Treasury’s hidden hand in Kenya Power board purge

Tuesday July 21 2020

A Kenya Power staff repairing electricity along Ngong Road Nairobi on June 13, 2020. The utility is facing severe losses. PHOTO | DENNIS ONSONGO | NMG


All independent board members of the troubled Kenya Power were ordered to resign in a purge orchestrated by the Treasury, The EastAfrican has learnt.

Removal of the five directors, who handed in their resignations this past week, paves the way for Treasury to appoint a team to spearhead the rescue of the electricity distributor, which has issued a profit warnings for three years in a row.

This past week, Kenya Power chairman Mahboub Maalim and board members representing the ministries of Energy and Treasury held crisis meetings.

“I believe the chair and board members representing ministries of Energy and Treasury are meeting today (July 16) to plan for the AGM where reconstituting the new board should be on the agenda,” Treasury Cabinet Secretary Ukur Yatani told The EastAfrican, but declined to comment on whether the resignation of the current directors came as a surprise to him.

Mr Maalim and two ministry representatives were the only directors left after the resignation of Adil Khawaja, Kairo Thuo, Wilson Kimutahi Mugung’ei, Brenda Kokoi and Zipporah Kering.

“The board had weaknesses as some people who were politically appointed did not understand operations of the utility company,” one of the outgoing board members told The EastAfrican in confidence.



As Kenya Power sank deeper into losses putting at risk the country’s energy security, the political appointees became a big liability prompting the majority shareholder, Treasury, to step in.

The Kenyan government owns 50.09 percent of the shares of the Nairobi Securities Exchange-listed electricity distributor.

Corruption and mismanagement, which has seen more than 10 former senior managers of the company charged in court, has accelerated the utility’s decline.

“The shareholder (Treasury) wanted to totally re-organise the board, only that it wasn’t clear on how it is was going to do it, which prompted us to step aside,” added the board member.

Kenya Power, which has been facing financial difficulties for most of the past decade and had to be rescued by a team of World Bank-supported technocrats, has in recent years hit the headlines for poor performance, inflated power bills, and scandals in the award of power project tenders.

The AGM, which was scheduled to be held by December 31, 2019, was postponed to allow time for the appointment of the Auditor-General — which was done this past week — who was required to certify the company’s financial statements.

Company insiders told The EastAfrican that Mr Yatani wants the reconstituted board to comprise of professionals who understand the operations of the electricity distribution monopoly.

The Kenya Power Board slots currently consist of the chairman, two government representatives and five independent directors.

The firm’s stock at the NSE had dropped to Ksh1.92 ($0.019) per share on Thursday.

In 2018, Director of Public Prosecutions Noordin Haji ordered the arrest of 11 Kenya Power senior managers for working with private individuals and companies to swindle the company of cash through dubious contracts and tenders.

Last month the utility issued a profit warning, indicating that its net earnings for the full year ended June 30 would drop by at least 25 percent, raising questions about its state of financial affairs.

The firm blamed the Covid-19 pandemic for the projected revenue fall this year.

The utility’s financial struggles are also blamed on the subsidised power connections, as the Jubilee administration moved to fulfill its campaign pledge of connecting far-flung rural villages.

“The company has been going under for the past seven years or more. There are three reasons for this: One is last-mile connectivity, the second one has been the power purchase agreements(PPAs) and the third is tariffs,” said the board member.

Under the last-mile connectivity programme, low-income electricity consumers were to pay Ksh15,000 ($150) to be connected to the national grid: The total cost of connectivity is Ksh140,000 ($1,400). The difference would be covered by Kenya Power.

If the government did not subsidise the programme, the cost of connection would have risen to Ksh300,000 ($3,000) per consumer.

The actual consumption by a last-mile consumer, the board member said, is about Ksh600 ($6) per month, while the actual cost of transmitting power to this consumer is about Ksh1,400 ($14) per month.

“Under this programme, the social element is good but you can see the economic element does not work. The government had an ambitious approach of raising power supply while the demand was low. The economy did not grow as fast as anticipated and so there was too much power and nobody to consume it.”

Declining fortunes

The company’s profit-after-tax for the 12-months to June 30 this year is projected to decline to at least Ksh196.5 million($1.96 million) from Ksh262 million ($2.62 million) last year.

Its net earnings dropped by 92 percent last year to Ksh262 million ($2.62 million) from Ksh3.26 billion ($32.6 million) in 2018.

Its total power purchase costs increased to Ksh90.15 billion ($901.5 million) from Ksh84.1 billion ($841 million) in 2018.

According to Kenya’s Economic Survey report (2020) the country’s total electricity demand increased 3.9 percent to 11,620.7 GWh last year, from 11,182.0 GWh in 2018, with domestic demand for electricity increasing to 8,854 GWh from 8,702.3 GWh in the same period.

Transmission and distribution losses stood at 2,750.5 GWh, accounting for 24.1 percent of the total local generation in 2019.