The financial reporting practices of the Kerala State Electricity Board Limited (KSEBL) have come under renewed scrutiny following a series of serious audit observations concerning its financial statements, asset valuation, liability recognition and overall financial position. The latest developments have raised questions about the reliability and transparency of the state-owned power utility's accounts, particularly as its accumulated losses and negative net worth continue to increase.
The issue has assumed greater significance following the adverse conclusion issued by the auditors on KSEBL's financial information for the first quarter of FY2026-27. The auditors, Mohan & Mohan Associates, identified material misstatements that they considered pervasive, indicating that the concerns were not confined to isolated accounting entries but affected the reliability of the financial information as a whole. They also highlighted material uncertainty surrounding the company's ability to continue as a going concern. Here, we examine the factors that have pushed the utility into its current crisis.
As of 30 June 2026, KSEBL's accumulated losses had increased to Rs 41,384.18 crore, while its negative net worth stood at Rs 37,885.13 crore, compared with Rs 37,621.83 crore at the end of March 2026. The deterioration in net worth highlights the continuing financial pressure on the utility and the extent to which accumulated losses have significantly eroded its financial base.
According to reports, one of the most significant concerns relates to the substantial mismatch between current assets and current liabilities. As of June 2026, KSEBL's current liabilities stood at Rs 14,167.14 crore, against current assets of approximately Rs 5,740.55 crore, resulting in a working-capital deficit of Rs 8,426.59 crore. Current liabilities were therefore nearly two-and-a-half times current assets. Although this does not automatically indicate an inability to meet immediate payment obligations, it points to considerable pressure on short-term liquidity and financial flexibility.
What are the observations of auditors?
The auditors have also raised concerns over the valuation and accounting treatment of assets, unreconciled deposits, disputed claims and the recognition of liabilities. These observations are important because the accuracy of asset and liability records forms the foundation of a company's financial statements. Inadequate reconciliation and supporting documentation can result in uncertainty over the actual value of assets, the completeness of liabilities and the accuracy of reported financial results.
"These concerns are not new. KSEBL’s FY2024-25 financial statements had also received an adverse audit opinion in August 2026. The key issues flagged by the auditors included inadequate documentation of land and fixed assets, weaknesses in inventory valuation, and the lack of an effective mechanism to reconcile trade receivables," says a person familiar with the utility’s financial position.
The auditors were unable to verify the ownership and completeness of certain land holdings due to the non-availability of title deeds and other supporting records. They also raised concerns over the methodology used to value inventory and the absence of adequate reconciliation and confirmation of outstanding receivables, the person added.
Another significant observation that the auditros made in the latest report is the accounting treatment of a government grant amounting to Rs 494.29 crore. The auditors questioned its recognition as income and receivable, stating that the treatment had the effect of inflating reported profit by the corresponding amount. This issue raises broader questions about the appropriate recognition of government assistance and the need for transparent accounting of financial support received from the State Government.
What was the latest findings in CAG report?
One of the recent observations by the Comptroller and Auditor General on the State Government's financial transactions have also brought the accounting relationship between KSEBL and the government under scrutiny. In its State Finances Audit Report for 2024-25, the CAG examined the treatment of electricity duty, tariff subsidies, pension contributions and government departmental electricity dues. Between 2016-17 and 2024-25, amounts of Rs 4,433.80 crore relating to tariff subsidies, Rs 5,861 crore relating to the government's contribution to KSEBL's Pension Master Trust and Rs 2,019.66 crore relating to departmental electricity dues were adjusted against electricity duty collected and retained by KSEBL.
The CAG also questioned the State Government's decision to withdraw Rs 494.29 crore that had been transferred to KSEBL towards taking over 90 percent of the utility's losses for 2023-24. The amount had initially been credited to KSEBL's account in December 2024 but was subsequently withdrawn and transferred back to the State's Consolidated Fund in March 2025. The audit described the action as a serious breach of financial propriety. The State Government subsequently stated that the amount had been adjusted against electricity duty collected by KSEBL in November 2025. The accounting and documentation of this adjustment remain important aspects of the matter.
Why the rising costs?
In fact, the financial performance of KSEBL reflects the pressure arising from rising operating and financing costs. During the first quarter of FY2026-27, revenue from operations increased to Rs 6,435.29 crore from Rs 5,997.88 crore in the corresponding period of the previous year. However, profit after tax declined to Rs 357.99 crore from Rs 687.72 crore. Power purchase expenditure increased to Rs 3,452.31 crore from Rs 2,997.06 crore, while finance costs rose to Rs 1,522.23 crore from Rs 1,163.89 crore, an increase of approximately 31 percent. The auditors noted that the quarterly financial information did not adequately explain the sharp increase in finance costs, particularly when total borrowings had declined from Rs 15,978.24 crore at the end of March to Rs 14,741.29 crore by June 2026.
The combination of accumulated losses, a substantial negative net worth, inadequate working capital and recurring accounting qualifications presents a significant financial governance challenge for KSEBL. The adverse audit conclusion is particularly important because it raises questions about the extent to which stakeholders can rely on the reported financial position without further clarification and reconciliation. It also underscores the need for stronger internal financial controls, improved documentation and timely resolution of long-standing audit observations.
While the auditors have acknowledged that the utility benefits from being a wholly-owned unit of the Kerala Government, its position as the state's principal electricity utility, the absence of defaults on financial obligations and the regulatory provision for recovering accumulated losses through future tariffs. Nevertheless, these factors do not eliminate the need to address the underlying financial and accounting weaknesses.
What are the real challenges?
The utility company must also provide greater clarity on government grants, subsidy adjustments, pension-related transactions and the movement of funds between the utility and the state government. The timely implementation of auditors' recommendations and the resolution of recurring qualifications will be essential to restoring confidence in its financial reporting.
Ultimately, the accounting concerns at KSEBL extend beyond the presentation of financial statements. They raise fundamental questions about financial discipline, transparency, internal controls and the management of a strategically important public utility. Restoring the credibility of its accounts will require not merely improved financial disclosures but also verifiable reconciliation of balances, stronger accountability mechanisms and sustained improvements in financial management.
However, the power utility, reportedly struggling to avert an imminent power crisis, as warned by its recently ousted chairman and managing director, is also seen as suffering from a lack of effective ministerial leadership. There are also serious allegations that State Power Minister Sunny Joseph, who also serves as president of the Kerala Pradesh Congress Committee (KPCC), remains largely disengaged from the department’s affairs and has limited understanding of its technical complexities.