How Kenya Power became a “Special Government Project”
Were Kenya Power to be a private organisation, by now it would be in administration. Given its parastatal nature and strategic importance to the country, it continues to operate. It has now (7 October) been designated as a “special government project”, allowing a broad spectrum of state agencies to investigate alleged malpractices and mounting losses.
Significance – Dire straits
The cost of energy has been soaring recently in Kenya, in March it stood at USD 0.223 per kilowatt hour for residential and USD 0.171 for commercial users, amongst the highest in Africa (compared to USD 0.100/0.103 and USD0.008/0.022 in Tanzania and Ethiopia respectively)[1]. By September, the residential cost had risen to USD 0.241 in Kenya on account of an increase in the Water Resource Management Authority Levy (WRMA) and the depreciation of the Kenyan Shilling against the US Dollar (many power purchase agreements or PPAs are dollar denominated). Meanwhile:
The firm is heavily indebted – it borrowed some USD 660 million between April and August of this year alone and in June total debt stood at just over USD 1 billion. However, efforts to improve earnings have borne insufficient fruit. The last reported losses were USD 64 million, more than half of which was constituted of power theft by consumers.
Losses are also attributed to the alleged corrupt activities by employees. For example, malpractice in the procurement of electricity meters, their installation and operation. One scam alone is said to have cost at least KSH 2.5 billion (USD 22.5 million).
In August 2021, the CEO of Kenya Power, Bernard Ngugi resigned his post unexpectedly. It is said that the board pushed him out over disagreements over tendering and restructuring plans. These allegations resulted in board members including the board chair of being summoned by the Ethics and Anti-Corruption Commission (EACC) in September on allegations of interfering in the management of the company.
The ’special government project’ designation is only the latest initiative to address these issues. The energy distributor has conducted negotiations and reviews over the course of the year aimed at cutting costs and restructuring its debt profile. For example, a panel was constituted in March of this year to review all existing power PPAs with power producers whilst simultaneously placing a moratorium on the signing of new PPAs[2], all alongside the EACC investigation.
The panel released findings on 30 September recommending a review and renegotiation of all existing PPAs, upgrading demand forecast models, a forensic audit of the procurement system, and fast tracking of on-going reforms. The target being lower prices by by December 2021, inter alia. On the same day, a mini cabinet reshuffle saw the energy minister, Charles Keter, replaced by former defence minister Monica Juma.
And now, following a crunch meeting (7 October) between the board and senior management of Kenya Power, energy ministry officials and interior ministry officials, a committee was launched to oversee reforms and audits. It includes the Ministry of Interior, Directorate of Criminal Investigations, the Asset Recovery Service, and the Financial Reporting Centre of the Bank of Kenya. The reforms will largely be along the lines of the recommendations made by the panel with a heavy focus on the reduction of energy costs by December.
Outlook – Reasonable goals and unrealistic timeframes
Power costs are indeed high in Kenya. Failings in governance have been established, and criticised by stakeholders such as the Kenya Private Sector Alliance (KEPSA). However, the timeframe set to address the issue appears unrealistic, particularly if it is to be done without leaving one or more participants in the value chain short-changed. The renegotiation with IPPs is likely an 18–24-month process rather than 3-6 months unless the plan is to abrogate contracts which will come at significant cost.
Corporate governance reforms will also take time if they are to adequately impact personnel, process and culture across board, management and general staff. Prosecutions are a part of it. Already two former CEOs are facing criminal charges alongside former senior managers with many others being sought for arrest, this list is likely to grow following the current round of investigations.
Politics could impede action. With highly contested elections around 10 months away and many of the board members (and the CEO) being political appointees, dismissals and appointments on technocratic/non-politicised grounds are more difficult to achieve. See for example, the political considerations surrounding the removal of Energy Minister Charles Keter, one of the most senior allies of Deputy President William Ruto in cabinet[3].
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[1] https://www.globalpetrolprices.com/Kenya/electricity_prices/
[2] Similar to its West African peer Ghana, Kenya also produces more power than it consumes. It is therefore paying excess capacity charges, i.e paying producers for power whether it is consumed or not.
[3] Who has an increasingly acrimonious relationship with Kenyatta and is one of two frontrunners for next year’s election.
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