The battle for Kenya Power meters

For any utility, that little gadget called a meter is your cash register. All revenues you collect can only be accounted for through this humble gadget.

For Kenya Power, this gadget is what the SIM card is for the sustainable profitability of the giant telco Safaricom.

You lose control of the supply chains of this critical product and you are doomed to economic stagnation and persistent unprofitability.

When you are negotiating with suppliers of meters, your first priorities are quality, standards, failure rates and accuracy. The price at which you buy is also important but secondary.

I make these opening remarks as an entry into a discussion of the fortunes of Kenya Power.

One of the main reasons this critically important national utility fell into financial dire straits is longstanding vulnerabilities in the supply chains of meters, transformers and poles.

Kenya Power totally lost control of the supply chain of meters. An internal audit conducted in July last year could not even reconcile rudimentary data on the number of meters purchased, the number of installed meters that were not vending and meters that were recorded as faulty.

Many ex-Kenya Power staffers who had been engaged by the company as contractors were found to be holding huge stockpiles of pre-paid meters, which they were selling directly to post-paid customers.

Many pre-paid meters could not be found in locations where they were validated within the ERP system, while illegal connections were found to have genuine Kenya Power meters that had been validated in the company’s ERP system.

This messy situation spawned a bigger problem namely, excessive buying of meters.

The total loss of control over supply chains of this critical product was happening in the context of entry into the space of plants assembling Chinese meters that are co-owned by the Chinese and politically influential locals.

Over time, Kenya Power had become dangerously dependent on a little cartel of meter suppliers. Until the group lodged a case at the appeals tribunal under the name The Energy Meters and Assemblers Association’, it had not become apparent that what was at play was an official cartel.

Clearly, Kenya Power had become an unwitting facilitator of collusive practices. It was clear that supply chains of a product so critical to its bottom line had been open to cartel-like behaviour — practices such as bid rigging, market sharing and price fixing The company must constantly review the supply chains of three critical products — meters, transformers and poles.

Right now, Kenya Power is engaged in an explosive legal dispute where the petitioners are pushing it to relax new stiffer rules on standards and quality of meters. The petitioners are arguing that the new rules amount to discrimination and are meant to lock local assemblers out of the lucrative contracts for meters.

On its part, Kenya Power has maintained that it has been experiencing an unprecedented level of meter failures from meters purchased from the Chinese and their influential local patrons.

Who will blink first? It remains to be seen. What is worrisome is that in terms of political power and influence, the signals right now are that the political fortunes of the cartels is on the ascendancy. The recent changes on the board of the company speak volumes.

The fear that the company may lose the battle to take back control of the supply chain for meters and securing participation of original equipment manufacturers in tenders is not far-fetched.

Kenya Power should not be compelled by the spirit of ‘buy Kenya, build Kenya’ policy to bend the rules to favour local producers. We should not allow these merchants to dump meters that have been found to have high failure rates on us in the name of ‘buy Kenya, build Kenya’.

In purchasing meters, Kenya Power must not compromise on quality and international standards. Period.