Charles Cheruiyot, a member of a technical audit team at Kenya Power at the time, came across very shocking information. His audit team had spent four days reviewing the company’s connectivity report and had unravelled a meter scam at the company.
But to be absolutely sure, like every good auditor, he had to prove his claims. So he spent time with his audit team calling all customers that had been listed in the company’s Integrated Customer Service (ICS) system as having been recently connected.
One call after the other, his men were coming back mystified. Most of the connections were either fake, or the metres were simply activated by unscrupulous members of staff from the boots of their cars before disappearing – no actual building had been connected.
This was the time when the company was swimming in billions, its cash flows were solid, its procurement department was in a frenziedly ordering poles, prepaid meters, cables, conductors and transformers by truckloads.
Donors and multilateral lenders were throwing billions into its accounts to support the last mile project. At the time, the World Bank had disbursed more than Sh50 billion for the project. With just Sh15,000, you could easily get connected to the grid. Kenya Power was connecting 5,000 new customers every day, at least according to its books.
The African Development Bank had committed Sh13.3 billion for the project. The French Development Agency (AFD) was also on board and had lined up another Sh11 billion (100 million euros). Money was pouring in, fast.
There were other development partners, including the KfW of Germany, Danish International Development Agency (Danida) and Japan International Co-operation Agency (Jica) who were also looking to join the party.
The plan was to connect at least 1 million new customers to the grid every year. A few meters being stolen or not being connected was the least of the project’s problems. But to put the matter on record, Mr Cheruiyot sent an email to a small team of top managers at the time, including department heads and then Chief Executive Officer Ken Tarus raising the alarm.
Fully fledged scandal
“For the last four days, our technical audit team was reviewing connectivity reports by calling our newly connected customers to confirm that they are actually connected as shown in the ICS system,” read the email, whose subject was “Activation of meters before installing”.
What Mr Cheruiyot did not know was that his team had stumbled on a scheme that had gone on for years, and which would morph into a fully fledged scandal.
At the time, the fraud was low key. A member of staff would be given about 200 metres and go and dump them with one customer or activate them and claim they had been connected. The only problem was that though active, the meters were not vending, which means no one was actually using them.
When Mr Cheruiyot’s team did a random visit to a site in Nairobi, his men found 193 new prepaid meters in the custody of a customer.
“All the 193 prepaid meters were issued to our staff between January and February 2017 and all of them had been activated in the system,” he noted. In other cases, some staff or contractors would just carry the meters and leave them with customers to find their own electricians to connect them.
Responding to Mr Cheruiyot, a shocked manager called for immediate sanctions for staff that were deliberately embarrassing the company by reporting fake numbers.
“This is unfortunate, I thought we should be role models to our juniors. We have allocated a lot of financial support to assist in getting ‘REAL’ numbers,” Mr Peter Mwichigi shot back.
Instead of Kenya Power fixing the system and bringing the culprits to book, it replaced its ICS system with a new one, and went on with life as if nothing had happened. In fact, the company spent significant amounts of resources hiding the mess.
Shocking case of pilferage
As the company closed its eyes on the matter, its staff and an army of contractors recruited to support the company to connect as many people as possible started cheating the system. Four years later, what started as just several thousands of meters lost had turned into a shocking case of pilferage.
Credible sources within the organisation have told the Sunday Nation that over one million meters have now disappeared from Kenya Power warehouses and cannot be accounted for as the rot at the utility company unravels.
A meter costs about Sh2,500, so one million missing meters translates to a loss of over Sh2.5 billion. If you factor in the opportunity cost of lost business if the meters had been connected to real consumers who were paying, this would run into tens of billions of shillings.
Currently, the utility company has been grounded by an acute meter shortage in regional offices, which has led to costly connections for new customers as the queue for those waiting in line crosses over three months in some offices.
Last week’s directive by President Uhuru Kenyatta to slash electricity tariffs by a third by Christmas has also come as a double-edged sword for the company, which is facing a cash crisis and has been in the red for three years running.
The Sunday Nation contacted the company asking if it had done any internal investigation on the meters scam and brought culprits to book.
“In the course of fast-tracking electricity connections to enhance connectivity across the country, we were faced with an emerging issue of non-vending meters,” the company said. It added that the causes of non-vending in meters are diverse, key among them being meter bypasses and unoccupied premises.
Non-vending meters
“Majority of the non-vending cases occurred during electrification of informal settlements.” The company said it is addressing the issue of non-vending meters through ongoing inspections supported by deployment of technology.
It revealed that in the last two years, it had made progress in addressing the issue by reducing the number of non-vending meters from 940,405 in July 2018 to the current total of 435,268, a reduction of 54 per cent. This means that there are nearly still half a million meters out there that are not being used.
The firm said it utilises meters to connect new customers and replace faulty ones largely on an 80:20 ratio. The meters are managed and tracked in the meter management system from the time of purchase to the time of disposal.
According to its official statement, Kenya Power has procured a total of 1.25 million meters in the past three years for prepaid customers. In 2018/2019, the firm says it bought 500,000 new meters, while 180,000 were acquired in 2019/2020. In the last financial year, it added another 580,000 new metres. It also acquired 70,000 post-paid meters and 2,045 large power meters
These figures exclude the Last Mile Connectivity project, where most meters were lost, and 55,000 smart meters procured for the smart metering project.
In its breakdown, the company says it used 81,030 meters for the Last Mile project in the 2018/2019 financial year, 161,358 in 2019/2020 and another 244,210 in 2020/2021. For the prepaid meters, the company says a total of 444,124 meters were given out in 2018/2019, another 432,864 in 2019/2020 and 599,797 in 2020/2021.
But as the company struggles to reconcile its books to trace where the meters are, more and more Kenyans are giving up on getting connected, opting for solar or alternative sources of energy.
Current procurement plan
The company says it recently undertook a review of its metering strategy to be in line with changing technology and emerging customer requirements: “Implementation of the strategy occasioned slight delays in the procurement of meters. However, this has been addressed and the company has enough meters to last it till end of December this year.”
There have also been concerns that the company was making large procurements of poles and other materials to last it five years, tying up capital and giving cartels a chance to continue eating the company.
On procurement, the firm said all purchases for critical stocks, poles being one of them, are based on annual usage requirements in accordance with the approved annual procurement plan, and budget. “The procurement plan does not have poles with 5-year estimates and we therefore have no plan to procure poles for the next 5 years in advance.”
It says its current procurement plan (FY 2021/22) contains poles that are to be procured annually using three-year framework agreements.
“As guided by the procurement law, only initial (first) year quantities are guaranteed. Therefore, no supplier has guaranteed supply/deliveries for the whole 3-year period.”
Once the quantities for the preceding year are exhausted, it says, a mini competition shall be held among prequalified firms (at least seven) before entering into a new contract. “Using the procedure, firm(s) offering favourable price (s) shall be awarded.” It says the intention is to establish demand-based procurement.
“This is a strategy adopted by the Company to avoid overstocking and associated costs, and also as a way of setting up a guaranteed source of supply for these critical items.”
This comes even as all indicators on the company’s financial health are blinking red. Auditor-General Nancy Gathungu has already raised the red flag on the financial status of the company.
Negative working capital
In her latest review of the company, the auditor said the company’s current liabilities of Sh115 billion had vastly exceeded its current assets of Sh44.2 billion by June 2019. This means that the company is on the path to insolvency.
“The company has remained in a negative working capital position for the third consecutive year,” the Auditor-General states. She notes that the company’s board had outlined strategic initiatives to improve its financial performance, but they appear to have failed.
“These conditions indicate material uncertainty exists, which may cast significant doubt on the company’s ability to continue as a going concern.”
The power firm is also in breach of loan covenants, particularly in regard to the maximum debt capacity and adequate working capital.
“Management however obtained from the lenders the necessary waivers before 30 June 2019, confirming the waiver of the lenders’ right to demand immediate repayment of the loan, due to the breach of borrowing covenants,” the audit repot notes.
Last week, President Uhuru Kenyatta ordered Kenya Power to take the lead on the formulation of Due Diligence and Contract Management frameworks for power purchase agreements (PPAs) procurement as per the Least Cost Power Development Plan. This follows recommendations from a Presidential taskforce.
The other recommendation is for Kenya Power to institute one and five-year rolling demand and generation forecasts and associated models. The utility company will be forced to adopt standard PPAs and proposed Government Letters of Support along the lines of the drafts provided by the task force. It will also undertake a forensic audit on the procurement and system losses arising from the use of heavy fuel oils.
“In line with the constitutional imperative for transparency in the public sector, KPLC’s annual reports should include the names and beneficial ownerships of all IPPs with which it has contractual arrangements,” State House said in a statement.
The mandate of the task force was to undertake a comprehensive review and analysis of the terms of all PPAs entered into by Kenya Power and develop a suitable strategy for engagement with IPPs and lenders in order to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector. BY DAILY NATION
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