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How Kenya Power’s lousy transformers inflate your bills

Wednesday July 4 2018

Defective transformers

Defective transformers at the Kenya Power storage yard in Industrial Area, Nairobi. The company denies paying for them and claims the supplier will take them back. PHOTO | WILLIAM OERI | NATION MEDIA GROUP 

JOHN KAMAU
By JOHN KAMAU
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MUTUMA MATHIU
By MUTUMA MATHIU
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Kenya Power has procured and fitted hundreds — possibly thousands — of defective transformers, exposing consumers to dangers of electric faults and high bills, Daily Nation investigations have revealed.

The transformers failed the company's own quality tests; they were of poor build, the materials used to manufacture them were of poor quality, their oil was leaking, and they were losing too much power in what is called “load losses”.

Such transformers often explode, the fuses fail or the company loses huge sums of money because a lot of electricity is lost.

Commenting on the purchase of poor quality power equipment, Kenya Power spokesman Johnstone Turana said by phone: “We are required to award tenders to the lowest bidder and that is why we cannot go against the procurement rules. Otherwise we would purchase the transformers from Germany, which has the best.”

ESTIMATION OF CONSUMPTION

There has been a nationwide outcry over monthly power bills which customers consider inflated.

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Kenya Power, however, explains that this is as a result of estimation of consumption, but the unnaturally high bills might be the effects of the company passing on its huge operational losses to its customers.

Mr Turana, however, denied that the consumer is picking up the tab. “Transformer failure has nothing to do with power prices. The consumer never pays for the power losses occasioned by faulty transformers,” he said.

Kenya Power buys electricity from the State-owned KenGen and some independent producers and sells to homes and businesses.

In Nakuru alone, 70 such transformers failed in one month and the management had internally warned that “the trend of supply of defective and failed transformers... posed serious danger to the public and loss of sales.”

FAULTY TRANSFORMERS

But despite these, Kenya Power later accepted the faulty transformers and paid for them as part of a “compromise” negotiated in an out-of-court settlement after the supplier sued. Internal sources informed the Daily Nation that the rejected transformers were being distributed for use.

In a statement last night, the company denied paying for the defective transformers, saying they “will be collected by suppliers as per procedure”.

The public has been questioning Kenya Power accounts after it reported that it paid Sh34 billion to KenGen in the 2016/17 financial year, yet KenGen reported that it had received only Sh29bn.

The difference of Sh5bn has yet to be explained by a corporation which is likely bleeding money after procuring substandard equipment worth hundreds of millions of shillings.

One of the company’s yards in Nairobi which Nation undercover reporters visited recently is overflowing with hundreds of brand new but defective transformers sold to the utility firm — and which are categorised as “rejected” due to manufacturers’ defects and leakages.

INFLATED BILLS

Why defective transformers, supplied by a Nairobi company — Muwa Trading Company Limited — and India’s Nucon Switchgears PYT Limited, are still at the yard is not clear.

Kenya Power documents list Nucon’s representative in Kenya as a Mr Kenneth Nyachae while Muwa Trading directors are listed as a Mr James Njenga Mungai and John Anthony Mungai.

Kenya Power has been under the spotlight from consumers over inflated power bills, which authorities will likely treat as fraud — the result of deliberate “false invoicing”, according to law enforcement sources.

According to insiders, the first batch of transformers from Nucon had been approved despite the defects, but the consignment failed in the field, leading to major black-outs. This was blamed on poor workmanship.

AWARDED CONTRACTS

Company officials who cannot be named to protect them said the expected lifetime of a transformer is 20 years, but Kenya Power has a British-made unit from 1943. However, the transformers it is now fitting have an estimated average lifespan of no more than two years, according to the officials.

Nucon had been awarded three contracts between June 2009 and July 2011 for the supply of 8,461 transformers, and after the failure of the first consignment they sued Kenya Power for terminating the contract and “declining to accept transformers that were fit and ready for delivery and under a warranty.”

While Kenya Power had argued in court that Nucon had, besides supplying “non-performing” transformers, delayed to supply, leading to the expiry of the bank performance bond, High Court judge Francis Tuiyott ordered “a short truce” and allowed the parties to pursue the matter out of court rather than through the court process.

“To pursue the court process in parallel can poison an otherwise conducive atmosphere under which negotiation ought to be carried out,” said the judge in a ruling dated October 13, 2017.

REJECTED GOODS

During the out-of-court negotiations, the Daily Nation learnt, a second inspection of the rejected goods was carried out and the consignment was approved for delivery.

These defective hulks litter the Kenya Power yard, off Nairobi’s Jogoo Road. And even before they are taken to the field, most of them have rusted nuts and bolts, a sign that the manufacturers cut corners and failed to use stainless steel screws that are rust-resistant.

In January 2018 Kenya Power accepted to not only pay for the transformers rejected in Mombasa, but also to buy 100 per cent of all the order in India, where Nucon has a factory. It was to also refund the performance guarantee it had cashed.

Internally, official minutes indicate, the issue of defective transformers had turned to an embarrassment and in one meeting between Kenya Power and Nucon representatives, the utility company said it had suffered losses that could not be quantified.

PUBLIC OUTCRY

It identified these to include legal suits from customers, many phone calls at the call centre, public embarrassment, and public outcry.

The problem of rejects appears to be caused by failure by Kenya Power technicians to perform Factory Acceptance Testing (FAT) on their own before the shipment of the transformers.

“Only those that pass the FAT are allowed into the country,” an official told the Nation.

But on April 2, 2015, Kenya Power allowed Muwa Trading Co Limited to ship a consignment of 100KVA three-phase transformers without going through the Factory Acceptance Testing.

In the letter by Ms Gatukui, the utility firm said “the submitted technical data and test reports are satisfactory…please deliver the transformers and note that they shall be subject to inspection and tests before acceptance to KPLC stores”.

A month later, the Kenya Power Company Secretary, Ms Beatrice Meso, wrote to Muwa Trading and told them they had terminated the contract for the supply of transformers for breach of contract, particularly “delays in deliveries and also failure of transformers in the field”.

RECTIFY DEFECTS

Muwa went to Court and in an out-of-court settlement, Kenya Power agreed to accept the delivery of the transformers on condition that Muwa shall rectify any defects and that the warranty period shall commence on the date of delivery.

But in a deed of settlement signed by Kenya Power CEO Ken Tarus and Muwa Trading directors, it was agreed that Kenya Power was to also pay Muwa Trading Sh11.3 million as storage charges for the time it had rejected the transformers; and repay the performance bond of USD326,554 plus interest of USD109,096.

Today, these faulty transformers, settled via this deed, have become a nightmare to Kenya Power engineers and the matter had initially been brought to the attention of its board of directors.

In a circular to the directors, the management had told the board that the “defective transformers... adversely compromised overall service delivery, occasioning loss of sales revenue as well as resulting in idle capacity of staff and resources”.