Safaricom to earn Sh53bn from smart electricity meters

Safaricom #ticker:SCOM is set to earn Sh53.5 billion for installing smart electricity meters to Kenya Power’s large consumers in a deal aimed at curbing power theft and leakages and fixing weaknesses on the utility firm’s transmission network.

The telco is planning to install a Sh31 billion intelligent system that will connect 330,300 electricity meters to a central location and track electricity use, power outages and load on transformers as well as read meters remotely.

This will help bring down the share of electricity bought from generators such as KenGen #ticker:KEGN that does not reach home and businesses, technically known as system losses, from 23.93 percent to eight percent, earning Kenya Power #ticker:KPLC additional revenues of Sh71 billion in eight years.

Safaricom is set to earn 75 percent of the additional sales or Sh53 billion, with Kenya Power taking the remaining Sh17.9 billion, according to the utility firm’s board papers.

This means the telco will recover its investments in four years and transfer the smart reading network to Kenya Power after eight years.

Kenya Power executives are seeking a review of the revenue share once a final deal is inked with the telecommunications firm, arguing that the draft agreement is in favour of Safaricom.

“Safaricom will have recouped its full cost in year four hence the need for a further discussion on the revenue uplift sharing proportion,” Martin Mutuku, Kenya Power’s general manager for business strategy said in a preliminary report.

“Basis to support the 75 to 25 percent sharing proportions -- KPLC should negotiate for a better sharing proposal.”

This is the latest such move by the telco to diversify its incomes from voice, short message services, cash transfers and payments.

Safaricom in 2014 started installing a Sh14.9 billion communication and surveillance system that is linked to police stations to help combat crime in Nairobi and Mombasa.

Efforts to diversify revenues include revving up its data business to offset sluggish growth in mobile calls, which has seen it turn to M-Pesa and Internet to power future growth.

The smart meters, which will cover electricity users that account for 84 percent of Kenya Power sales, is the latest plan to cut the system losses that remain well above the global benchmark of about 15 percent.

They will be connected to homes and businesses that consume more than 200 kilowatt hour (kWh) monthly.

“This solution is expected to result in a turnaround of Kenya Power’s current financial position by reducing energy losses,” say the Kenya Power board papers.

“In addition, it will improve collection, increase business operational efficiency and enhance cost efficiency.”

The power monopoly last year sank into the first loss in 17 years.

The combination of power theft and leakages from the ageing transmission grid, which stems from the long period of under-investment, has continued to keep the system losses beyond the initial target of 14.9 per cent.

The inefficiency in the power flow system happens in high voltage wires, substations as well as low voltage lines connecting households and businesses.

High voltage wires, above 132 kilovolts, are managed by the Kenya Electricity Transmission Company, with Kenya Power handling lower voltage lines.

Meter tampering or outright theft of electricity have also dogged Kenya Power, which is also hurting from vandalism of lines and transformers.

The system losses have increased from 17.51 percent in 2015 to the current 23.93 percent in tandem with the jump of the new connections over the same period.

Safaricom is leveraging on its licence as a network service provider and high-speed Internet connectivity to offer solutions to businesses at a fee.

The telco has identified four manufacturers who will provide smart meters to 1,292 Kenya Power distribution feeders, 73,000 distribution transformers and 256,000 consumers with a monthly use of over 200 kilowatts.

The installation would be done in three phases, beginning with areas adjacent to Mombasa Road targeting 6,200 meters over nine months.

The second phase will connect 330,300 smart meters to large power users who account for 84 percent of all energy consumption, which will be completed in two years and operated over six years.

Kenya Power will continue installations for the final phase leveraging on infrastructure created by the telco.