Why layoffs will not save Kenya Power

Kenya Power staff repairing the Loyangalani-Suswa power-line, December 2021. [Antony Gitonga, Standard]

Kenya Power wants to let go of 1,962 workers in what the utility firm says is meant to manage staff costs, which have “increased to unsustainable levels.”

But a look at its financial books shows the move is not a magic wand to fixing costs and steadying its wobbly performance.

The firm has several mountains to climb - high debt, negative working capital, high operating costs and tainted public image of its services.

Fixing staff costs may be the smallest of the mountains, yet still, a slippery one to climb. Kenya Power’s disclosures show that between June 2017 and December last year, the utility firm has seen its workforce drop by 1,452.

In short, the utility firm has in four and half years cut its workforce by 13 per cent - going by the peak of 11,295 workers by the end of June 2017 before this started going down.

But the fall in staff numbers, thanks to death, termination, expiry of contracts, resignations and retirement has seen no fall in salaries and wages.

In the 2016/2017 financial year, Kenya Power spent Sh14.94 billion on salaries and wages when it had the highest staff count of 11,295. And in the financial year ended June last year, the power distributor forked out Sh16.98 billion for its 10,177 employees at the time.

This means that despite the staff count falling by 1,118 between June 2017 and June last year, the spending on wages and salaries went up by Sh2.04 billion.

Kenya Power says if it retains its current workforce of 9,843, salaries and wages will be Sh14.1 billion - an Sh840 million saving from what it spent when it had 1,452 more workers to pay in the 2016/2017 financial year. Wages and salaries made up 42.6 per cent of Kenya Power’s operating expenses in the year ended June 2021.

Achieving the targeted 11 per cent payroll saving by parting ways with a fifth of its workers, therefore, promises to be a tall order given the firm has seen a rise in payroll spending despite a 13 per cent fall in staff size in four and a half years.

In the 2016/2017 financial year, Kenya Power spent Sh14.94 billion on salaries and wages. [Sammy Omingo, Standard]

Yet, the utility firm wants to spend Sh6.26 billion on an employee separation programme and filling of 60 per cent of resultant vacancies with a cheaper workforce.“In a situation where the required numbers are not achieved through voluntary employee separation, management will adopt redundancy to fill the gap where the last in first out policy will be used,” said acting CEO Rosemary Oduor.

While Sh5.29 billion will be used on leave, gratuity, severance and notice pay to workers who will volunteer to leave, a further 963.9 million will be spent on hiring about 831 new employees.

Kenya Power says in a document calling for voluntary staff exits that payroll costs have been growing at an average of 12 per cent per year compared to 5.4 per cent revenue growth.

The company feels many of its employees are staying in the company more than is expected of an ideal organisation.

Kenya Power average staff turnover is 4.26 per cent, but the firm says this is below the “ideal benchmark” of 10 per cent.“The company, because of low attrition rate has an ageing and expensive workforce, resulting in staff cost growing at nearly twice the rate of revenue growth,” said Oduor.

In other words, many employees choose to stay longer and this loyalty is a problem in the utility firm’s books of accounting.

The firm, therefore, wants to part ways with a fifth of its workforce and achieve the twin objective of trimming payroll costs and refreshing its talent mix.

But should the employees opt not to voluntarily exit, a new headache will arise.

A redundancy programme will be guided by last in, first out—meaning those who have been at Kenya Power for a short period will exit.

This will then deny the firm the opportunity to “infuse agility” and manage knowledge transfer that it seeks to realise through voluntary exits.

Naturally, an organisation with growing customer numbers will require increased staff size, unless it digitises some of its operations.

But for Kenya Power, most of the core activities, including meters readings, repairs and connecting new customers, require heavy human involvement.

The firm last year admitted in court papers to having staff shortfall when workers sued it demanding to know why it was going to temporarily hire National Youth Service staff to take coordinates of its electricity meters countrywide.

Kenya Power wants to let go of 1,962 workers in what the utility firm says is meant to manage staff costs. [Elvis Ogina, Standard]

Kenya Power has seen its customer numbers rise from 2.02 million in June 2012 to 8.3 at the end of June last year, translating into the quadrupling of customers in nine years.

But in five of those years, the firm has seen a fall in its staff numbers amid customer outcry over slow response to problems such as power outages.

Social media is also awash with complaints about delays from those seeking new connections.

This means Kenya Power will walk a tightrope in deploying prudent cost management practices without hurting the quality of service to customers.

Kenya Electrical Trade and Allied Workers Union Secretary General Ernest Nadome said the firm is already struggling to meet customer demands, and trimming the workforce will only serve to worsen the matter.

“We have a serious staff shortage, and if the company goes ahead with this, it will get worse. Customers currently have to wait for lengthy periods to get reconnected whenever there are outages,” said Mr Nadome.

Power sales have increased by less than 40 per cent since 2012, yet the number of customers added to the grid has jumped 311 per cent.

On average, Kenya Power received Sh1,521 per customer in the year to June last year, down from Sh3,910 in 2012.

This is partly on the back of the continued switch to solar as questions around electricity billing continue.

Many poor homes that got connected to the grid without paying any advance fees have also kept their meters idle after exhausting the grace period for free electricity.

This means that Kenya Power has more customers and, therefore, an expanded grid to deal with, yet revenue per client is falling.

The utility firm last year told shareholders a majority of connections under the last mile programme, mostly in rural areas, spent around six units a month.

Yet, Kenya Power’s voltage network has, for instance, expanded from 73,594 kilometres to 255,581 kilometres over the last eight years.

An expanded network has increased the cost of commercial services such as meter reading and maintenance, exposing Kenya Power to higher system losses partly from theft and an idle grid.

In the last six financial years, electricity sales grew at an average of 3.14 per cent against the six per cent that was projected as the minimum to make economic sense with the current retail tariff.

The missed targets have resulted in muted revenue growth, leading to erosion of profit given the controversial pay or take clauses it signed with power producers.

Independent Power producers (IPPs) charge Kenya Power Sh15.30 per kilowatt-hour (KWh). [Caleb Kingwara, Standard]

The clause compels Kenya Power to pay for the electricity it cannot sell.

The utility firm last year failed to sell well above a fifth of the electricity that it bought from generators.

The firm is now pushing for the renegotiation of the contracts and removal of the take or pay clause and pay for only what it receives and sells.

Independent Power producers (IPPs) charge Kenya Power Sh15.30 per kilowatt-hour (KWh) compared to Kenya Electricity Generating Company (KenGen), which charges Sh5.30 per KWh, according to the latest audit report.

Some Independent Power Producers sell to Kenya Power at as high as Sh195 per KWh, meaning the power distributor, which sells to customers at an average of Sh15.66 KWh, incurs a loss from such deals.

The firm also has to grapple with the problem of system losses—the difference between the total amount of energy procured and the amount sold.

“The company has over the years seen increased illegal connections, meter bypasses and faulty meters, among others which have contributed to increase in system losses,” says the firm in the latest annual report.

System losses stood at 23.95 per cent in the last financial year, well beyond the 14.9 per cent that the Energy and Petroleum Regulatory Authority (Epra) allows it to pass on to customers.

President Uhuru Kenyatta effective January ordered for a 15 per cent cut in electricity prices, tasking Kenya Power to bring down system losses to accommodate this cut.

But this is not going to be a straight jacket thing for a firm that has seen system losses average 21.74 per cent in the last six years.

With part of the system losses brought about by an ageing distribution network, this may require capital expenditure.

But Kenya Power’s budget is squeezed. It has a huge debt to pay and has negative working capital.

The squeezed working capital is part of the reason it is seeking to carry out the staff cuts in three phases to June 2023.