advertisement
Columnists

Save Kenya Power from collapse

High Voltage transmission lines
High voltage power transmission lines. FILE PHOTO | NMG 

The government, the majority shareholder of the electricity distribution monopoly Kenya Power, last week appointed a new set of independent directors.

Looking at the composition of the new team, it is clear that an attempt was made to appoint people with knowledge and experience in the subject matter.

The previous board was mainly composed of cronies of influential politicians. Still, the problems at Kenya Power are so deeply ingrained.

I learnt many years ago that Noah of the Old Testament was the greatest financial engineer the World has ever known because he managed to float a company when the whole world was under liquidation. The task before the new team will be gigantic. Indeed, without addressing the company’s structural problems, the appointment of new directors may turn out to be as futile as bringing in a set of new pallbearers hoping they will bring the body back to life.

The priority of priorities in Kenya Power is addressing balance sheet issues. The shareholders must to something very urgently to clean the company’s balance sheet. In South Africa, a national conversation has been going on about a bailout of the state-controlled electricity monopoly- Eskom. It has been proposed that Eskom be bailed out by the pension fund for public sector workers.

advertisement

It surprises indeed that we in Kenya are yet to appreciate and come to terms with the fact that the financial health of the country’s only power distributor is critical to the health of the economy. Kenya Power is the only power off-taker for both KenGen and for the independent power producers. When it continues to ail, the ramifications are felt across the board.

Apart from balance the sheet, there are broad policy issues on which we must build a national consensus. First, when a commercial State corporation is forced to operate with non-commercial objectives, the taxpayer must pay for the losses by way of a subsidy.

Here are examples. When the government tasks Kenya Power to connect consumers who cannot afford the cost of that power, the State must cover the cost.

Indeed, part of the reason Kenya Power is where it is today is because it — for political reasons — finds it difficult to operate on the basis of full-cost recovery. Failure to subsidise the social tariff has been a big impediment.

What is my point? It is that in appointing new directors, the government has merely placed the company in the hands of new pallbearers. I am not saying that there is nothing the new directors can do to improve the fortunes of the company.

The new team can scale up drastically in reducing transmission losses, in reducing theft of electricity by consumers, in collecting debts and in curtailing corruption in procurement.

A great deal can be achieved by eliminating fiefdoms in the ranks of the workforce left by the out-going management and board and in re-introducing clear lines of command in the company. The list of what needs to be done to improve the company’s fortunes is long indeed.

The point I stress is that when a strategic parastatal is in the situation Kenya Power is in, the playbook is the same everywhere: inject capital to recapitalise the company and consider forging an alliance with a strategic partner that can bring technical expertise and management.

In the long term we must debate whether it really makes sense for Kenya Power and other strategic commercial State corporations to remain listed on the stock exchange.

I foresee a situation in future where the government — as the main shareholder in these commercial State corporations — will be forced to pump in capital and in the process end up diluting the minority shareholders.

A monopoly that rakes in more than Sh130 billion a year in revenues, is broke and is now tottering dangerously.

If the government does not take drastic measures to bail out Kenya Power from its current situation, the company will collapse.

advertisement