Electricity consumers are headed for a bruising battle with landlords over metering deposits as the country migrates to a prepaid billing system, forcing Kenya Power and Lighting Company to refund billions of Shillings it has been holding to cover for default risk.
The battles are particularly expected to be fought by occupants of flats in urban neighbourhoods where landlords have registered power meters in their names but collect deposits from each tenant that is not remitted to the utility firm.
This means that any refunds coming from KPLC will be paid to landlords, most of who are reportedly not willing to return the cash held from tenants as deposits.
A city centre-based agent for Kasarani, one of the Nairobi estates under the prepaid metering system, said the landlords have continued to hold on to the tenants’ deposits since mid last year when they made the transition to the new system.
KPLC on Tuesday said arrangements between landlords and tenants were beyond its control and that it would only pay the refunds to registered account holders.
“Deposit taking by landlords from tenants is a private arrangement that does not involve KPLC,” the firm said in response to our queries adding that it only deals with customers whose names are registered with the account(s).
Consumers however appeared to have a critical backing from the taxman who warned of firm action against landlords refusing to refund rental and utility deposits.
“We are going to treat that as income. If a tenant gets the cash it is a debt receivable but if landlords keep it, it becomes taxable income,” he said.
KPLC has embarked on a nation-wide roll out of prepaid meters in a plan that is expected to significantly improve its cash flow and credit-rating but risks becoming a painful experience for consumers of electricity.
The power firm has been taking at least Sh2500 in deposits from domestic consumers as security against possible default that it must now refund with the launch of pre-paid billing system.
Based on the consumer base, KPLC should pay out at least Sh3 billion in deposit refunds – having completely wiped out the risk of default with the prepaid meters.
KPLC officials, however, said the figure may be higher because the firm has been asking defaulters deposit up two-month worth of consumption where they have been disconnected for failure to settle monthly bills on time.
“Different customers have different deposits with us depending on whether they are on the initial deposit or if they have topped it up after being disconnected for non-payment of monthly bills,” KPLC said in response to our questions on refunds.
A number of consumers who spoke to the Business Daily complained that landlords have been reluctant to refund deposits they took at the beginning of the tenancy contracts.
One resident of Nairobi’s Kasarani estate said his landlord got very angry when he asked for his deposit upon installation of the prepaid meters in the area.
KPLC does not pay interest on the billions of shillings it holds in the banks in deposits from its customers or on the huge deposits that customers waiting to be connected pay – turning them instead into a huge cash cow for the utility firm.
Last year alone, the company earned Sh177.38 millions from bank deposits, up from Sh153.34 million in 2009 – a large fraction of it arising from interest accruing from consumer deposits.
Consumer rights
KPLC has put its customers in call deposits, short term deposits and short- and medium-term bonds according to Migwi Theuri, the communications manager at KPLC.
“It is not possible to segregate this as these and other funds are pooled and invested together.”
Consumer Federation of Kenya (Cofek), a consumer rights group said it was keenly watching the transition to prepaid billing for any breach of consumer rights.
“Most are not even aware that they should be refunded the deposits at the end of every contract with the power firm,” said Stephen Mutoro, the chief executive at Cofek.
Mr Mutoro accused landlords of cheating tenants of their money especially in segments of the housing market with high turnover of customers.
“They have earned thousands of shillings outside the radar of Kenya Revenue Authority by refusing to refund the electricity and rental deposits,” he said adding that any housing unit attracting rents of more than Sh5,000 should have own meters registered under the tenant’s name.
Mr Mutoro said KPLC could not escape the blame because it was duty bound to sensitise consumers on the refunds to prevent theft by landlords.
“KPLC must find out the history of the landlords with regard to payment of refunds,” he said.
The pre-paid system was first used by South Africa’s power distributor Eskom in the black township of Soweto during the fight against apartheid regime to avoid sending staff to the then violent township whose residents saw the monthly billing as part of the oppression machinery.
KPLC has been piloting the system since April last year — installing 24,000 units at a cost of Sh338 million.
Customers are not required to pay for the transition that is partly being financed by the Sh9 billion KPLC raised a rights issue last year.
The latest phase of the programme will see KPLC install 180,200 prepaid meters, 110,000 of them in Nairobi.
Consumers in the South and North Coast, Central Rift, West Kenya, Mount Kenya North and South are also expected to make the transition to the new billing platform by end of year.
KPLC has had a bad history with receivables, especially from parastatals that by the end of last year owed the utility firm nearly Sh3 billion.
Prepaid metering has become an imperative for the firm that has connected more than 200,000 customers annually in the past three years, stretching meter readers to the limit.
Three years ago when Energy minister Kiraitu Murungi launched a scathing attack on KPLC for unnecessarily holding consumer deposits over long periods of time without connecting new applicants to the grid, the total number of commercial and domestic consumers stood at 735,144 customers.
That number had risen to 1,463,639 by end of June last year.
One million of these were domestic customers, 134,601 small commercial and 54,076 were registered under the rural electrification programme.
Robert Bunyi, an analyst with Mavuno Capital said the changeover could save KPLC billions of shillings in operation costs.
“Its biggest impact should be to bring cash forward for the power firm as a similar billing system has done to the mobile telecoms industry,” he said. “It means KPLC will no longer have to deal with receivables and cash collection and you can imagine the logistical nightmare of processing a million accounts and posting bills every month,” he said.
He however warned that KPLC’s overdraft position is unlikely to change much given the fact that the company is involved in huge investments.
Last year, KPLC paid Sh11.8 million in interest for overdrafts, down from Sh23.8 million the previous year.
The utility firm grants a 30-day credit to consumers but the duration before actual disconnection and consumption of power often adds up to 60 days.
Whether the immediate impact of shift is felt by the hard-pressed consumer through a refund much depends on the individual consumer awareness and the good intentions of the landlord.
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