Bernard Ngugi: The exit this week of Bernard Ngugi from Kenya Power is not a regular transition where a CEO retires on a long-planned schedule, quits to take a job elsewhere or steps down because of ill health.
From what I gather, all indications are that Mr Ngugi’s departure was initiated by the board.
I attribute his exit to tensions between an assertive board eager to deliver radical change but restless that management is too slow to cope with the pace at which it wants conduct of the company’s affairs changed.
If you have been following Kenya Power’s affairs closely, the tensions have manifested mainly in supply chain management.
It is why we were beginning to see too many cases whereby tenders to purchase equipment were being canceled or postponed.
For instance, a multi-million shilling tender to procure 235,000 meter readers was abruptly cancelled.
A tender inviting contractors to collect debts on the company’s behalf was postponed several times while the tender for procurement of insurance brokers was also cancelled.
The insurance tender is lucrative because Kenya Power’s annual insurance premiums amount to Sh 700 million.
From what I gather, there were concerns that a small group of players had captured this tender for 10 years.
I hear that the board wanted evaluation criteria changed to prescribe higher minimum capitalisation requirement for brokers and underwriters.
Last year, the board rubbed the cartels the wrong way by demanding a complete audit of the company’s procurement and supply chain function. Even as Mr Ngugi was exiting, that audit had not seen the light of day.
It is to be remembered that one of Kenya Power’s management weaknesses is mis-procurement and poor management of inventory.
One of the biggest headaches is that the company carries Sh9 billion worth of non-moving inventory — mainly electricity poles, meters, transformers and spare parts — that has been sitting in the warehouses for more than five years.
Last year, the board insisted that the company recognise the diminution in value of non-moving inventory by charging that loss of value to the income statement.
The billions recognized as losses contributed in a big way to wiping out the company’s profits.
This is how the chairman of the company, Vivene Yeda, described the mess in the inventory and supply chain function in the company.
Previous regimes, she argued, had turned the once profitable company into what she described as ‘a veritable procurement machine’.
And, according to a recent Cabinet Memo by the Treasury, ‘Kenya Power is the bastion of dead stock, theft of power and expensive power purchase agreements’.
The biggest procurement transaction pending as Mr Ngugi exits the executive suit is the sourcing of a transaction adviser to restructure a Sh 60 billion syndicated loan that has onerous terms.
This lucrative tender is going to be the next theatre of vicious conflict because it comes with big opportunities for rent seeking elites.
The stakes are high indeed because Kenya Power must get significantly lower cost of debt, materially longer tenures and eliminate the onerous conditions attached to the guarantees on these loans.
Will Mr Ngugi’s exit make a difference? Even if you replaced the exiting CEO with a committee of archangels, the company’s fortunes will not change significantly if you don’t address the elephant in the room — namely the expensive power from independent power producers.
We have over contracted these merchants. A series of them are still under construction.
I still don’t understand how we ended up with such lopsided and inflexible agreements whose prices cannot be negotiated downwards even in the context of a pandemic.
If Covid-19 cannot qualify as force majeure, what qualifies? The Yeda-led board has been in office for one year. Let us give them time to see whether they will make a difference.