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The Manitoba Hydro Management Team
(AllAfrica.com English Via Thomson Dialog NewsEdge) Nairobi, Aug 13, 2006 (The East African Standard/All Africa Global Media via COMTEX) --Don Priestman, the head of a team of Canadian managers contracted to turnaround Kenya Power and Lighting Company, takes Ochieng Rapuro through the mandate of the expatriate managers and how they plan to meet it.
Turnaround artist is the befitting title. But Mr Don Priestman, the General Manager of Kenya Power and Lighting Company, vehemently brushes it aside.
Don Priestman
The Canadian engineer is one month into a job he has to finish in 24 months and whose results the entire 32 million Kenyans must see. Priestman is the head of a team of managers seconded by Manitoba Hydro International (MHI) - the company that won the government contract to turnaround Kenya Power - a utility firm whose fortunes have been flagging over the past decade with devastating consequences on the economy.
A look at the status of the company and the country's energy needs points to the fact that Mr Priestman's work is cut out for him.
Sector on the threshold of a crisis
Over the past four years that the economy has been growing, demand for electricity has been rising at an annual average rate of 8 per cent.
This has thinned out the reserve margin to an all time low of 100 MW at the end of last month, way below the recommended level of 15 per cent.
Last week, Kenya Electricity Generating Company (KenGen) - the principal supplier of electricity to KPLC - disclosed that demand had risen to a record high of 930 megawatts, piling pressure on both producers and suppliers to get their act right.
At KPLC, Mr Priestman and his team of turnaround managers are dealing with a much bigger challenge. The team is taking over the operations of Kenya Power at a time when Kenya's energy sector is on the threshold of a crisis.
Independent power producers
The immediate challenge that has kept Mr Priestman and his team busy since they arrived in Kenya four weeks ago is the cost of power.
Six months ago, when the country found itself on the throes of a severe drought that the weathermen said would last until end of this month, the Government made elaborate but costly plans to deal with the emergency.
Construction of buildings on power wayleaves has been blamed for massive transmission losses.
Part of the plan was to bring in independent power producers - mainly using diesel-driven generators, to top up whatever little electricity that was to come from the traditional sources. This was expected to push up the cost of power on the retail front by a large margin - a prediction that did not come to pass with the onset of the long rains in May.
But at KPLC, the easing of the drought has brought only temporary relief. Over the past three months, Kenya Electricity Generating Company has been aggressively pushing for upward revision of the producer power tariffs by a margin of 60 cents per kilowatt .
Special tariff agreement
KenGen's demand is hinged on the fact that the special tariff concession it had offered KPLC expired at the end of June, paving the way for a reversal to normal supply charge.
Under the special tariff agreement, commonly known as "lifeline tariff", KenGen supplies KPLC with bulk power at the rate of Sh1.76 per kilowatt-hour as opposed to the normal rate of Sh2.36 per kilowatt-hour.
The special tariff arrangement was made to help KPLC reorganise its operations and expand its customer base under the Sh18 billion Energy Sector Restructuring Programme.
KenGen's push for a reversal to normal producer tariff has put it on a collision path with KPLC, the sole buyer of the electricity it produces. KPLC maintains that a reversal to normal supply tariff is premature. The power transmission company argues that if the objective of the supply price concession was to help it restructure its operations and get out of the financial hole it had found itself in, then KenGen should be ready to wait a little longer since the objectives have yet to be realised.
Mitigating measures
Mr Priestman maintains that he has no objection to KenGen's proposal so long as the outcome does not leave KPLC in a worse off position than it is now.
"As we indicated in our public statement on March 1, any rise in KenGen tariff should be implemented in a manner that the resultant additional cost does not affect KPLC's financial sustainability," Priestman said.
When KenGen first made known its intention to push for upward revision of tariffs, the Government had promised to put in place mitigating measures to ensure that such an increase did not adversely affect KPLC's financial position.
"Power sector regulator, the Electricity Regulatory Board, also made this undertaking by the Government, a condition for the expected bulk tariff increase," Priestman says.
If effected, KPLC will have to pay KenGen additional Sh2.8 billion for the same amount of power supply. And in the event that the Government fails to deliver on the promise it made to put in place measures to cushion KPLC against the bulk tariff increase, it is the electricity consumer who will end up picking the bill.
Transmission losses
Though power pricing is not in the list of key performance indicators that the Manitoba Hydro managers signed up for upon taking charge of KPLC operations, its likely impact on the overall efficiency of the power sector and on KPLC's financial position are critical to the success of their brief.
With growth of supply trailing growth of demand for electricity, pressure has been mounting on KPLC to reduce the large amount of system losses - the difference between the amount of power it buys from suppliers and what it sells to consumers.
Last year, the losses stood at 18.05 per cent having dropped by a margin of 0.85 per cent from 18.8 per cent loss in 2004.
Part of the contract that Manitoba Hydro has signed is to reduce transmission losses by a margin of four per cent by the end of the management contract in June 2008.
Priestman reckons the losses arise from two main factors. First, there is KPLC's transmission system, which because of its age accounts for the largest fraction of the total loss. Then there is theft of power that mainly takes in the form of illegal connections to the national grid.
Systems reinforcement programme
Manitoba Hydro's brief is to upgrade the transmission system to make it more efficient and cut back the losses. This will be done through the $153 million (Sh10.7b) Distribution System Reinforcement and Upgrade component of the Energy Sector Recovery Project (ESRP).
Already a systems reinforcement programme is underway with the support of a consortium of donors including Agence Francaise de Development (AFD), the European Investment Bank and the Norwegian Development Fund.
An efficient transmission system is also expected to help KPLC tame the cost of distributing power, which stood at Sh8.8 billion at the close of financial year 2005.
Cutting down on the cost of transmission should ultimately leave Kenya Power in better financial shape as it would help bring down the companies operating costs that stood at a massive Sh27.1 billion last year.
Even with a 100 per cent success in reducing transmission losses, KPLC's problems would be far from over. Critics have argued that the biggest undoing of the firm remains the slow pace at which its customer base is growing.
Rate of new connections
By the close of last year, KPLC had hooked onto its system slightly more than 800,000 customers. Considered against a population of more than 30 million, this level of connectivity has been criticised as too low.
To confront this problem, the Government has made connecting new customers to the national grid part of the performance indicators for the Manitoba Hydro's managers. During the first year of their contract, Priestman and his team have the brief to raise the rate of new connections from 70,000 realised last year to 150,000.
Even as they hook more Kenyans to the national grid, the Canadian managers are tasked with reducing the number of outages from an average of 12,000 per month last year to 6,000 by the end of June next year. Achieving this target will require that a huge amount of work is done to upgrade KPLC's ageing transmission system and increasing the number of base stations to support it.
Elaborate financing plan
With an upgraded system, KPLC will also cut back on the number of voltage fluctuations that costs its customers millions of shillings in damaged electronic gadgets.
Priestman insists customer satisfaction remains his team's focus and promises tangible results in the next six months. The team has chalked out a grand plan whose aim is to make it easier for consumers to receive and pay their bills. Already, a pilot project is underway to test the applicability of a pre-paid billing system that the company hopes to implement in phases over the next three months.
An elaborate financing plan - involving both external financiers and KPLC -- has been put in place. Apart from the financing that is expected to come from the ESRP, KPLC is poised to get additional funding from the Canadian Agency for International Development (CIDA) which has shown a special interest in the training component of the programme.
The Manitoba Hydro management team includes Mr Shahid Muhammad, the deputy General Manager in charge of Distribution and Customer Services, Mr Mack Kast, the deputy General Manager in charge of Finance and Corporate Services and Mr Allan Snyder, the deputy General Manager in charge of Energy Transmission.
Copyright 2006 The East African Standard. Distributed by AllAfrica Global Media (allAfrica.com).
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