Origins of Kenya Power tariffs ‘madness’ and Energy ministry as a perennial crime scene

Kenya Power live team on Waiyaki Way on September 24, 2020.

Photo credit: Diana Ngila | Nation Media Group

What you need to know:

  • Two shadowy firms, Iberafrica and Westmont were picked in an opaque deal to supply power to the national grid at ludicrously high prices.
  • There was some I-don’t-care-attitude within the Ministry of Energy and within Kenya Power.

 Every sin has its origin — and this madness at Kenya Power is worth tracing, in the hope that we can settle, at best, and understand, at worst, this incessant swindling by Independent Power Producers (IPP) that makes your power expensive.

The Kenyan political elite is not about to slaughter the IPP cash cow, which has survived the Daniel Moi, Mwai Kibaki and Uhuru Kenyata presidencies.

Grass will grow on around feet if you think that William Samoei Ruto’s regime will end the IPPs’ run or that he will streamline that tariff business.

Every cloud has a silver lining — and those who do business with Kenya Power can tell you.

The Ministry of Energy in Kenya is usually a scene of a crime — and its toddlers, Kenya Power and Kenya Pipeline, have perfected the art. But let me deal with the pioneer IPPs, Iberafrica Limited and Westmont Power Limited.

The two came to the scene in 1997 to supply 88 Megawatts of power to the national grid. At that time, as we know, the country was experiencing a severe power shortage, and the Kanu regime had started to ration power after years of mismanaging the sector.

When they came on board, they made some cartel-inspired demands and which would raise eyebrows later. Iberafrica, for instance, demanded to be paid its money in advance and could not take a government guarantee, bank guarantee or letters of credit.

They wanted cash, as there were some interested parties. So, some $7.5 million (Sh1 billion) was put into an interest-bearing account as “some form of comfort” — as then Energy Minister Kirugi M’Mukindia would later explain.

Westmont Power

For its part, Westmont Power requested an Escrow account, and Kenya Power deposited $4.9 million into the account. Westmont’s repayment period for its investment was fixed at seven years against the advice of World Bank and IMF experts, who advised that Kenya should enter into a 14-year power supply period.

The donors argued that an extended repayment period would make servicing the debt affordable. However, with the short period set for the IPP, the power had to be expensive, and as such, Kenyans had to endure increased tariffs.

Later IPPs had some precedent to rely on. There was some I-don’t-care-attitude within the Ministry of Energy and within Kenya Power. Nobody cared about the customer.

Questions were raised on the personalities behind Iberafrica and Westmont Limited, which were awarded the tenders. Although Parliament was told that the people behind Westmont Power included Kenya Power managing director Samuel Gichuru and businessmen Mukesh Gohil, Kamlesh Pattni and Harbinder Singh – Kenyans had become immune to such shocks. The other was Chrispus Mutitu, the Permanent Secretary at the Ministry of Energy.

Asked about this apparent conflict of interest, M'Mukindia said it was “government policy” to encourage local people to own shares in firms that were to set up power-generation plants.

"I would encourage honourable members, especially on the other side of the House, to take up this matter and encourage their own constituents, to take advantage of this new government policy,” said the minister, in a bid to  justify what was clearly a corrupt system.

Iberafrica was contracted to produce 45.25 megawatts for Sh4.5 per kilowatt hour, while Westmont had a contracted capacity of 46.26 megawatts at the cost of Sh2.64 per kilowatt hour. Why the two companies were getting paid different rates — or why Kenya Power was buying expensive power — was never answered. But it had set a dangerous precedent; after all, Kenya Power from 1996 had been exempted from the provisions of the State Corporations Act, which meant it was not being scrutinised.

When the Parliamentary Investment Committee (PIC) tried to unpack these contracts, they found that part of the problem was that the Kenya Power board of directors comprised individuals with inadequate knowledge. This might be a lesson for President William Ruto, who has been packing parastatal boardrooms with some political ne'er-do-wells.

 One wonders whether Attorney-General Justin Muturi can tell President Ruto these words he said Parliament after scrutinising the KPLC board papers: “If we want to see professionalism in the management of affairs in state corporations, how then do we choose those who go to serve those corporations? If we do not choose that committee on the basis of qualification and competence, it just means that it will not be able to advise appropriately regarding sound business practices…As we found, some of the boards in government parastatals are composed of members who find the use of the English language an anathema.”

Muturi was much more brutal on Kenya Power: “If you appoint an illiterate member to the Board of Kenya Power, and the only language he understands is some poor Kiswahili, how is he expected to understand when he is told that a company called Iberafrica will be charging Kenya Power $565 per kilowatt hour for 20 years from the day they start producing 48-kilowatt hours?”

When Parliament tried to get the owners of Iberafrica, Muturi reported that they were "taken round in circles and given Spanish names; all meant to camouflage real owners."

 The parliamentary committee undertook a study tour of Malaysia, met the country's investment committee and found the truth about Westmont’s parent company. They told the Kenyan MPs that “they do not know about this company called Westmont Beahd Land”. To the Malaysians, this was a “criminal fugitive” and as Muturi said, “yet here in Kenya we have entered into an agreement with them. If you ask KPLC to tell you who the directors of that company are, they will give you names that mean nothing to Kenyans.”

And what this meant was that Kenya Power was buying expensive power from shadowy entities, and the only way to make money was to give exaggerated bills to customers, waste the energy, or sell at higher tariffs.

Moreover, while the two companies were supposed to be for emergency purposes, Kenya Power continued to pay them retainer fees whether they produced any energy or not — as long as they were on standby. As a result, and without producing a single kilowatt, the Mombasa-based Westmont was entitled to Sh93 million a month while the Embakasi-based Iberafrica would collect Sh135 million.

These two companies set high tariffs, and Kenya Power was comfortable paying 10 times what it paid KenGen. That notoriety was turned into a culture and is now a tradition.

Questions were initially raised in Parliament on how the awards were made, and Minister Katana Ngala said he was “satisfied”. An MP, Dr Otieno Kopiyo, asked that given one of the companies was associated with “persons who M/s Arkel International, the firm which is famous for the famous expansion of Nzoia sugar factory, which cost the taxpayer $75 million, is the minister still satisfied that this time around they will perform?”

Ngala: “I am satisfied that this time around, they will perform.”

As it later turned out, Samuel Gichuru partly owned Westmont, and he was paying himself and channelling the money to an offshore account in Jersey under the name Windward Trading. The problem is that after all that, Noordin Haji has the temerity to say they won't take him to Jersey — where he is wanted for money laundering — because he is “sick”.

Any attempts to get to the bottom of this tariff business will always find a hurdle. There is currently a lot of talk in Parliament, and the best that has happened — despite the promise that power charges will come down — was an increase. It is because we have so many IPPs which came after Westmont and Iberafrica and with similar terms.

When they produce power, they sell at exorbitant rates, and when Kenya Power fails to pick up the generated power, it has also to pay. We are now caught up in a terrain where power cartels run the electricity sector. At the moment, Kenya Power purchases 65 per cent of its power from Kengen for Sh5 per kilowatts. The IPPs are selling at an average of Sh26 per kilowatt. That means that Kenya Power uses more money to pay the IPPs than it pays KenGen. Furthermore, the IPPs can purchase power from KenGen and sell it at an exorbitant rate to Kenya Power. If that is not a scandal, what is?

And that is why the entire energy sector is a crime scene – and there is a don't-care attitude as a few barons continue to follow in Mr Gichuru’s footsteps. After all, he is still in town enjoying his loot. Again, who has ever been jailed for mega-corruption? Unless, we have political will, we shall continue to be at the mercy of cartels.

[email protected]; @johnkamau1