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Revealed: Top managers' bid to cover up rot at Kenya Power

FINANCIAL STANDARD
By Macharia Kamau | October 26th 2021

Problems in the procurement processes at the firm came to the fore in 2018 when nearly the entire top management was suspended. [Courtesy]

Nothing could have prepared the task force charged with bringing down the cost of electricity in the country for the shocking findings after combing through the contracts between Kenya Power and private electricity-generating firms.

For starters, the John Ngumi-led team had to contend with the blatant refusal by Kenya Power’s management to disclose the firm’s dealings with the Independent Power Producers (IPPs).

There was also an apparent lack of knowledge of how the IPPs function, with the State-owned power distributor having little oversight over them despite paying out billions annually.

The Task Force on the Review of Power Purchase Agreements (PPAs) was also shocked by the role of Kenya Power’s procurement department in adding to the high cost of power in the country through reckless deals that could otherwise have been avoided.

The task force recommended that the entire department be replaced immediately.

The team recommended the firm outsource the procurement function to other State corporations, an indication of the lack of trust in the current management.

And in a further attempt to stem the deep rot at the utility firm, the task force also recommended employees declare their wealth to see who has unexplained riches.

The task force, which captures some of its experiences in the course of compiling its report, cites frustration by cartels in the power sector.

This is despite the task force having the backing of the president in executing its mandate of figuring out how the country can achieve lower power costs.

In the report, the task force details how it started requesting information and documents from Kenya Power shortly after it was formed in March this year.

These included financial and technical information on the PPAs as well as records by the utility firm showing the performance of the IPPs.

A shocker for the task force was the level of graft involved in the procurement of different materials at the utility firm. [Omondi Onyango, Standard]

“The task force’s experience of KPLC’s responses to these requests was one of disappointment. Documents and information did not come at all, came in very slowly, or contained scant or inadequate detail,” says the team in the report.

“Specific requests for information on IPPs compliance with laws and regulations, any breach or misrepresentation on the part of KPLC or the IPPs or fraud on the part of IPPs, elicited curt answers without adequate supporting evidence. Critical agreements that must accompany PPAs such as direct agreements… were not supplied.”

Playing hardball

It noted that it had to make do with the scanty information provided by Kenya Power as well as what is in the public domain and information provided by stakeholders during a public participation phase to come up with its report.

The task force was formed in March to look into PPAs, which are contracts that Kenya Power has signed with electricity producers and dictate modes of engagement, including payment.

This was with a view of recommending areas that can be reviewed with the ultimate goal of bringing down the cost of power for consumers.

The task force, which presented the report to President Uhuru Kenyatta late last month, made a raft of recommendations that, if implemented, are expected to reduce power bills by 33 per cent from Sh24 per unit of electricity to Sh16 per unit by December.

It was no easy task for the task force to access the PPAs, with the Kenya Power management playing hardball.

At some point, the task force said it had to be “creative” to make the management yield to their demands. Some members of the task force also sit on the Kenya Power Board.

“Regarding PPAs specifically, the task force experienced delayed or non-existent provision of critical information from KPLC, causing initial delays in the commencement of the task force’s work,” said the team.

“While information did eventually trickle in following persistent follow-ups with KPLC’s management and, in some instances, engaging the KPLC board to push management to provide the requested information, in the end, there was information that the task force simply did not receive,” it added.

“Such information includes some of the IPPs audited models, tender evaluation reports for thermal plants and data relating to the monitoring of IPPs, including fuel charges. This lack of cooperation forced the task force to devise workarounds to overcome the information deficiency.”

The task force noted that its experience with the management in blocking its access to information and records on IPPs and their contracts with Kenya Power reflects the broad problems at the firm.

In some parts of the country, meters that had been installed during the Last Mile Connectivity Programme, are faulty. [Courtesy]

It also concluded that KPLC’s refusal to provide information could be that the company too is in the dark about the operations of IPPs or was holding onto the information in a bid to frustrate the government’s efforts to streamline the power sector.

“(The first conclusion is that) KPLC does not have the information. This would be an extremely alarming situation. Power costs account for Sh87.5 billion or 66 per cent of KPLC’s total sales in the 2020 financial year. Of this, IPPs accounted for Sh44.4 billion or 47 per cent of total power costs,” noted the task force.

“Given the amounts involved and their impact on both KPLC and consumer power prices, it is simply near inconceivable that KPLC would not adequately monitor the performance of supplies to confirm that it is paying for what it gets.”  

The second conclusion by the task force was that “KPLC has the information but refused to release it.”

“This (second conclusion) speaks to an attempt to defeat efforts aimed at streamlining the power sector in order to make power an effective enabler of economic development,” said the team.

“Either conclusion is extremely alarming. In order to assist the KPLC board get control of what appears to be a situation of management helplessness, incompetence and defiance, the task force wrote formally to the board, pointing out these information deficiencies.”

Another shocker for the task force was the level of graft involved in the procurement of different materials at the utility firm.

The team has recommended an overhaul of the procurement department, replacing the current team with an entirely new team.

Stakeholders who talked to the task force during the initial days of its fact-finding mission, the team said, kept on referring to Kenya Power’s procurement processes as key in adding to the high cost of power in the country.

“KPLC board replace (redeploy, redesignate, redundancy) all the staff in the entire procurement department and recruit new staff. In the interim, KPLC to outsource procurement to other government agencies with demonstrated experience in procurement of certain high-quality engineering equipment and machinery,” said the task force in the report.

Among the materials that are prone to procurement misdeeds are poles, meters and transformers. In some parts of the country, meters that had been installed during the Last Mile Connectivity Programme, are faulty.

Among the materials that are prone to procurement misdeeds are poles, meters and transformers. [Jonah Onyango, Standard]

And the company has over Sh5 billion worth of such materials stuck at its stores that are likely to be disposed of at a loss.

Low-quality transformers

“The company is reported to be holding obsolete and slow-moving stock worth over Sh5 billion, which is likely to go to waste as in some cases, procured items are now obsolete,” said the task force.

Problems in the procurement processes at the firm came to the fore in 2018 when nearly the entire top management was suspended and prosecuted for buying low-quality transformers and outsourcing construction works to non-qualified and unregistered firms.

Newly-appointed Energy Cabinet Secretary Monica Juma said the ministry would implement the recommendations of the task force in full.

She noted that this would guarantee not just lower prices for consumers but also the sustainability of the sector.

“I intend to drive these reforms firmly. I believe that if achieved, the reforms will deliver the recommendations of the task force and the ministry’s value proposition, which is to deliver affordable, quality energy for all Kenyans,” said Juma at a meeting with the Kenya Editors Guild yesterday.

“The intent of the government is to take all measures necessary to ensure that we turn KPLC around. We conceive any risk to Kenya Power as an existential threat for us. The intention is to avert what we think could be a crisis of monumental proposition with huge negative impact.”

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