Kenya Power could send home up to 2,000 workers after the board started discussions on the implementation of a voluntary early retirement (VER) exercise as part of the restructuring process.
The firm expects to spend Sh5.3 billion on the exercise in which 1,962 (20 per cent) of its 10,000 employees will separate from the business.
It expects the move to reduce payroll costs by Sh1.54 billion per year.
“Implementation of the Voluntary Employees Retirement exercise for 1,962 employees, which account for 20 per cent of the total workforce, will cost Sh5.298 billion. This is a one-off payment,” said Kenya Power acting chief executive Rosemary Oduor in a circular to the company’s board committee on governance.
The document evaluates the company’s staffing levels and its needs as well as its impact on its revenues.
“The objective of this exercise is to manage the staff costs, which in the recent past have increased to unsustainable levels and bring agility to the workforce,” said Oduor.
Staff costs have risen to Sh17.61 billion per year as of 2020 from Sh11 billion in 2016.
This represented a 12 per cent annual growth in labour costs over the period, outpacing growth in revenues, which grew at an average of 5.4 per cent per year between 2016 and 2020.
Employee costs, however, came down to Sh15.8 billion last year.
The VER plan is subject to approval by the Energy Ministry and the Head of Public Service.
The company also said it would seek a tax waiver from the National Treasury for the VER package.
Kenya Power had a staff headcount of 9,843 employees as of January 2022, whom it plans to pay Sh15.8 billion in salaries and other benefits during the year, according to the circular.
The number of employees has been dropping over the recent years, dipping from a high of 11,295 in 2017, largely due to natural attrition.
Oduor, however, noted that the attrition rate has been low and generally left the company with an ageing and expensive workforce.
The average employee age at the company is 46 years, which has alarmed the company as many of these employees approach retirement.
“At an average age of 46 years for permanent employees, the company will be in crisis in the next 10 years,” said Oduor.
She told the board that when the company sheds some of the employees through the VER, it will need to recruit new key staff, mostly in the technical areas.
She expects that the newcomers will be young and inject new blood and thinking into the business.
They will also come at a much cheaper rate compared to the current crop of employees.
“The implementation of the VER and subsequent optimisation of the staffing establishment will result in approximately 1,384 vacancies in technical positions,” the CEO said.
“These are key positions in terms of network maintenance and revenue collection…it is recommended that 60 per cent of these vacancies be filled.”
She said the new staff would cost the company about Sh963.9 million per year in salaries and allowances, which is against Sh1.75 billion that it will save annually after completing the VER exercise.
The early retirement exercise will be undertaken in three phases over the next one and a half years. In each phase, 654 employees will leave the power firm and get paid a total of Sh1.77 billion.
The initial phase is set for completion on May 1 this year, the second one on January 1, 2023, and the final phase will be on June 30 next year, bringing to total 1,962 employees leaving the firm at a cost of Sh5.3 billion.
Oduor has requested the board to make available funds for the retirement programme as well as the hiring of new people who will be replacing some of the key technical personnel people who will leave.
“The VER implementation had not been budgeted for, it is therefore recommended that budget provisions of Sh2.09 billion be made in the current financial year to take care of the first phase of VER and Sh4.17 billion in the 2022-23 financial year to ensure seamless implementation of all the three phases,” she said.
Treasury allocated Sh3 billion to Kenya Power in the Supplementary Budget tabled in Parliament two weeks ago for use in the restructuring exercise.
In the circular to the board, Oduor said in case the required numbers are not met through the VER process, management would move to declare employees redundant, where it will use the policy of ‘last in first out’.
The proposed VER package for permanent employees includes notice pay for three months, three months’ gross salary for each remaining year of service capped at eight years, payment of outstanding leave days and medical cover for six months.
Kenya Electrical Trade and Allied Workers Union (Ketawu) Secretary-General Ernest Nadome said the company is struggling to meet consumer demands, mostly due to an inadequate workforce.
He said, unlike other firms, the power retailer is unique in that its personnel have to traverse the country and hence are needed in large numbers.
“As it is, we have a serious staff shortage and if the company goes ahead with this, it will get worse. Customers currently have to wait for lengthy periods to get reconnected whenever there are outages because of this,” he said.
“While there could be other underlying factors such as shortage of materials, lack of enough staff is a key contributor to these delays.”
The planned VER is part of reforms the company is undertaking in a process steered by the Ministry of Energy and a Cabinet subcommittee, whose ultimate goals include a reduction in the cost of power.
The reforms are also part of sector-wide changes that are being implemented in line with the recommendations of the Presidential Taskforce on Review of Power Purchase Agreements (PPAs).
The task force recommended a 30 per cent reduction in the cost of power as well as a review of expensive PPAs that have a high impact on the cost of electricity.
A 15 per cent cut on power costs has been implemented and a further 15 per cent planned by the end of March.
Kenya Power has also been making reforms internally including overhauling its procurement department.
The company had last year planned to lay off some employees and even sought a consultant to develop a transformation strategy, with one of the areas of focus being a phased reduction in the workforce.
It, however, backtracked on the plan to fire and instead said it would focus on other cost-cutting measures including a review of the contracts with power producers.
Kenya Power had also said it would reassign employees, where needed, to more impactful areas of the business. This included having more staff work in the field as opposed to being based at its office, in a bid to align its needs with the resources.
The latest plan comes at a time when the International Monetary Fund (IMF) is pushing for the restructuring of various State-owned entities.
The requirements are among the conditions IMF needs the government to fulfil as part of a Sh261 billion credit facility for Kenya under a three-year programme starting April 2021.
In a December report on Kenya, IMF said Kenya Power needed to undertake reforms in line with the recommendations by the task force on PPAs, which includes rationalising its staff and matching employee skills with its requirements. “(Kenya Power’s) organisation structure and staffing levels should be fit for purpose with suitable skills and performance-based management culture to increase staff productivity and reduction of operational costs,” said IMF.
“Reforms will be undertaken in procurement and stock management to optimise the use of available resources and reduce wastage.”