Details have emerged of the close-knit business cartel that has been running the multi-billion shilling worth of tenders of exclusively supplying electricity poles to Kenya Power at exorbitant prices.
A top government official and two Cabinet Secretaries sit at the apex of the “pole cartel” through proxy treatment plants which have been supplying treated wooden and concrete poles to the electricity company since 2013.
KPLC’s annual demand for poles for the last few years is placed at 450,000 owing to Jubilee government’s ambitious but money-minting National Electrification Programme. On average and for the last few years, the total worth of pole tenders has ballooned to Sh5 billion per annum.
Through price-fixing, reserving bids, restricting players and collusion with senior KPLC officials, the group comprising about 40 treatment plants spread across the country has completely ring-fenced the contracts, supplying poles at approximately twice their market value.
So much so that to supply the poles, one must be a member to their association- Kenya Wood Preservers Association (KWPA) – now officially included in Kenya Power pre-qualification documents for delivery of poles.
Fixed the price
For instance, the latest tender for supply of poles issued in March, 2018- Restricted tender No. KPI/9A.1A/RT/033/17-18 for supply of 11M and 12M treated wooden poles- bidders were thrown at the mercy of the cartel. “Eligible tenderers: All local manufacturers of wooden poles who are members of Kenya Wooden Preservers Association and do not have an outstanding order for 11m and 12m treated wooden poles. Note that the relevant and valid certificate should be attached,” the tender document reads.
One of the CS’s who owns a treatment plant is a direct member of the association while the other exclusively relies on three proxy companies (names in our possession) who fetch the poles from a treatment plant in Rift Valley and mostly for Rural Electrification Authority tenders.
The top government official is also directly a member of the association but his kin runs a firm in Kajiado County which specialises in concrete poles as well as another plant in Eldoret. At some point, Kenya Power had attempted to run wooden poles suppliers out of town to the benefit of the concrete supplier but it proved a costly affair.
According to our sources, membership to the association costs a company Sh50,000 renewable annually. When this tender came out, KWPA invited members to a meeting on March 19 at Milele Resort in Nakuru to discuss “the KPLC Restricted Tender.”
“We would request that only key decision makers attend from your plant,” the communication sent to members read.
It is during such meetings that the association fixes the prices and divides up the tender, a member told us. In an internal communication on a tender, accessed by the Saturday Standard, the association fixed the price of a 10m pole to Sh11,200 exclusive of VAT.
In terms of breakdown, the association decreed the total cost of production to be Sh8,787 and a profit margin of Sh2,240, transport to supplier at Sh700 per pole and administration costs of Sh273.
According to the association, the Sh8,787 production cost is arrived at considering pole price from farmers at Sh3,599, Sh50 felling cost, Sh300 for skidding, Sh200 for loading, Sh1,000 for transporting the poles to the factory, Sh100 offloading, Sh100 debarking, Sh100 for pole dressing, Sh60 for drilling, Sh20 for tagging, Sh30 for gang-nailing, Sh1,848 for pole treatment, Sh200 for loading, Sh700 for transport, Sh180 for binding them and Sh100 for cess.
“Note: You can vary the transport cost from Sh200 to Sh700 as you agreed yesterday,” the communication reads.
But in further communication, the price was varied after Kenya Power officials leaked to the group that external inspection of the poles would be done. One member posed; “So chair, from your research and the new development on inspection, what would be an appropriate price for a 10M?”
The chair responded: “Sorry gentlemen and ladies, members have consulted widely and have agreed that due to expected demand, the price of a pole is expected to rise to Sh5,000 or more, so our delivery price should be Sh12,500.”
When one member tried to downscale the pricing to Sh3,000 per pole to Sh2,322, he was met with an outpouring of protest: “My friend, kindly ensure you attend future meetings for all of us to be moving together.”
“What we agreed yesterday was. No backtracking!”
“Let the costings remain as was put. It is a product of several weeks of consideration by all of us. Reversing it would require a referendum. Meanwhile by a copy of this WhatsApp, I am requesting (name withheld) to meet you and explain benefits of us reading from same script now and in future,” the chair responded.
Total production cost
But the market value for these poles speak a different story and betray the group’s prices. According to the pricing by one of the treatment plants, a 10m poll can be sold at Sh6,500 inclusive of VAT and a 40 per cent profit margin.
According to the supplier whom we cannot name, a raw pole is bought at Sh2,500 from farmers, transported at Sh500 and treated for Sh2,000 translating to a Sh5,000 total production cost.
In another communication on September 12, 2016, the members are captured dividing up the tenders among themselves ahead of official tendering: “It’s all systems ago. (Name Withheld) remains intact and will tender for supply to Thika, Nyeri and Meru. (Name Withheld) remains with the addition of (Name Withheld) and (Name Withheld) and will tender for Nairobi, Rabai and Kisumu.”
The association also closed up the World Bank funded tender for poles but were reportedly played by Kenya Power mandarins ending up supplying a meagre 50,000 poles outside the project demand of 350,000 poles.
It is not clear where the 300,000 plus poles came from although it is known that contractors would collude with Kenya Power officials to drop in power from existing lines but include new poles in their bills.
Curiously, a few moths before May 4, 2016, Kenya Power Supply chain officer Haroun Otieno had written to the pole suppliers suspending deliveries owing to oversupply.
“We are currently experiencing over supply of poles in our stores countrywide and thus wish to advise you to suspend delivery of poles to our stores with immediate effect. We are monitoring the situation and shall advice you to commence delivery once the situation normalizes,” the letter read.
Delivery of poles nevertheless picked up a little later in the year but again on March 27, 2017, Kenya Power General Manager Supply Chain Bernard Ngugi wrote another letter suspending the deliveries for the same reasons.