BUSINESS
Power corrupts

Published: 19-MAY-04

The Kenyan Government is at last moving to streamline the power sector, with a thorough cleanup particularly expected at Kenya Power & Lighting Company (KPLC.) Last December, an audit report revealed a deep rot that had until then only been rumoured on the grapevine for some time.

The report covers the period of the long-serving managing director Samuel Gichuru. Gichuru was sacked in February 2003 after 17 years at the helm. Government sources say that previous efforts to have him fired to facilitate reforms in the power sector proved fruitless because of his entrenched relationship with the previous Kenyan government.

With his close links to politicians, the allegations that Gichuru's bodyguard was removing money from an Independent Power Producers' bank, Banque Indosuez, every Friday was not surprising. Politicians in Kenya take weekends off to hold fundraisers, known locally as Harambee. Kenyan police claim that at least $2 million was paid by Gichuru to an Indonesian Independent Power Producer.

Up to mid-2003, the 50 per cent government-owned KPLC had chalked up an accumulated loss of $170 million (Sh13.6 billion). It was only recently that the government needed to step in and craft a rescue package to save the firm, which is listed on the Nairobi Stock Exchange, from a certain collapse. Under the deal, the power distribution firm converted $163 million (Sh12.5 billion) owed to state power generator, Kenya Electricity Generating Company (KenGen), into redeemable preference shares. The shares will start yielding dividends in 2009, giving the company the requisite room to restructure its finances.

The liability to the mainly hydro-electricity firm supplying 77 per cent of energy sold by KPLC arose from non-payment for energy supplies. In 2003, another deal fell through after the two firms failed to agree; KPLC though went ahead and factored it in, in its annual report. Ironically, international consulting firm Deloitte & Touche, who audit both firms, passed KPLC's accounts with no comments, but noted the issue under discussion in the KenGen report.

Not everyone was having it rough though in getting money from KPLC while KenGen bills were piling up. The Independent Power Producers, Iberafrica and Indonesian Westmont Power, were laughing all the way to their banks. The firms supplying about six per cent of KPLC power, and which were contracted as stop- gap generators in 1996, have been blamed for most of the haemorrhage at the distribution monopoly. The recent report on KPLC said as much.

Iberafrica, which is a franchise of the Spanish firm Union Fenosa Group and currently operating under the name Soluziona, has in particular been blamed for ripping off KPLC through a lopsided power purchase agreement - it was also involved in the controversial IT project that guzzled $32 million (Sh2.5 billion).

Gichuru, who stands accused of awarding the firm a contract with no competitive bidding,. is alleged by the report to be a director of Iberafrica whose contract was due to expire in August 2003. To start with, KPLC loaned the private firm $7.8 million (Sh600 million), which is recoverable through deductions from its power supply. It is understood that $1.7 million (Sh130 million) is still pending on the loan.

Worse still, another $9.1 million (Sh700 million) was invested from the employee pension scheme at a time when KPLC and KenGen schemes were yet to split. The investigation committee reports no dividend had apparently accrued to the workers so far, although in private Gichuru says it is the most lucrative investment for the scheme.

But it is the cost of keeping Iberafrica which has upset Kenyans most. Until early this year, the thermal power producer had wrung a princely $234 million from Kenya Power. With a bulk tariff of nine US cents or more per kilowatt-hour compared with 3.3 for KenGen, KPLC sells the IPP power for a loss.

It is now hoped that the two expensive IPPs will be scrapped at the end of their contracts in 2004, leaving the less expensive 20-year contractor, Tsavo Power IPP, on the scene. In any case, Kenya with 1,100 megawatts installed capacity has an excess of about 300 megawatts. It is, however, thought that demand for power will grow as the economy starts to pick up donor support and growing investor confidence. Extra demand though should be well covered by the Japanese-sponsored Sondu Miriu Hydroelectric Project that had stalled due to a standoff with donors.

Power, apart from the tattered transport infrastructure, has been pointed out as the single most important push factor for investors in the country. But with the proposed Central African Power Pool, which the government appears to at last take seriously, reprieve could be on the way for Kenyan users. At present, only five per cent of the rural population is covered by KPLC, which apart from being expensive is notorious for power outages. Just 40 per cent of the urban population is covered.

A major factor in the KPLC loss has been a 20 per cent system loss, mainly arising from poor maintenance and the theft of power. The situation took a singular turn for the worse in 2000, when a severe drought combined with a recession bequeathed Kenya its first negative growth since independence. For the first time in history, stakeholders in the energy sector feel genuine reforms are underway. The full recovery of KPLC is unfortunately expected to take longer.



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