’000 Shs’000
Profit before taxation 3,651,307 2,484,953
Adjustments for:
Depreciation 4,549,805 3,829,136
Impairment loss on property, plant and equipment 63,092 -
Adjustments on property, plant and equipment 1,384 -
Amortisation of intangible assets 31,874 -
Prepaid lease expense 44 29
Interest income (note 33(b)) (548,975) (398,331)
Interest expense (note 33(c)) 1,996,951 741,491
Unrealised foreign exchange gain related to amount due from
Kenya Power-deferred debt (251,933) (155,874)
Net (gain)/loss on derecognition of treasury bonds (24,088) 1,180
Reduction in actuarial deficit arising from valuation of
retirement benefit liability in the year (306,700) (71,200)
Operating profit before working capital changes 9,162,761 6,431,384
Changes in working capital
Decrease/(increase) in inventories 275,134 (690,607)
(Increase)/decrease in amounts due from Kenya Power (4,195,871) 1,604,654
Decrease/(increase) in other receivables 2,359,843 (3,562,683)
Increase in amount due from Ministry of Energy (3,258,033) (1,032,795)
(Increase)/decrease in trade and other payables 895,909 (185,937)
Increase/(decrease) in amount due to Kenya Power 7,704 (2,082)
Decrease in operating lease liability (2,000) (2,000)
Increase in leave pay provision 9,338 44,464
Cash generated from operations 5,254,785 2,604,398
(b) Reconciliation of interest received to interest income
Interest receivable at beginning of the year 271,326 241,137
Interest income 548,975 398,331
Interest received (710,525) (368,142)
Interest receivable at the end of the year 109,776 271,326
(c) Reconciliation of interest paid to finance costs
Accrued interest at beginning of the year 188,340 152,781
Interest expense 1,996,951 741,491
Interest paid (1,349,795) (705,932)
Accrued interest at the end of the year 835,496 188,340
34. Emergency Power Project
The company manages an Emergency Power Supply project known as Aggreko International Projects as an implementing
commissioning agent on behalf of the Ministry of Energy. Funds from the Ministry of Energy are disbursed to the company
for the purpose of procuring emergency power supply capacity on behalf of the Ministry of Energy through the Project.
These funds are held in an escrow bank account at the Commercial Bank of Africa and are represented below as
Disbursements from the ministry of energy. Electricity generated from this Project is sold to the Kenya Power and Lighting
Company and relating revenue is represented below as Receipts from sale of electricity. Expenditure incurred relating to
the project is represented below as expenditure during the year. None of these transactions and balances are presented
in these financial statements.
2011 2010 2009
Shs’000 Shs’000 Shs’000
At the beginning of the year 531,728 3,335,035 (343,836)
Disbursements from the Ministry of Energy 3,903,500 5,727,689 6,253,492
Receipts from sale of electricity 5,806,949 15,793,518 18,349,396
Interest income 12,441 11,674 56,729
Expenditure during the year (9,800,956) (24,336,188) (20,980,746)
As at the end of the year 453,662 531,728 3,335,035
The company earned Shs 62.946 million in the year (2010: 211.345 million) in relation to managing these projects. This
revenue is disclosed under note 4 of these financial statements.
35. Contingent Liabilities And Assets
(a) Contingent liabilities
I. Disputed Interest Income from unspecified sources
On 09 January 2011, the Commissioner of Domestic Taxes issued an assessment of Shs 526 million as a result of interest
income as a specified source of income from 2004 to 2008. The directors believe that the company will be successful
in defending this case.
II. Disputed claim for water charges for hydro-generation
Following the Gazettement of the Water Resource Management Rules 2007 (Water Regulations), Water Resource
Management Authority sought to implement the prescribed charges for Hydro Power Generation by filing a case in the
High Court claiming Shs 142 million as owing and due to it from the onset of Water Regulation up to 30th September
2008. By a Ruling dated 15th of October 2010, the court ruled in favour of the applicant. The Company has appealed
the court’s decision.
III. Disputed tax penalties
On 12 August 2002, the Customs and Excise Department issued an assessment of Shs 22.2 million excise duty arising
from electricity imported from Uganda between 1998 and 2001. The principal tax has since been settled in full except for
penalties amounting to Shs 31 million. The company has petitioned the Ministry of Finance for a waiver of the penalties
and, in the opinion of the directors, no provision is required in the financial statements as the liability will not crystallise.
IV. Disputed withholding tax on contractual fees - Olkaria Geothermal Station
On 05 February 2010, the Commissioner of Domestic Taxes issued an assessment of Shs 290 million inclusive of
penalties and interest. The assessment was as a result of withholding tax on contractual fees paid to the contractors of
Olkaria Geothermal Station between 2001 and 2004. The company appealed to the Local Committee but lost the same
to Kenya Revenue Authority (KRA). The company has appealed the Local Committee decision to the High Court. The
principal tax of Shs 131.8 million has since been settled in full except for penalties and interest whose application for
waiver has been filed with KRA. The directors believe that the company will be successful in defending this case.
V. Disputed withholding tax on contractual fees - Sondu Miriu
On 9 July 2010, the Commissioner of Domestic Taxes issued an assessment of Shs 591 million inclusive of penalties
and interest. The assessment was as a result of withholding tax on contractual fees paid to Konoike–Veidekke–Murray
and Roberts JV in relation to Sondu Miriu Power Project. The principal tax of Shs 198 million has since been settled in
full except for penalties and interest whose application for waiver has been filed with KRA. The directors believe that the
company will be successful in defending this case.
VI. Letters of credit
Letters of credit signifies commitment by the company to make payments to third parties for contracts entered into,
generally relating to foreign payments. Outstanding letters of credit as at 30 June 2011 amounted to Shs 3.697 billion
(30 June 2010Shs 10.129 billion).