What you need to know:
- World Bank forces the government to adopt a corporate governance system at limping parastatal in a bid to fight graft and improve oversight by minority shareholders and independent board members.
A confidential Cabinet Paper seen by The Weekly Review details how the government is planning to effect a new corporate governance system at Kenya Power, where minority shareholders will now be having a prescribed number of directors representing their interests on the board of the company.
The new system has been forced on the government by the World Bank, a key condition for new lending to the financially troubled utility firm.
Despite the fact that the stake of the State and minority shareholders is almost equal, with 51.1 per cent for the government and 49. 9 per cent for minority shareholders, the government usually takes advantage of the narrow lead to pack the board of this critical state corporation with either political appointees or civil servants sitting as ex-officio members. Minority shareholders have no representation.
The Cabinet Memo says that a mechanism shall be instituted to actualise fair representation, with minority shareholders nominating and voting their preferred directors to fill their proportionate allotment.
To achieve this, the Kenya Power Board will shortly be asked to convene a Special AGM to allow amendments of the company’s Memorandum and Articles of Association to effect the radical changes. True meaning and significance of election of directors has been impossible to achieve because of abuse of voting power by the majority shareholder.
In recent months, Treasury Cabinet Secretary, Prof Njuguna Ndung’u, has been doing whatever he wants.
Read: The rot at Kenya Power
Weeks before the last AGM in December last year, the CS sealed the fate of most of the company’s directors by giving an advance notice to the Company Secretary, Imelda Bore, that he would be making a resolution to remove most of the directors, including the chair, Ms Vivian Yeda.
In good corporate governance practice, directors are elected by a system of rotation. Yeda was not on rotation this time round. Another director who was kicked out, Mr Yida Kemoli, had only been appointed to the board in December at the previous AGM and was also not due for rotation.
But he did not offer himself for election after powerful individuals reportedly informed him that the government did not want him. He threw in the towel in advance of the December AGM. Ms Sarah Mbwaya, Brig (Rtd) James Gatiba, and Justice (Rtd) Aaron Ringera, who had been on the board for five months, offered themselves for re-election but were kicked out by the powerful vote of the majority shareholder.
Mr Kairu Thuo, the longest-serving member of the Board was retained despite the fact that the Mwongozo Code that spells out corporate governance rules for state corporations is against long tenures because they tend to breed conflict of interest. Clearly, by abuse of voting power, the major shareholder had turned Kenya Power director elections into rituals that were largely a formality.
The Yeda-led Board became unpopular with the powers that be mainly because it started pushing for comprehensive forensic audits on key operations of the company. After the members stepped aside, four forensic audit exercises that they initiated have yet to be completed.
The first was on the procurement of power purchase agreements, the second was the procurement of Heavy Fuel Oil, the third was an audit of system losses and finally a comprehensive audit on the procurement of cables, transformers, meters and equipment for substations.
The majority shareholder vote merely served to tilt the balance of power in the Board away from a team of public-spirited individuals who were on a mission to restore the fortunes of the company, to powerful cartels and tenderpreneurs who have captured Kenya Power’s supply chain for years. Indeed, effective influence in the company has been in the hands of a tiny group of elite suppliers who have organised themselves into a formal association.
For a long time, the cartel engaged the company in protracted court battles over tenders of cables, meters and equipment for substations, the consequence of which is that Kenya Power has been unable to buy essential supplies. In a tender floated in March last year, the Kenya Power Board decided to introduce higher quality standards for meters, transformers and substation equipment.
First was a requirement that the tenderer had to have 15 years of technical experience in manufacturing meters and transformers. Secondly, the brand of the equipment was required to be in service and used in at least three of the following regions – Europe, North America, Africa, Asia and South America. Thirdly, the company would only buy meters that had been tested for accelerated life expectancy in a certified laboratory. Finally, it was a requirement that the meters offered had to have a non-volatility memory with a long-term retention period of not less than 10 years.
The tenderpreneurs would have none of it. They challenged Kenya Power by advancing the bunal, where they lost. They took the case to the High Court and lost. They went to the Court of Appeal and lost again. If you track and trace beneficial ownership of members of the Energy Assemblers and Manufacturers Association, you will find that it resembles a list of ‘who is who’ of operatives within major political parties. Yeda, Kemoli and Abdulrazak Ali, Elizabeth Rogo, Caroline Kittony and Sachen Gudka before them did not exit the Board of their own volition.
The government had changed. The boot was on the other foot. With the field cleared, who will win the multi-billion tender for meters, transformers and equipment for substations? Weeks before President Ruto was inaugurated, well-known supporters of the ruling party went to social media to warn the company against proceeding to award the coveted and lucrative contract until the new government was sworn in.
An explosive case has been lodged at the Public Procurement Tribunal challenging the decision by the company to award a Sh30 billion contract for supply of meters that has been deliberately divided between the four members of the official cartel – the Energy Assemblers and Manufacturers Association.