Taxpayers carry burden to keep power firm afloat

In September last year, Kenya Power (KP) issued a warning indicating its profits for the year ending June 2019 had dropped by at least 25 per cent. It was the second year in a row that the power distributor was experiencing a major drop in profits and going ahead to warn investors prior to publication of results.

By the end of June 2018, KP's net profit went down by 63 per cent to Sh1.9 billion from the Sh5.3 billion in 2017. The management then said new accounting rules and difficulties in collecting money owed by consumers were some of the factors that had led to a drop in profits. The firm was owed Sh4.4 billion by debtors as of June 2018, up from Sh282 million the previous year.

The decline is despite the fact that the firm, and the power sector players in general, have a free hand in passing costs incurred in the power production process to consumers. This is meant to insulate it from risks that players in other sectors have to grapple with.

Every time a power customer pays their monthly bill or buys prepaid units, they have to pay for fuel, foreign exchange adjustment and inflation adjustment, which are in addition to paying for the energy consumed. Few businesses can get away with passing on such costs to consumers on a monthly basis. Consumers also pay for inflation adjustment every six months.

The Fuel Cost Charge (FCC) is a pass-through cost and comes up whenever thermal power plants are used in bridging the shortfall in power production, for instance, when hydro plants are not generating optimally due to low water levels. Forex adjustment cushions the players against shocks when repaying foreign currency-denominated loans while inflation enables the industry to cope with the high cost of buying goods. With the firm shielded against all these risks, one wonders it is still reporting a decline in profits.

New CEO Bernard Ngugi thinks he has figured it out. While taking a shot at previous chief executives and senior managers, which he was part of, he noted that the company’s leadership may have lost focus which saw the firm veer off its mandate and earnings tumble.

“The focus perhaps is what we may have lost. We need to rethink and re-strategise and aim at the goal. We also need to align our resources, systems and processes to where it matters. There are so many things we can do but perhaps we are hitting the wrong target. I think that comes with leadership. I want to promise Kenyans that is the direction we want to take,” he said when he was unveiled.

He has previously served as general manager, supply chain, making him as much responsible for the company’s loss of direction. He said his immediate task would be to reverse the trend of dropping profits as well as court the consumers, many of whom have shown anger towards the firm due to several mishaps at the firm, including an over billing fiasco in 2018.

Going downhill

“When you have people who are focused, disciplined and are passionate, you can go far. That is my focus. If we are going downhill, the focus should be figuring out how to start moving up. If we are going the wrong direction, we turn around. That is what I want to achieve but as a team. I have a vision and want to work with the team to steer the company to greater heights,” said Ngugi.

Management problems at KP brought Energy CS Charles Keter into focus when he put a spirited defence of the former chiefs when they were arrested last year and charged with corruption. The DCI swept the firm’s entire C-suite save for three general managers. In total, 19 officials, including then CEO Ken Tarus, were arrested.

Keter had then expressed anger noting he had “lost the best” and that he had interacted with the managers and could vouch for them.

In an interview last week, Keter said the firm had picked itself up and he was confident it would survive what he sees as a minor rough patch of declining fortunes, partly occasioned by heavy investments over the past six years.

“Since 2013, KP has made major investments most of them through their own resources. It is just a matter of time before these investments start paying back,” he said.

He said KP is in the process of restructuring its loans whose repayments may have been a strain, from short term to long term.

The firm is experiencing all these problems despite the fact that KP is a monopoly, with its major competitor being the lantern lamp or solar-powered systems and which, viewed from another angle, are complementary in off-grid areas where power is yet to reach. While the Energy Act 2019 takes away the monopoly status of Kenya Power, the firm still has a firm grip on the power sector and is unlikely to be shaken anytime soon.

Even as the firm tries to figure out what it is ailing it, the consumer continues to shoulder the entire sector. In addition to the numerous charges passed to them, the consumer has to contend with paying 16 per cent VAT and a host of levies for regulators, including the Energy and Petroleum Regulatory Authority, the Water Regulatory Management Authority and the Rural Electrification and Renewable Energy Corporation.