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Lull in energy sector crying for immediate reforms

By Ng'ang'a Mbugua
Friday, November 27th, 2020
Kenya Power. Photo/Courtesy
In summary

A reliable supply of electricity is critical for powering economic growth and freeing millions of poor people from poverty.

Studies conducted in developing African and Asian countries have for instance shown that where electricity is extended to rural areas, it reduces the hours a day that women spend fetching water.

This is because families with power can sink wells and invest in simple electric pumps that supply their homes and kitchens with water. 

According to some of these findings, once free of this chore, women used the hours thus saved to engage in more productive work, such as starting kitchen gardens that then provided them with incomes or improved the diets of their children.

The connection between healthy diets in children and their improved performance in school has already been established by economists. 

This, coupled with the fact that homes with electricity afford children quality and unlimited time for home study means, by extension, that children from homes with power have, over the long term, better chances of excelling in school and also in their careers compared to those who do not.

The argument I am trying to make is that public utility companies charged with the responsibility of supplying power must do so consistently, predictably and universally because there is more to electricity that just switching on light bulbs.

Power is, indeed, the life blood of all economic activity. As such, every corner of the country ought to be connected to the grid.

That is why it is disheartening to learn that large swathes of western Kenya have been going without power for weeks on end, yet, every so often, government officials reel out figures which suggest that the country is producing more power than it actually needs.

Why this discrepancy? If we have an oversupply of power, why are more homes yet to be connected?

Part of the problem appears to be that utility companies like Kenya Power have failed the efficiency test.

Despite being a monopoly, the company struggles to meet the electricity demand for both homes and industries.

And when its customers experience downtimes, the turnaround times before such problems can be fixed is inordinately longer than it should be.

The other problem has to do with pricing. A former CEO of Kenya Power once told me that during his tenure, he adopted a simple business model: Buy cheap, sell expensive and manage costs.

During his tenure, as data can attest, Kenya Power recorded a strong performance at the Nairobi Securities Exchange and chalked up billions of shillings in profits annually. What changed?

Today, the company’s stocks are being sold for a song. It is perennially reporting huge losses despite being the only player in its market.

It has failed to meet customer expectations. And just last week, its managers raised the red flag, saying that more people were shifting to solar power, thus denying Kenya Power the revenue it needs to drive growth and profitability.

Yet, all this is happening despite Kenya Power enjoying a preferential rate for every unit of electricity it buys from KenGen, its biggest supplier.

One shudders to think what will happen should the prevailing price control regime be left to market forces.

This illustrates why three things need to happen in the short run. The first is that Kenya Power must relook its business model, identify where it is hemorrhaging money and fix those loopholes.

It would be nice to recommend that its ranks be prosecuted if found culpable of diverting resources or engaging in dubious investments. This, however, is a mere platitude.

Re-evaluating its business model is what needs to be done urgently and the problems fixed without further delay.

The second thing that needs to happen is for the energy sector to be liberalised as happened in the telecommunications sector.

In the event that the government is unwilling to walk this route, then it ought to pave the way for existing utility companies to either be privatised or made semi-autonomous.

This way, they will have more independent boards, adopt better business practices and become more deliberate in driving their own growth even as they contribute to economic development.

Thirdly, Kenya must map its energy expertise spread out across the globe.

There are many high qualified Kenyans in Europe, Russia, America and other parts of the world, who have gained both knowledge and experience running and driving innovations in major energy companies.

Kenya must tap the expertise of some of them, remunerate them accordingly and give them an incentive to return home to turn around our dimming energy sector.

The work of running utility monopolies is too important to be left to political appointees. — The writer is a Partner and Head of Content at House of Romford — [email protected]

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