Gabriel Lubale

JKUAT PhD Student

www.gabriellubale.com

April 2014

To Effect of SRM Practices on Corporate Performance in the

Kenyan Energy Sector

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Who is Kenya Power?

Limited liability company which purchases,

transmits, distributes and retails electricity to

customers throughout Kenya.

Kenya Power is a public company listed at

the NSE.

Kenya Power is a State Corporation. GoK

has controlling shareholding of over 50%

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Seminar Paper Objective & Methodology

Objective: To analyze extent of Supplier Relationship

Management (SRM) practices on Corporate Performance in the

Kenyan Energy Sector.

Research Design: Exploratory Research implies that the

proposed research focuses on the understanding of the

research dilemma in detail by gathering background information

(Cooper & Schnidler, 2001:762). To perform a holistic SRM

practices review in Kenya Power, detailed research was done

using Secondary data sources from: Annual Reports, Ministry

of Energy and Petroleum publications, KNBS publications,

KIPPRA publications, KenGen Report, ERC publications.

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Kenya Energy Sector

Sector is guided by Energy Act No. 12 of

2006 legislated from Sessional Paper No. 4

of 2004 known as the Energy Policy Paper.

Plays a critical role in the socio-economic

development of a Country contributing 9.49%

to the GDP .

Main drivers of the Kenyan economy as

sources of energy are petroleum and

electricity .Other sources of energy are

biomass, Wind, Solar, firewood.4

Kenya Energy Sector … contd

The Kenyan energy sector relies wholly on

imported petroleum for its requirements.

However, with the discovery of oil in Turkana

County this trend is likely to change. Also

search for Coal deposits in Kitui County.

Electricity generation is predominately hydro,

supplemented by geothermal, thermal, Wind

and co-generation sources.

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Kenya Energy Sector … contd

Figure shows consumption of selected petroleum products (000s tons) some

used in Electricity Generation. Source: KNBS data

Suppliers of Electricity in Kenya

Kenya enters into Power Purchase Agreement

(PPA) with each Producer. These are:

1. Kenya Electricity Generating Company

Limited (KenGen).

2. Independent Power Producers (IPPs) .

3. Imports from Uganda, Tanzania and

Ethiopia.

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Suppliers of Electricity in Kenya .. contd

Kenyan ERC licensed capacity by electric Power Suppliers. Source:

Ministry of Energy, 2013

Key Stakeholders in the Electricity sub-sector

Ministry of Energy &

Petroleum

Electricity Regulatory

Commission (ERC).

Rural Electrification

Authority (REA) .

Geothermal Development

Company (GDC).

Kenya Electricity

Transmission Company

(KETRACO).

Lake Turkana Power

Company.

Iberafrica Power

Tsavo Power Company

Limited

Rabai Power Company

Limited

Orpower 4 Inc

Mumias Sugar Company

Limited

Imenti Tea Factory

Company Limited

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Theory of SRM Practices

Cox, Sanderson & Watson (2000)

demonstrates that buyer and supplier

relationships center on power,

interdependence and independence and they

agree that relationship can be of an arms’

length, adversarial and collaborative nature

depending on the power and style of

management.

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Challenges facing Kenya Power

1. Periodic inadequate bulk supply to fully meet electricity market

demand due adverse hydrological conditions.

2. insufficient transmission and distribution network redundancy.

3. lack of capacity to absorb all the loan capital financing

available.

4. high internal construction costs.

5. limited affordability by customers.

6. vandalism of transformers, electricity line cables &

accessories,

7. a diminished reserve margin at 1.2% & Benchmark is 15%,

8. supply and quality constraints coupled with ever- rising

primary energy costs11

SRM Practices on performance of KPLC

It is therefore evident that as a national asset

Kenya Power cannot overcome the current

challenges successfully without strong

partnerships with key suppliers.

. Significant energy pressures are impacting

on traditional systems; as supply tightens it is

important for Kenya Power to intensify their

efforts to build and sustain long- term

collaborative relationships with key Players. 12

SRM Practices on performance of KPLC … contd

Power Purchase Agreements revealed some

very interesting observations. More

significantly, oil prices were a key driver

behind Kenya Power’s significant electricity

price increases and therefore it arguably

makes sense to assess the PPAs in Kenya

Power and the implication for SRM.

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SRM Practices on performance of KPLC … contd

The results of the analysis uncovered the

differing perceptions of buyer - supplier

relationship in the KPLC divisions and the

implication on its dismal business

performance. Kenya Power Corporate

Performance was measured by using

Consumer Satisfaction Survey was done by

KIPPRA for petroleum products, electricity

and renewable energy providers.

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SRM Practices on performance of KPLC … contd

Figure shows Consumer Satisfaction Index: Summary of Latent Key

Variables. Source: Kenya Institute of Public Policy Research & Analysis

(KIPPRA), 2010.

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