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Energy Regulatory Commission Strategic Plan 2008 – 2012

VISION

To be a world class energy sector regulator that facilitates and enhances delivery of sustainable,

quality and robust energy services

MISSION

To regulate the energy sector in a fair,transparent and predictable manner

CORE VALUES

Professionalism Teamwork

PredictabilityTransparency

IntegrityAccountability

ResponsivenessIndependence

STRATEGIC OBJECTIVES

To protect the interests of energy users by ensuring that demand is met with reliable, cost effective and high quality energy services in an environmentally friendly manner

To protect the interests of consumers, investors and other stakeholders

To influence, advise on and implement government policy in order to meet the statutory objects and functions set for the ERC

To be at the forefront of planning, research, preservation and dissemination of energy sector data, information and best practice

To strengthen the ERC’s institutional capacity to discharge its functions

Cont

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CONTENTS

Figures and Tables ..............................................................2

Abbreviations ......................................................................3

Definitions of Terms ...........................................................4

From the Chairman .............................................................5

From the Director General ................................................6

Executive Summary ............................................................7

Who we are ..........................................................................9

Why we need a strategic plan .........................................13

How we produced the strategic plan .............................16

The strategic plan ..............................................................22

How much will it cost? ....................................................25

Controlling the strategic plan ..........................................28

Lessons for the future .......................................................31

Appendices ........................................................................33

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Figure 1: Organisational structure ..................................11Figure 2: Strategic framework .........................................14

Table 1: The committees ...................................................12Table 2: Management committees ..................................12Table 3: Budget for the five-year period 2007-2012 ......27Table 4: Economic assumptions ......................................64Table 5: Historic electricity sales volume ......................64Table 6: Electricity sales volume forecast ......................65Table 7: Petroleum sales forecast ....................................65Table 8: Occupancy and office services ..........................66

FIGURES AND TABLES

Table 9: Consultancy and other services ......................66Table 10: HIV/AIDS programme ..................................67Table 11: Breakdown of the proposed strategic planning activities .............................................................67Table 12: Proposed strategic planning activitiesmapped into relevant line items ....................................68Table 13: Strategic planning activities not coveredby the five-year budget ....................................................68Table 14: Additional funding requirements forthe proposed strategic planning activities ....................69Table 15: Capital expenditure items ...............................69

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Abbreviation MeaningAG Attorney GeneralKNBS Kenya National Bureau of StatisticsDG Director GeneralDOHS Department of Occupational Health and SafetyEHS Environment, Health and SafetyERB Electricity Regulatory BoardERC Energy Regulatory CommissionERP Enterprise Resource PlanningHR Human ResourcesICT/IT Information Communication TechnologyIDA International Development AssociationKEBS Kenya Bureau of StandardsKFS Kenya Forestry ServicesKIPPRA Kenya Institute for Public Policy Research and AnalysisKPC Kenya Pipeline CompanyKPRL Kenya Petroleum Refineries LimitedKWh Kilowatt Hour

Abbreviation MeaningLNG Liquefied Natural GasLPG Liquefied Petroleum GasM&E Monitoring and EvaluationMIS Management Information SystemMoE Ministry of EnergyMoU Memorandum of UnderstandingMPC Monopolies and Prices CommissionNEMA National Environmental Management AuthorityNOCK National Oil Company KenyaOFT Office of Fair TradingOPAC Online Public Access CataloguePPA Power Purchase AgreementPR Public RelationsRBM Results Based ManagementREA Rural Electrification AuthorityRRI Rapid Results InitiativesUK United Kingdom

ABBREVIATIONS

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Term DefinitionCore values The fundamental rules by which the ERC wants to conduct

business Goal High level statements of what needs to happen to achieve a KRA Key Result Area

The areas on which the ERC will focus in order to achieve results

Mission The purpose for which the ERC or department exists based on the circular on organization of government, statutes of Parliament and mandate

Milestone Review

Point in time that the ERC has predetermined to review achievements against strategy and review the underlying strategy associated with the bigger strategy

Outcome Business/departmental strategies employed to actualise set objectives against which external feedback is sought

Outputs The product or service that the ERC produces as part of the internal process

DEFINITIONS OF TERMS

Term DefinitionPerformance Indicator

The measure used to assess the performance of the ERC or department in service delivery

Situation Analysis

The critical assessment of the environment in which the ERC operates. It contains four elements: external influences and trends; government agenda, strengths and weaknesses; and challenges

Strategic Objectives

Broad, long-term targets designed to achieve the organisation’s mission. Ideally they are time bound, measurable and outcome oriented

Strategy Method, major actions and/or procedure for achieving the strategic objectives

Vision A vibrant and compelling image of the desired future state of the organisation

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FROM THE CHAIRMAN

This strategic plan, produced after considerable consultation and teamwork, aims to guide the operations of the ERC from 2008 until 2012. It is noteworthy that the ERC pragmatically revised this plan to realign it with the country’s economic development blue print, Vision 2030, and its five-year medium term plan for the sector.

Vision 2030 has been adopted by the Government of Kenya to act as the country’s economic development agenda for the period 2008-2030. To achieve this development agenda and meaningful economic growth, Vision 2030 has identified quality, reliable and affordable energy services as critical infrastructure drivers. In order to catalyze this economic and social development, the energy sector therefore, will need to be managed and regulated in line with international best practices for modern economies. The role of the ERC will to be to ensure energy resources are prudently managed with a view to guaranteeing quality, cost effective, affordable and reliable energy services to power Vision 2030. In executing this important statutory mandate, the ERC has identified five strategic objectives to be of eminent focus during the defined strategy period, namely: to protect the interests of energy users by ensuring that demand is met with reliable, cost effective and high quality energy services in an environmentally friendly manner; to protect the interests of consumers, investors and other stakeholders; to influence, advise on and implement government policy in order to meet the statutory objects and functions set for the ERC; to be at the forefront of planning, research, preservation and dissemination of energy sector data, information and best practice; and to strengthen the ERC’s institutional capacity to discharge its functions.

It is my fervent commitment to lead the ERC in implementing this strategic plan for the benefit of this great country and I call upon all ERC staff members to redouble their efforts, to ensure that our strategic objectives are pursued with utmost vigour.

Finally, I thank sincerely all who were involved in producing this strategic plan, for their dedication and commitment.

Mr. Hindpal S JabbalChairman

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FROM THE DIRECTOR GENERAL

This five year Strategic Plan (2008-2012) is the outcome of a long and consultative process that constructively engaged both internal and external stakeholders. Each individual and collective contribution to the plan development process greatly enriched it and I sincerely thank all those who played a part in its preparation.

In the process of developing it, the ERC carefully evaluated its strengths and weaknesses, reviewed the challenges it faces and developed well thought out strategies to deal with these challenges on a sustainable basis, now and in the future. This plan therefore, is a clear strategic road map that will guide the operations of the ERC and harness synergies between the ERC and other players in the energy sector in furtherance of the economic priorities of the country.

To actualise the new vision and mission statements of the ERC, the strategic plan has translated its five strategic objectives into a purposeful, actionable and time-bound results matrix that obligates departments, units and individual staff members of the ERC to play a proactive role in implementing the plan.

The results matrix will form the basis for negotiating performance targets for the ERC with the government, cascaded to individual departments and officers. In addition, the annual staff appraisal system will be based on these performance targets in order to ensure that performance obligations defined in this plan are continually evaluated.

On my part, as the administrative head of the organisation, I give my solemn commitment to provide dedicated leadership in the implementation of the plan and further commit to mobilise requisite financial and human resources to ensure that the strategic objectives identified in this plan are implemented according to plan.

Eng. Kaburu MwirichiaDirector General

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The Energy Regulatory Commission (ERC) was established under the Energy Act, 2006 to expand the mandate of its predecessor, the Electricity Regulatory Board (ERB) which had been implementing its 2004-2008 strategic plan in line with the 9th National Development Plan (2002-2008) and the Economic Recovery Strategy for Wealth and Employment Creation 2003-07 (ERS/ERSWEC).

This first ERC five-year strategic plan (2008-2012) draws from the experience of the ERB strategic plan taking into account recent developments in the energy sector locally and globally. In addition, this current strategic plan has been revised to align it with Vision 2030, which is guiding Kenya’s development agenda from 2008 to 2030, and its medium term plan.

Vision 2030 aspires to build on the economic growth generated by the successful implementation of the ERS and propel the country’s economic performance to a sustained GDP growth rate of at least 10% per annum over the next decade, transforming the country from a low income, agricultural economy to a middle income economy with a robust manufacturing base and a large service sector.

Vision 2030 and its medium term infrastructure plan have identified quality, cost effective, affordable and reliable energy services as critical drivers towards achieving the economic and social pillars identified in the vision. In particular, flagship projects and programmes in the energy sector must be implemented on time, according to plan and within budget, to realise the growth aspirations of the economy.

An important statutory mandate of the ERC is to regulate the energy sector in a fair, transparent and predictable manner, which will spur sectoral growth and investment by guaranteeing quality service standards to energy consumers. The ERC strategic plan therefore charts a broad roadmap for efficient energy services for consumers over the next five years, promoting economic growth and development as espoused in Vision 2030 and its medium term plan.

This strategic plan was developed after a series of consultative processes involving ERC senior management and other stakeholders. In particular a strategic planning working session for ERC managers was held in August 2007 to assess the ERC’s current situation and agree on a road map that would pave the way for the final strategic plan. The organisation’s vision, mission and core values were also developed. These are:

Vision: To be a world class energy sector regulator that facilitates and enhances delivery of sustainable, quality and robust energy services.

Mission: To regulate the energy sector in a fair, transparent and predictable manner.

EXECUTIVE SUMMARY

Core Values: • Professionalism• Predictability• Integrity• Responsiveness• Teamwork

• Transparency• Accountability• Independence

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The ERC faces a number of challenges emanating from the internal and external environments. These include: a weak electricity/petroleum supply and distribution infrastructure; an inadequate legal and regulatory framework; lack of security of tenure for commissioners; high expectations from stakeholders; excessive commercial power of the regulated entities and information skewed in their favour; resistance to change and inadequate team spirit; and limited management information systems. However, through various strategies, the ERC is mitigating the risks posed by these challenges and has identified a set of values and key result areas (KRAs) to guide its operations during and beyond the strategic plan period.

The ERC is focusing on five strategic objectives during the strategy period, broken down into detailed action plans, which include activities, resource requirements, timeframes and responsibilities for the delivery of each strategy.

• To protect the interests of energy users by ensuring that demand is met with reliable, cost effective and high quality energy services in an environmentally friendly manner.

• To protect the interests of consumers, investors and other stakeholders.

• To influence, advise on and implement government policy in order to meet the statutory objects and functions set for the ERC.

• To be at the forefront of planning, research, preservation and dissemination of energy sector data, information and best practice.

• To strengthen the ERC’s institutional capacity to discharge its functions.

The cost of implementing the plan over the five-year period is approximately Ksh 1.7 billion and the main sources of revenue for the ERC are the electricity and petroleum levies, projected to generate about Ksh 1.1 billion over the plan period. The apparent revenue deficit will be covered from retained surpluses from previous accounting periods, while in the medium term, the ERC will seek government assistance in securing stakeholder and partner support.

The success of the plan’s implementation largely depends on how activities and outputs are effectively monitored and evaluated. The planning committee is overseeing the plan’s implementation and reviews the quarterly progress reports submitted by heads of department.

Energy saving light bulbs use a quarter of the electricity of an ordinary bulb and last eight times as long

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WHO WE ARE

© Frederic Courbet/Panos

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Renewable energy The renewable energy department, which comprises licensing and compliance and energy efficiency, formulates, reviews and monitors regulations and codes for the renewable energy sector and is responsible for renewable energy planning.

Economic regulation The economic regulation department monitors the implementation of, and compliance with principles of fair play in the energy sector in coordination with other statutory authorities. It sets fair tariffs for consumers while ensuring that investors are adequately compensated, develops indicative energy plans and researches, develops and promotes competition in the energy sector.

Legal affairs The legal affairs department provides secretarial services to the ERC, manages all legal matters, negotiates contracts, develops regulations and ensures that the ERC complies with the various statutes and regulations governing its operations. In addition, the department continually reviews and recommends relevant changes to legislation. It also provides guidance and recommendations on investigations and enforcement with regard to regulated sectors. Procurement The procurement department is responsible for supply chain management and supports activities across the organisation in an effective and efficient manner.

Finance and strategic planning The finance and strategic planning department provides financial management and advice to the ERC, spearheads strategic planning and performance contracting processes and provides regular updates on how the ERC is performing, using key performance indicators.

Information and communication technology (ICT) The ICT section falls under finance and strategic planning and is responsible for systems and network administration, hardware and software maintenance and providing ICT technical support services across the organisation.

Organisation of the ERCThe ERC’s structure is designed around the regulation of industry sub-sectors. This structure enables the ERC to fulfill its mandate and clearly defines ownership, planning and implementation roles.

The policy leadership of the ERC is vested with commissioners, specifically: the chairman, the permanent secretary Ministry of Energy, the director general, and five other commissioners appointed by the minister. The director general is the chief executive officer with overall responsibility for the organisation.

The ERC’s organisation structure is arranged according to the core outputs, with support departments and units providing ancillary services. Departments consist of: electricity, petroleum, renewable energy, economic regulation, legal affairs, procurement, finance and strategic planning, information and communication technology, human resources and administration, communications and public affairs and internal audit.

Electricity The electricity department, which comprises power systems and consumer affairs, reviews and advises on government policy on the electricity sub-sector; prepares strategic and operational plans; licenses utilities; regulates electrical installation work including licensing of electricians and registration of electrical contractors; reviews power purchase agreements and network service contracts; develops and enforces regulations, standards and licence conditions; collects and maintains information relating to the technical regulation of the electricity sub-sector; plans generation and transmission expansion; and investigates complaints and disputes.

Petroleum The petroleum department implements government policy governing the petroleum sector with a focus on licensing; it issues construction permits, develops standards for the petroleum sector and plans petroleum supply and distribution infrastructure. It also takes the lead in formulating, reviewing and enforcing regulations and codes for the petroleum sector, and environmental, health and safety (EHS) requirements for the energy sector as a whole.

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Human resources and administration The human resources (HR) and administration department builds the organisation’s capacity, and develops, implements and reviews the ERC’s HR strategy for attraction, development and retention of talent. The department also provides guidance on target setting and performance monitoring, and manages the ERC’s succession planning in line with the ERC’s strategic objectives.

Communications and public affairsThe communications and public affairs department ensures that the ERC has visibility, impact and engagement with key audiences through the development of a resource

centre and effective external communication strategies. In collaboration with the other departments, it ensures that all staff has a reliable knowledge centre and access to the latest research, developments and publications on the energy sector.

Internal audit The internal audit section identifies potential risk areas and recommends improvements to risk management and internal controls; it conducts risk and quality assessments to reduce risk exposure and improve the ERC’s operational efficiency.

Manager Procurement

Senior Manager, HR & AdministrationSenior Manager,

Communication & Public AffairsSenior Manager,

Finance & Strategic Planning

DirectorPetroleum

DirectorElectricity

DirectorRenewable Energy

DirectorEconomic Regulation

Commission Secretary(Director Legal Affairs)

Internal Auditor

The Commission

Director General

Figure 1: Organisational structure

ENERGY REGULATORY COMMISSION: ORGANISATIONAL STRUCTURE

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Governance Commissioners

The commissioners provide guidance and policy oversight to the management in the running of ERC affairs through sub-committees as shown in Table 1.

Table 1: The committees

Sub–committee FunctionTechnical Technical mattersAudit Audit and risk managementFinance and administration

Finance, human resources, administration, communication and ICT

Management

The director general is the chief executive of the ERC and is responsible for its day-to-day management. He is supported by various committees as shown in Table 2.

Table 2: Management committees

The committee FunctionsSenior management Comprises all heads of department under the

leadership of the director general. Oversees day-to-day operations of the ERC

Petroleum licensing Evaluates and approves licence applications by petroleum dealers

Electricians and electrical contractors licensing panel

Evaluates and approves licence applications by electricians and contractors

Tenders Responsible for ERC procurement in accordance with the Public Procurement and Disposal Act 2005

Procurement Responsible for approving tenders below Ksh 500,000 in accordance with the Public Procurement and Disposal Act 2005

Inspection and acceptance Inspects goods, services or works undertaken by the commission in accordance with thePublic Procurement and Disposal Act 2005

Planning Oversees strategic planning, implementation, monitoring and evaluation

ISO 9001:2008 Project implementation team

Oversees implementation of ISO 9001:2008 QMS project

Least cost power development

Oversees least cost power development planning

Lighting an empty office overnight wastes enough energy to heat water for 1000 cups of coffee

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WHY WE NEED A STRATEGIC PLAN


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The rationale Strategic planning is one of the key building blocks in the institutionalisation of results based management (RBM), used by Government of Kenya public servants as the mechanism of efficient service delivery to Kenyans. Performance contracts, the development of service charters and the implementation of rapid results initiatives (RRI) are the foremost initiatives of RBM, and are all based on institutional strategic plans, thus making the strategic plan one of the most important management tools in modern public service. As such, it is expected to be a living document that all staff in the ERC will use to plan their day-to-day activities

How does the strategy work?

As illustrated below, the strategy drives the resources required, the activities that ERC will undertake using these resources, the way these activities are grouped into an organisation design, and ultimately the management and measurement of ERC performance.

The institutional frameworkThe Energy Regulatory Commission (ERC) was established under the Energy Act 2006 to expand the mandate of its predecessor, the Electricity Regulatory Board (ERB) which was in the process of implementing its 2004-2008 strategic plan in line with the 9th National Development Plan (2002-2008) and the Economic Recovery Strategy for Wealth and Employment Creation 2003-07 (ERS). The ERC five-year strategic plan therefore draws from the experience of the ERB strategic plan, taking into account the recent developments in the energy sector locally and globally.

The Sessional Paper No. 4 of 2004 on energy laid the policy framework upon which sustainable, cost-effective, affordable, adequate and quality energy services are made available to the domestic economy until 2023. The agenda included a new and robust Energy Act, which, among other things, would create a common energy sector regulator, the Energy Regulatory Commission, as a successor to the ERB. The Energy Act was passed in 2006 and consolidated the Electric Power Act No. 11 of 1997 and the Petroleum Act Cap. 116.

The following are the main functions and objectives of the ERC as set out in section 5 of the Energy Act 2006:

• To regulate: o the import, export, generation, transmission, distribution, supply and

use of electrical energy;o the import, export, transport, refining, storage and sale of petroleum

and petroleum products;o the production, distribution, supply and use of renewable and other

forms of energy.• To protect the interests of consumer, investor and other stakeholder interests.• To maintain a list of accredited energy auditors as may be prescribed.• To monitor, implement, and observe the principles of fair competition in the

energy sector, in coordination with other statutory authorities.• To provide required information and statistics to the minister. • To collect and maintain energy data.• To prepare an indicative national energy plan.• To perform any other function that is incidental or consequential to its functions

under the Energy Act or any other written law.

StrategyOrganisation

External Environment

Performanceand

Rewards

Activities /Resources

Figure 2: Strategic framework

The strategy takes into account the internal and external environment within which the ERC operates and which impacts on its performance. Getting the strategy right is therefore critical to the ERC’s success.

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Performance level

Performance information provided by the ERC forms the foundation against which future performance can be evaluated. The performance level of the key outputs is summarised below.

Electricity The ERC ensures that licensees comply with applicable technical, environmental and safety requirements, while at the same time facilitating the provision of quality electricity supplies. The ERC shall continue to issue licences and permits for electricity undertakings, as well as to license electricians and register electrical contractors on a need basis, and resolve complaints and disputes in the electricity sub-sector.

Economic regulation The ERC protects the rights of energy consumers with respect to prices and tariffs charged for regulated services. It sets and reviews retail electricity tariffs, and oversees the downstream petroleum market with a view to fostering competition in the petroleum sub-sector. The ERC also collaborates with the Minister for Energy in the regulation of the renewable energy sub-sector.

PetroleumThe ERC streamlines licensing procedures and issues construction permits for downstream petroleum activities to ensure transparency, equity and speed. A major objective is to formulate and gazette comprehensive petroleum regulations under the

Energy Act. It also inspects and enforces compliance with licensing conditions and expedites resolutions to disputes and complaints related to the petroleum industry.

Enforcement of license conditions and regulationThe ERC issues licenses with specific conditions that define the way licensees are expected to operate while ensuring standards are maintained. It ensures conformity to licensing conditions through continuous field visits, inspections and testing and independently makes recommendations and follow-ups. Environmental health and safety (EHS) The ERC is responsible for monitoring and enforcing EHS standards for the sector and conducts EHS audits of electricity utilities and petroleum facilities.

Coordination with other authorities and stakeholders The ERC endeavours to coordinate with other statutory authorities and stakeholders to enhance and streamline its operation by:• setting, enforcing and reviewing standards• granting and reviewing licenses• monitoring, ensuring implementation of, and observing the principles of

fair competition in the energy sector, in coordination with other statutory authorities

• developing energy sector data bases• undertaking energy planning.

Nuclear energy provides about 15 percent of the world’s electricity

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HOW WE PRODUCED THE STRATEGIC PLAN

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The methodology This strategic plan was developed through an approach and methodology that would ensure ownership, commitment and leadership by the ERC staff. In developing this strategy, a structured and phased approach was adopted involving the following milestones:

• Undertaking a detailed situation analysis through face to face discussions with co-workers, seeking views and opinions of key components that define and support the business operations and document review.

• Presenting and refining the results of these discussions during working sessions in August 2007, with selected ERC senior management.

• Developing a draft set of strategic objectives from the working sessions that broadly defined the proposed strategic direction of the ERC on which this strategic plan is based.

• Setting up a strategic planning committee comprising heads of departments to prepare the first draft of the strategic plan, using materials and outputs from the working sessions. This committee’s role included refining the strategic plan and developing action plans with defined timelines and responsibilities.

• Convening a working session for the team in November 2007 to develop detailed work plans and budgets to support the strategic objectives.

• Presenting the draft strategic plan to the commissioners in December 2007 and incorporating their comments into this final strategy report. The final strategic plan became effective 31 July 2008, when it was approved by the commissioners of the ERC.

The strategic plan was prepared under the leadership of the director general and in coordination with various heads of department. PricewaterhouseCoopers, an external consultant, facilitated the process, which was designed to engage the ERC in identifying the strategic issues it faces and the necessary initiatives to make it better aligned to its role. Most members of the ERC devoted considerable effort to the process and demonstrated enthusiasm, ownership of, and commitment to implementing the plan.

The initiatives set out in this plan will be translated into action, which will, in turn, carry along those who may not have participated in its preparation.

This comprehensive first five-year strategic plan has been revised to align it with the medium term plan of Vision 2030 and the Sessional Paper No. 4 on energy.

Situation analysis and capability assessmentThe situation analysis and capability assessment was conducted using a SWOT (strengths, weaknesses, opportunities, threats) analysis in the context of the government agenda, and the external and internal environments.

Government agenda

The Government of Kenya recently launched a long term economic blue print, Vision 2030, to guide the country’s development agenda for the period 2008 to 2030. Vision 2030 is the economic planning and development successor to the seven-year Economic Recovery Strategy for Wealth and Employment Creation (ERS) that lapsed in 2007. It aspires to build on the economic growth generated by the implementation of the ERS and propel the country’s economic performance to a sustained growth rate of at least 10% per annum over the next decade, transforming the country from a low income, agricultural economy to a middle income economy with a robust manufacturing base and large service sector.

Vision 2030 and its medium term infrastructure plan have identified quality, cost effective, affordable and reliable energy services as critical drivers towards achieving the economic and social pillars shown in the vision. In particular, flagship projects and programmes in the energy sector must be implemented on time, according to plan and within budget, to realise the growth aspirations of the economy.

To meet these expectations and anchor the growth targets of Vision 2030, the energy sector must be managed prudently and regulated in an efficient and effective way to ensure that investments in the sector and project turn-around are at a pace consistent with growing energy demand. These are obligations within the broader regulatory purview of the ERC.

Challenges identified in Vision 2030

• A weak power transmission and distribution infrastructure.• The high cost of power, low per capita power consumption and low countrywide

access. • The petroleum industry is constrained by limited supply facilities for fuels

including LPG (liquid petroleum gas).• Domestic production of motor fuels which do not meet international quality

standards.• Inadequate distribution in remote parts of the country contributing to high

product prices.

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• Proliferation of substandard fuel dispensing facilities.• Under-dispensing of products, including adulteration of motor fuels, and

dumping of export products.

Response

The ERC strategic plan charts a broad roadmap through which efficient energy services will be provided to consumers over the next five years with a view to promoting economic growth and development espoused in Vision 2030. Specific measures (see the implementation matrix) will be taken to monitor the power sub-sector transmission and distribution networks, to plan for investments in the power sector on the basis of least cost criteria, to regulate tariffs and tariff structures, and to encourage nationwide electricity access. In the petroleum and renewable energy sub-sectors, the ERC will improve installation and facility inspections, formulate and review rules, standards and codes, and enforce compliance to licensing conditions.

The external environment

The analysis of the external environment focused on the political, legal, economic, social, cultural and technological factors that impact on the performance of the ERC. A review of these factors identified the opportunities and threats that the ERC needed to take into account as part of the strategy.

Political and legal

Opportunities • The ERC enjoys political goodwill and enormous support from the Ministry

of Energy due to the significance of the energy sector in achieving Vision 2030.

• Legislation governs the sector and the ERC’s mandate through an Act of Parliament. However, areas of improvement have been identified, to be addressed through the ERC’s legal affairs department as it participates in the process of drawing up bills and regulations. This provides an opportunity for the ERC to ensure that the review of the legal framework removes conflicts and is in line with good sector practices.

• Government regulations regarding performance contracts, ICT policy, budgeting processes and the Public Officers Ethics Act avail the opportunity to reinforce good corporate governance within the ERC.

Threats• Perceptions of political interference arising from historical factors as well as the

current governance framework undermine the ERC’s image as an independent regulator. This is compounded by the untimely change of commissioners.

• Government bureaucracy: the ERC is a state corporation, and some of its performance processes have to comply with lengthy government regulations while others involve seeking specific government approval.

• Overlap in some of the mandates may put the government and some state corporations in a competitive and antagonistic situation with the ERC.

• Some of the ERC mandate opens it up to the possibility of being drawn into protracted and costly court processes.

• High public expectations and limited public knowledge of the functions pose the threat of pressure to act in politically correct way.

Economic

Opportunities• The vibrant economy in recent years has led to an increased demand for energy

services. In spite of the shock to the economy arising from the recent global recession, it is anticipated that, in the medium to long-term, economic activity will pick up significantly to provide a conducive environment for the ERC to realise its strategic revenue goals.

Threats• Driven by the robust performance of the economy, the demand for energy is

rapidly outpacing supply. The ERC will therefore play its role in enhancing the investment climate in order to attract more players to the energy sector.

• The quality of service offered by utilities and sector operators still lags behind global standards. The ERC will therefore intensify compliance and enforcement measures to safeguard quality energy services to consumers.

• Information asymmetry between the regulator and regulated entities gives undue advantage to the utilities. The ERC will intensify compliance and enforcement measures, and put in place innovative approaches to ensure cost effective and quality service delivery.

• There is a general perception that some liberalised segments of the energy sector engage in uncompetitive conduct. The ERC will therefore intensify its competition monitoring and enforcement activities in collaboration with other entities with a similar mandate.

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• The ERC’s income is directly dependent on the quantity of energy products consumed. This in turn depends on the performance of the economy and the sector. The ERC will therefore endeavour to build up revenue reserves during good times to cushion it against periods of economic downturn.

Socio-cultural

Opportunities• An increasingly enlightened society, a supportive public, and improved literacy

levels have contributed to increased demand and consumption for quality and affordable energy.

• The media has been instrumental in highlighting unethical and cartel-like behaviour among some of the energy sector players. The ERC will continue to use the media to educate the public on its rights and the ability of the ERC to assist in resolution of complaints.

Threats• Kenyan consumers are often impatient and may not be ready to give the ERC

time to put its systems and structures in place. The management will expedite implementation of the approved structure to make the ERC better able to protect the public interest.

• Although the ERC will offer dispute resolution services to the public, poverty levels and a culture of forbearance may limit the public’s ability to seek dispute resolution services from the ERC.

Technological

Opportunities• Increased use of new power-based technologies assures sustained demand for

affordable energy both for domestic and industrial use. In turn, the demand will make the sector attractive to potential investors.

• Modern technology will ensure increased efficiency and safety in energy consumption and the ERC can take advantage of this technology to create more efficient systems and processes.

Threats• Cyber crime and other technological malpractices make rural communities

slower in accepting electricity energy, as the perceived benefit is exceeded by the perceived losses.

ResponseThe ERC will carry out a review of the current legal and policy framework to make it more supportive to convergence, competition, investment and other dynamic changes in the sector. Proposals will be forwarded to the Ministry of Energy. The ERC will also work with relevant authorities such as the parent ministry, the National Environment Authority (NEMA) and Parliament to win support for a new legal framework. It will develop procedures for compliance and enforcement to licence conditions, support negotiations and drafting of service level agreements (SLAs), and monitor and verify compliance returns. In addition, the ERC will carry out annual customer satisfaction surveys, benchmark with other regulators for improvement and put in place a customer feedback mechanism. Finally, the ERC will develop and disseminate information and undertake consumer education outreach activities, including using the media, to ensure optimal quality of service to licensees and end-users.

The internal environmentThe review of the internal environment focused on key organisational components – leadership, organisational structure, systems and processes, people and resources and culture and values - to identify the strengths and weaknesses facing the ERC.

Leadership

Strengths• ERC leaders have appropriate academic and professional qualifications at

all levels, as well as sector experience, and are well equipped to provide the required leadership to propel the sector to high levels of service delivery.

• The leadership is open minded, dynamic, flexible and innovative, alert to rapid changes in the energy sector and able to respond appropriately.

• The leadership is results-focused, using performance reviews to ensure that the ERC does not deviate from set targets.

Weaknesses• Leadership at management level is sometimes perceived to be too liberal,

lacking sufficient team spirit and not focused on strategic issues, but rather dwelling on operational matters.

• The leadership still carries the historical baggage of being susceptible to political interference given that the government appoints the commissioners and the director general. Possible vested interests and lack of security of tenure for the top positions enhance the perception of lack of independence.

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Organisational structure

Strengths• The approved structure is aligned to the strategy and dynamic enough to allow

a rapid response to emerging trends and related HR development.• The current structure has engendered a results-oriented management culture

where departments are held accountable for specific results.

Weaknesses• Even though the structure is strategy-aligned, it is flat and wide with a wide

span of control at the top.• Some functions are perceived to be under-staffed affecting their ability to

deliver.

People and resources

Strengths• Competent and qualified personnel able to keep up with rapid sectoral changes

and to engage with the various actors.• Multi-skilled staff equipped with the necessary tools to deliver. • Needs-based recruitment with a training programme that provides staff with

opportunities for development and exposure to best practices.

Weaknesses• An expanded mandate means that the ERC has to address the staffing needs of

new functions such as the petroleum and renewable energy regulation.• Projected finances are inadequate to meet the ERC’s medium term budget

requirement. The ERC will seek the assistance of the government, the World Bank and other partners/stakeholders to address the projected shortfall.

• There is sometimes inadequate cooperation among the staff, exacerbated further by poor internal communication.

• Office space and management information systems need to be addressed urgently if employees are to be more productive at work and vacant positions to be filled.

Systems and processes

Strengths• The ISO certification that is underway is expected to result in considerable

improvements in systems.

• Various studies (such as MIS) have now been implemented.• The existing rules, combined with the introduction of performance contracting

and performance management, have resulted in considerable improved performance. However these need to be strengthened and sustained throughout the strategic plan period.

Weaknesses• ERC systems and processes in all areas of operation are inadequate and need

to be worked on. For example, some are designed to operate alone and are not adequately integrated with other systems, leading to inefficiencies in service delivery.

• Some security challenges exist based on the level of automation, especially for on-line systems.

• In some instances there is a lack of adherence to established systems and procedures.

Culture and values

Strengths• High compliance with corporate values and governance.• A flexible organisation able to respond to a rapidly changing environment.

Weaknesses• Resistance to change by some co-workers.• Inadequate team spirit.• Occasional poor time management.• Lack of adequate communication strategies with clients.

ResponseThe leadership will take a greater role in sharing the strategy, clarifying and promoting the mission, vision and values, and inspiring the organisation to rally behind the strategy to deliver exceptional results. Internal communication and information sharing will be revitalised across all departments so that co-workers can participate in strategy implementation and an internal communications policy and intranet will be developed and fortnightly management meetings will be held. Events and meetings will become internal communication tools. The strategy will be published on the web and regular stakeholder forums will take place to promote it among industry stakeholders.

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The ERC will also recruit and retain a highly skilled workforce and promote capacity building in the energy sector by, among other things, implementing needs-based training, career and succession planning and job enrichment, and collaborating with bilateral donors and other bodies in bridging the energy regulation know-how and financial resources. Priority will be given to creating a motivated and flexible workforce by ensuring that internal communication channels are effective, reviewing health, safety and environmental protocols and carrying out staff retraining. The staff reward scheme will be redesigned as a better motivational tool.

To address the financing shortfall, the ERC will, in the medium term, seek government assistance to secure stakeholder and development partner support for planned strategic studies and development activities. Finally, to ensure the efficiency of support systems and procedures, the ERC will computerise all departments, ensure adherence to procedures and statutory requirements, implement those procedures approved through ISO certification and ensure continuous improvement on ISO standards.

Summary of challenges facing the ERC• Inadequate power transmission and distribution infrastructure, high cost

of power, low per capita power consumption, and low countrywide access, contributing to high product prices, a proliferation of substandard fuel dispensing facilities, under-dispensing of products (including adulteration of motor fuels) and dumping of export products.

• Limited supply facilities for fuels including LPG, and domestic production of motor vehicle fuels that do not meet international quality standards.

• Overlap and conflict in some of the mandates and legislation.• High public expectations and limited public knowledge of the functions of the

ERC.• Lack of effective competition in the energy sector. • Lack of security of tenure for the top leadership, enhancing a perception of lack

of independence.• An expanded mandate resulting in a capacity challenge.• Inadequate systems and process in all areas of operation.• Resistance to change.

Geothermal steam and hot springs have been used for centuries for bathing and heating, but it was not until the 20th century that geothermal

power started being used to make electricity

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THE STRATEGIC PLAN

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The strategy is informed by detailed research, consultations and information analysis to ensure a clear understanding of the ERC’s mandate, challenges and aspirations, the government agenda, and the operational environment. It will guide ERC operations, facilitating and regulating Kenya’s energy sector, for the next five years. It is a live document and will be revised as the environment changes and as new factors come into play.

Linking the strategic plan with Vision 2030 Vision 2030 and its medium term plan identified efficient infrastructure services as critical to driving the social economic agenda of Kenya in the coming decades. This is underpinned by the close positive correlation between efficient infrastructure services and a country’s economic performance.

Commercial energy supply is closely correlated to performance of the gross domestic product (GDP). Kenya’s good economic performance in 2003-04 and 2007-08 financial years generated a strong momentum in the growth in electricity demand over the same period. As the country gears towards attaining the sustainable economic growth rate of 10% per annum by 2012/13 projected in Vision 2030, energy sector players must realign their strategic goals and objectives to support this growth strategy. In particular, the envisaged economic growth will require large energy supplies delivered efficiently and at competitive prices to end-users.

The ERC has a statutory mandate to guarantee the provision of quality, reliable and cost effective energy while protecting the environment. It is in this context that the ERC’s strategic goals have been developed. Over the life cycle of Vision 2030 and the successive five-year medium term plan, the ERC will endeavour to provide a conducive, predictable and attractive regulatory environment for energy sector investments, at a pace consistent with rising energy demand.

Our Vision To be a world class energy sector regulator that facilitates and enhances delivery of sustainable, quality and robust energy services.

Taking cognizance of the mission, the vision foresees a situation where the work of the ERC enables all stakeholders within the sector to collaborate in providing a wide range of energy services in Kenya. The vision of the ERC sets outs its future desired state and will guide this strategic plan.

Our MissionTo regulate the energy sector in a fair, transparent and predictable manner.

Within this mission statement, the core role played by the ERC is to regulate the energy sector in a fair, transparent and predictable manner. It will serve to focus ERC co-workers, as well as provide clarity to all stakeholders, on the ERC’s core function. Furthermore, individual missions statements have been developed in respect of the sub-sectors regulated by the ERC.

Electric power To ensure delivery of reliable and cost effective electricity supplies to all, by enhancing the effectiveness of the regulation of the electric power sub-sector.

Petroleum To regulate the petroleum sub-sector in a cost-effective manner in order to deliver a competitive, safe and environmentally friendly industry.

Renewable energy and energy efficiencyTo support and regulate renewable energy supplies and increased energy efficiency for environmental benefit.

Corporate servicesTo provide efficient, effective and timely support to ERC operations.

Our Values To align the mission and vision and to equip the ERC with the means to overcome the challenges it faces now and in the future, there is a need for a visible transformation by all involved, guided by a set of core values that will form the standards of behaviour for the ERC. Every co-worker, together with stakeholders who engage with the ERC, will be expected to internalise and support these values.

Professionalism The ERC will uphold high standards of professionalism, and all members of the board of commissioners and professional staff are expected to adhere to their codes of ethics.

Predictability The ERC will follow clearly defined rules and regulations in the delivery of its services.

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Integrity The ERC will ensure the highest levels of integrity in its work.

Responsiveness The ERC will endeavour to be sensitive and expeditious in dealing with stakeholders.

Teamwork The ERC will, at all times, embrace teamwork, mutual cooperation and appreciation of diverse perspectives, in the discharge of its functions.

TransparencyThe ERC will conduct its work at all times in a transparent manner, consulting widely and making information readily accessible internally and externally to stakeholders.

AccountabilityThe ERC will ensure the highest levels of accountability in its work.

Independence The ERC will ensure the highest levels of independence in its work.

Our Strategic Objectives

The strategic objectives for the ERC 2008-2012 are:

• To protect the interests of energy users by ensuring that demand is met with reliable, cost effective and high quality energy services in an environmentally friendly manner.

• To protect the interests of consumers, investors and other stakeholders.• To influence, advise on and implement government policy, to meet the ERC’s

statutory objectives and functions. • To be at the forefront of planning, research, preservation and dissemination of

energy sector data, information and best practice. • To strengthen the ERC’s institutional capacity to discharge its functions.

Implementing the strategies

Implementing departmental objectives and targets provides the process through which the strategies are achieved. Each department translates the strategic objectives into reality by taking responsibility for implementing the economic and technical regulation of electric power, renewable energy, downstream petroleum sub-sectors and corporate services.

The targets of the above objective are as indicated in Appendix A - (Results Matrix). The departments will use these matrices to develop annual work plans, which will in turn guide the development of the annual budget and performance contracts.

An average wind speed of 14mph is required to convert wind energy into electricity

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HOW MUCH WILL IT COST?

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Annual budgets and proposed financing The World Bank Handbook for Evaluating Infrastructure Regulatory Systems states that funding should be primarily obtained from a levy on regulated entities and not from the general treasury. This helps to protect the independence of the regulator by making it less subject to budgetary pressures.

Entities should be able to pass on the costs of the levy to end customers. To reduce the scope for abuse and in the interests of equity, the levy should be based on the revenues of a regulated entity and not tied to profits.

The ERC will run a balanced budget over the medium term (3 to 5 years) allowing for temporary surpluses or deficits resulting from changing workloads and special projects. The ERC will be guided by the Government of Kenya accounting guidelines and reporting and review mechanisms.

The financial projections are based on the following assumptions on future levies:• The electricity levy to remain at 3 Kenya cents per kilowatt-hour [kWh]). It is

assumed that the ERC will collect 96% of this levy as per its historical financial statements.

• The petroleum levy has been gazetted by the Ministry of Energy at 5 Kenya cents per litre of premium motor spirit (super), regular motor spirit (regular), illuminating kerosene (IK) and industrial oil (IDO); and 4 Kenya cents per litre of automotive gas oil (AGO) with effect from 1 July 2008.

For 2007-08, it was assumed that 96% of the revenue was derived from the electricity levy while 4% was from other sources. However, for 2008-09, it was estimated that 58% of the revenues would be derived from the electricity levy, 41% from the petroleum levy and only 1% from other sources.

Donor and government funding

The financial projections presented in this section assume no funding from donors or from the government budget. They show the ERC’s financial position as dependent entirely on its own resources and identify the need for external funding. In practice the ERC will be able to access funds from external sources - particularly from development partners - to provide technical assistance for the strategic planning activities.

Currently, the ERC has received a commitment from the World Bank for the funding of the management information system and a review of proposed new and amended secondary legislation to implement its expanded mandate, which forms one of the strategic planning activities. Similar other funding commitments may be forthcoming for other activities.

The five-year budget The cost of implementing the strategic plan over the five-year period is approximately Ksh 1.7 billion. As stated above, the ERC has two main sources of revenue, namely the electricity levy and the petroleum levy, inadequate for the implementation of the identified strategies. For a detailed budget see Appendix B.

The following table provides the summarised budget forecast for the five-year period 2007/08 to 2011/12 based on the above assumptions. The detailed assumptions are available in Appendix B.

The significant jump in various budget items in 2009/10 and beyond is due to an anticipated increase in staff numbers, office space and level of activity. The forecasted budget shows deficits over the planning horizon before carrying out the additional strategic planning activities detailed in Appendix B of this report. These deficits will be covered from retained surpluses from previous accounting periods, while in the medium term the ERC will seek government support in securing stakeholder and development partner support to carry out the additional activities detailed in Appendix B (studies and development activities included in the strategic plan).

Switching off a typical fluorescent light for one hour in each working day will save 30kg of carbon dioxide emissions annually

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Description 2007/08Ksh (‘000s)

2008/09Ksh (‘000s)

2009/10Ksh (‘000s)

2010/11Ksh (‘000s)

2011/12Ksh (‘000s)

Income for the year Electricity levy 147,093 157,028 161,700 173,952 177,515Petroleum levy - 111,257 114,600 132,300 138,915Transfer from government 14,711 52,866 - - -Interest 7,028 8,928 1,750 1,750 1,750Miscellaneous 1,669 1,200 500 1,200 1,200Total income 170,501 331,279 278,550 309,202 319,380

Expenditure Capital expense for the year 241 52,128 69,250 12,000 -

Recurrent expenditure Commissioners’ expenses 26,333 22,073 26,207 28,642 30,517Personnel emoluments 58,747 68,730 128,884 141,773 155,950Training and other personnel costs 21,311 22,884 23,432 31,492 34,642Office supplies and expenses 3,563 3,672 4,020 4,686 5,154Transport and travel expenses 5,822 5,560 12,827 15,097 16,607Public relations/consumer services 7,619 22,680 25,000 34,570 38,027Telephone 1,758 1,506 3,336 3,636 3,936Information and communication technology related expenses

1,190 1,850 3,160 6,000 6,000

Occupancy and office services 5,954 6,314 20,060 25,000 27,500Consultancy and other services 9,269 85,366 23,300 45,653 50,219HIV/AIDS programmes - 1,005 1,410 2,432 2,675Sinking fund provision 8,467 10,000 10,000 10,000 10,000Contingency and other services 467 2,000 2,000 12,074 12,380Total expenditure for the year 150,741 305,768 352,886 373,055 393,607

BUDGET SURPLUS/ (DEFICIT) 19,760 25,511 (74,336) (63,853) (74,227)

Table 3: Budget for the five-year period 2007-2012

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CONTROLLING THE STRATEGIC PLAN

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Monitoring and evaluation

The ERC is aware that the success of the strategic plan depends on effective monitoring and evaluation of the activities and outputs. The planning committee is responsible for overseeing the implementation, reviewing the quarterly departmental implementation progress reports, and reporting to the ERC commissioners.

The strategic objectives will be monitored in the following way:

1. The strategy will be translated by the responsible officer into work plans and performance targets for their departments and evaluated on a quarterly basis.

2. Each responsible officer will extract the relevant targets and provide implementation reports on a quarterly basis.

3. The annual targets will be documented through annual performance contracts agreed by the ERC and the government and monitored through the performance contracting office.

4. A senior management meeting chaired by the director general will be held on a quarterly basis to review the progress report from the planning committee.

5. A mid-term implementation review will be undertaken and changes in the sector will be incorporated.

6. Specific issues will be identified and action plans prepared to address any challenges in the implementation of the strategic activities.

Monitoring indicators at ERC level

• Formulated regulations for electricity, petroleum and renewable energy sub-sectors

• Environmental, health and safety audit reports for regulated entities• Financial audit reports for regulated utilities• Issuance and/or renewal of licences for electric power generators• Issuance and/or renewal of licences for petroleum business operations• Interview reports for electrical contractors• Issuance of licences for electrical contractors• Resolution of consumer complaints• Electricity tariff reviews• Recruitment of additional staff• Appointment of licensing agents• Issuance of construction permits for petroleum installations• Formulation of programme prescribing the manner and timing of energy

audits

• Approval of power purchase agreements and network service contracts• Preparation of indicative energy plans• Collection and analysis of energy data• Capacity building for ERC staff and commissioners.

Monitoring indicators at national level

• Indicative national energy plans• Approval of power purchase agreements and network service contracts• Electricity tariff review• Amount of petroleum dumping and adulteration• Trends in petroleum prices• Resolution of consumer complaints.

Corporate objectives

An effective performance management framework needs to convert the vision and mission of an organisation into measurable corporate objectives. It should also identify and measure key performance drivers against these objectives. Together, these allow the organisation to identify its success against its objectives and the causes of weaknesses and threats in performance.

Based on the mission statements defined for each regulated sub-sector (in italics below), the proposed indicators are numbered below it.

Electricity To ensure delivery of reliable and cost effective electricity supplies to all, by enhancing the effectiveness of regulation of the electric power industry.

1. Electricity supply to all:• rate of electrification (i.e. proportion of households supplied with commercial

electricity). This is not fully under ERC control, as the REA will also influence the rate of electrification.

2. A cost effective electricity supply:• average cost of supply - measures success in reducing the costs of supply• average tariff divided by average cost of supply - measures the extent to

which tariffs recover costs• average residential tariff divided by average cost of supply to residential

customers - measures the extent of cross-subsidies to residential customers.

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3. A reliable electricity supply:• average frequency and duration of interruptions to supply.

Petroleum To regulate the petroleum industry in a cost-effective manner in order to deliver a competitive, safe and environmentally friendly industry.

1. Competitive industry • transparent licensing procedures • timely review of the licensing applications • effective regulation of common user infrastructure.

2. Safe industry • health and safety audit on petroleum facilities and enforcement of

compliance • investigation and reporting of hazardous incidents (such as fires and

spillages).

3. Environmentally friendly industry • environmental audit on petroleum facilities and enforcement of compliance• report on environmental incidents• transparent and timely licensing procedures.

4. Objective and clear criteria for inspection procedures

Renewable energy and energy efficiency To support and regulate renewable energy supplies and increased energy efficiency for environmental benefit.

1. Support and implement government policy on renewable energy supplies • formulate regulation on renewable energy.

2. Support for increased energy efficiency • number of energy audits performed • number of energy auditors registered with the ERC.

Corporate support To provide efficient, effective and timely support to the ERC’s operations.

1. Trained and motivated personnel 2. Adequate budgetary provision3. Availability of a business information system 4. Timely and cost effective procurement of goods, works and services5. Promotion of good corporate image 6. Adequate provision of administrative services7. Timely and reliable legal support services.

Biodiesel yields 93% more energy than the energy invested in its production

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LESSONS FOR THE FUTURE



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If there is one lesson that has emerged from the process of producing a strategic plan it is that the strategic planning process is as important as the final strategy. It was indeed challenging, and took a considerable amount of time and resources to complete. Yet it was also an excellent example of collaboration and cohesion, and serves as a great motivator for the staff as the organisation begins the process of achieving the strategic objectives.

Other equally significant lessons were learnt along the way, and we are happy to document these for the benefit of any organisation that may be preparing its strategic plan. Feel free to take note that:

• Teamwork is very important in the preparation and implementation of the strategy.

• The planning process enhanced cohesion and respect within the team and focused them on the implementation of the strategies.

• The consultative process employed in the preparation of the strategic plan ensured that the views of a wide range of stakeholders were taken into account.

• The process served as an eye-opener for the staff, clarifying the core purpose of the ERC as an energy regulator.

• The process enabled the team to view the ERC at corporate level, producing a bird’s-eye view of ERC operations and its contribution to the national economy. In this way, the process enhanced the participants’ strategic perspective.

• The process of producing the mission statement led to greater understanding of the organisation.

• The process of strategic planning involves many co-workers, and thus enhances ownership of the plan.

• The greater involvement by the staff has ensured a common understanding of each participant’s specific role and those of others.

With hydropower, energy is produced by passing moving water through turbines which spin and create electricity

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APPENDICES

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Appendix A. Results MatrixThe tables below describe the major actions in each goal, including timelines and budgets.

Objective 1

To protect the interests of energy users by ensuring that demand is met with reliable, cost effective and high quality energy services in an environmentally friendly manner

OUTCOME (Strategies) OUTCOME INDICATOR

OUTPUT (Activities) Output Indicator Unit Responsibility Baseline Year

&Value 2007/08

Target Year

1 2 3 4 5

Formulate, enforce and review environmental health, safety and quality standards.

Electricity supply to all. Cost effective supplies. Reliable electricity

Submit draft report (for approval of the implementation plan) to the Ministry of Energy and thereafter to the AG for review before gazetting

Gazetted regulatory instruments. Grid code, electrical safety codes and supply rules

Staff Director Electricity

Competitive industry.Safe industry.Environmentally friendly industry.Support for increased energy efficiency.Efficient and effective corporate operations

Hold 2 stakeholder workshops DirectorElectricity

4 m

Develop and acquire customer service software for processing customer service data and complaints

Customer service data software

DirectorElectricity

Included in cost of acquiring an ERP system

Formulate, enforce and review environmental health, safety and quality standards


Formulate mechanisms on incentives/penalties by benchmarking through visits to other utilities

Mechanisms on incentives/ penalties

Director Electricity

3 m

PPAs/ licensing of cogeneration benchmarking by visits to Mauritius

Cogeneration benchmarking visits to Mauritius


1.5 m

Licensing panel’s visits to Mombasa, Kisumu, Nakuru, Eldoret and Nyeri for licensing

Licensing Director Electricity

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&Value 2007/08

Target Year

1 2 3 4 5

Licensing panel’s participation in the international conference on installations, wiring and licensing

Attend conference Director Electricity

1.5 m

Attend meetings on East African Power Pool

Attend power pool meetings


2 m

Participate in annual conferences/workshops of IEK, KERB in Nairobi and IET in UK

Attend conferences/ workshops


Included in the budget

Formulate, enforce and review environmental health, safety and quality standards

Competitive industry.Safe industry.Environmentally friendly industry.Support for increased energy efficiency.Efficient and effective corporate operations.

Develop and acquire data mapping software for information on quality of supply from licensees

Data mapping software on quality of power supply


20 m

Print electricians and electrical contractors’ licences

Licences Director Electricity

5 m

Develop and acquire data bank software for electricians and electrical contractors

Data bank software for electricians and electrical contractors


Included in the MIS consult-ancy funded by IDA

Formulate, review and enforce rules, regulations and codes for the energy sector

Electricity supply to all. Cost effective supplies.Reliable electricity.Competitive industry.Safe industry.Environmentally friendly industry.Support for renewable energy.Support for increased energy efficiency.Efficient and effective corporation operations

Develop licensing rules.Model power purchase agreements

Network service contracts, licences and permits

Reviewed licensing rules. Model power purchase agreements.

Staff assisted by consultant


Commission Secretary


Model network service contracts

Model licenses/ permits

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&Value 2007/08

Target Year

1 2 3 4 5

Formulate, review and enforce rules, regulations and codes for the energy sector

Electricity supply to all.Cost effective supplies.Reliable electricity.Competitive industry.Safe industry.Environmentally friendly industry.Support for renewable energy.Support for increased energy efficiency.Efficient and effective corporate operations

Issue, renew, modify, suspend or revoke licences and permits for all undertakings in the energy sector

Register of licences and permits.Reports on suspended or revoked licences and permits. Reports on sanctions imposed



Review PPAs and network service contracts

Approved PPAs and network service contracts



Ensure that all undertakings are properly licensed and updated on their obligations

Licenses/ permits and reports

Staff Director ElectricityCommission Secretary


Take a leading role in formulating, enforcing and reviewing environmental, health, safety and quality standards for the energy sector, in coordination with other statutory authorities

Safe industry.Environmentally friendly industry.Support for renewable energy.Support for increased energy efficiency.Efficient and effective corporate operations

Develop monitoring and enforcement protocols for quality of supply, including reports and follow-ups

Quality of supply inspection schedules, reports and follow-ups

ICT staff assisted by agents

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5 m

Examination and certification of electrical energy meters

Cost effective supplies.Reliable electricity

Examine and type approval of meters used for ascertaining the quantity of energy

Type approvals and reports of examinations

Done at cost to persons requiring the service



Develop and implement a framework for the regulation of electrical installation work

Review electrical installation work rules

Electricians’ licences and electrical contractors’ certificates



Receive and process applications for the licensing of electricians and electrical contractors



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&Value 2007/08

Target Year

1 2 3 4 5

Printing of electricians’ licenses and electrical contractors’ certificates

Printed at cost to electricians

Electrical contractors



Develop and implement a framework for the regulation of electrical installation work

Cost effective supplies.Reliable electricity

Issue commencement of work notices and completion certificate to electrical contractors

Results of interviews



6 m

Register commencement of work notices and completion certificates



Participate in the international conference on electrical installations, wiring and licensing

Licensing panel’s participation in the international conference on installations, wiring and licensing






Develop criteria for licensing of petroleum business.Develop process and procedures for application, review, approval, renewal and revocation of business licenses

Petroleum licensing criteria and procedures


Importation, wholesale, retail, exportation storage, transportation refining

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&Value 2007/08

Target Year

1 2 3 4 5



Develop criteria for construction permits.Develop process and procedures for application, review, approval and renewal of construction permits for retail sites. Bulk storage facilities. LPG bulk storage.Pipeline and refineries. Coordinate with KEBS to ensure that construction standards for retail sites, bulk storage, and LPG bulk storage have been developed, approved and published

Construction permit criteria and procedures.

Standards

Director Petroleum

Develop criteria for issuing permits for bulk petroleum road transportation trucks. Jointly with KEBS develop standards for bulk petroleum transportation trucks. Develop criteria for certification of petroleum truck drivers. Develop criteria for licensing road transport business. Issue notice to town authorities to establish safe parking yards for petroleum trucks

Road transport criteria and standards

Director Petroleum

Monitor, ensure implementation of, and compliance with the principles of fair play in the energy sector, in coordination with other statutory authorities.

Competitive industry Develop a process for routinely establishing petroleum landed costs.Develop a rocess for routinely monitoring petroleum prices in the market

Director Petroleum Director Economic Regulation

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&Value 2007/08

Target Year

1 2 3 4 5

Monitor, ensure implementation of, and compliance with the principles of fair play in the energy sector, in coordination with other statutory authorities

Develop a feedback process on information costs and prices

Director Petroleum

Director Economic Regulation



Licensing of charcoal. Licensing/permits for power generation, including micro and small hydro. Certification of technical experts and technologies

Licensing procedures for renewable energy

Director Renewable Energy

Formulate a regulatory framework. Work with KEBS and the Renewable Energy Association to develop standards.Develop standards for charcoal making


Safe industry.Environmentally friendly industry.Support for renewable energy.Support for increased energy efficiency.Efficient and effective corporate operations.

Legalise the standards already developed by KEBS, so that they may be enforced

Director Renewable Energy

Formulate rules, regulations and codes of practice for the trade of renewable energy sources. Formulate rules, regulations and codes of practice for the technology to be used.Formulate codes of practice for efficient use of resources.Formulate and enforce rules and regulations for energy conservationEnhance capacity to review PPAs and licensing of cogeneration and other renewable energy technology projects

Visit countries with leading edge cogeneration and renewable energy technologies

Staff DirectorRenewable Energy

6 m

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ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

40



&Value 2007/08

Target Year

1 2 3 4 5



Prescribe the manner and intervals within which the energy audits shall be conducted

Energy auditors recruited

Energy auditor


Manager EHS

4 m

Develop monitoring and enforcement protocols for EHS

EHS inspection schedules, reports and follow ups

Workshops

Staff

Manager EHS 4 m

Develop an EHS inspection schedule, including reports and follow-ups

Occupational hygienist recruited

Occupational hygienist

Manager EHS

SeniorManager Human Resources and Administration


EHS inspection schedule for electricity, petroleum and renewable energy sectors

4x4 vehicle Manager EHS 6 m

EHS audit reports 1-2 week inspection per month

Stationery

Manager EHS Included in the budget

Comprehensive sector-specific EHS audits – outsourced

Petroleum sector EHS consultation

Manager EHS 20 m

App

endi

ces

41



&Value 2007/08

Target Year

1 2 3 4 5

Renewable energy EHS consultation

15 m

Electricity EHS consultation

20 m

Maintain a list of accredited energy auditors

Energy audit register

Stationery DirectorRenewable Energy


Energy auditors accreditation committee

Energy auditors accredited

Energy auditors accredited



Procure sound meter Sound meter Sound meter DirectorPetroleum Manager EHS

0.5 m

Improve inspections on installations and facilities, in conjunction with other statutory authorities


Develop an inspection schedule including checking for under- dispensing and adulteration of petroleum and calibration of machines

Inspection/ investigation officers recruited

Inspection/ investigation officers

Director Petroleum


Petroleum standards officer recruited

Petroleum standards officer

Director Petroleum


Regular inspections

4x4 vehicle Director Petroleum

6 m

Inspection for license vetting and complaint investigation

1-2 week inspections per month

Director Petroleum

6.72 m

License and train all inspectors and agents on the latest standards and best practices

Licensed and trained inspectors and agents

Petroleum consultant

Director Petroleum


Ensure consistent communication of updated codes and standards to licensees

Public education campaigns

Outsource publicity campaign

Director Petroleum


Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

42



&Value 2007/08

Target Year

1 2 3 4 5

Monitor, ensure implementation of, andcompliance with the principles of fair play in the energy sector, in coordination with other statutory authorities


Formulate regulations governing fair competition in the energy sector

Fair competition regulations.Utility performance benchmarks. Regulatory accounting templates




Monitor compliance with fair competition regulations

Monitoring and compliance report




Establish protocols with other statutory agencies with similar or overlapping functions: KEBS, Monopolies Commission, KFS, CBS, KIPPRA

Cooperation protocols with participating agencies




Set fair tariffs that ensure investors are adequately compensated and consumers fairly charged


Prescribe principles for tariffs, tariff structures and terms of supply

Retail electricity tariffs policy framework updated

Staff time (man-hours)



Feed-in tariffs policyUpdate Fichtner tariff study


30 m

Set, review and adjust retail electricity tariffs

Adjusted retail electricity tariffs and tariff structures

Consultant and counterpart staff



Monitoring of EUT, QoS, generation mix

M&E reports Staff time(man-hours)



App

endi

ces

43



&Value 2007/08

Target Year

1 2 3 4 5

Monitoring financial performance of regulated entities

M&E reports Staff time(man-hours)



Exert oversight on midstream and downstream petroleum operations

Effective regulation of supply, distribution and pricing of petroleum products

Petroleum economist



Develop automated systems for handling electrical installation work

Efficient and effective corporate operations

Develop an automated system for dealing with data on electrical installation work, electricians and electrical contractors

Operational software to handle data on electricians and electrical contractors

ICT Manager Information Technology


Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

44


OUTPUT (Activities) Output Indicator

Unit Responsibility Baseline Year

&Value 2007/08

Target Year

1 2 3 4 5

Develop framework for dispute and complaint resolution

Competitive industry.Safe industry.Environmentally friendly industry.Support for increased energy efficiency

Review the complaints and dispute resolution rules

Reviewed complaints and dispute resolution rules



IDA


Engage licensees and consumers on their responsibilities and rights

Model customer charter, licensee customer charters and reports on the same. Demand Side Management (DSM) programmes, workshops and seminars.

Staff Director ElectricityDirector PetroleumDirector Economic RegulationDirector Renewable EnergyCommission Secretary

10 m

Receive and process complaints and disputes from electricity consumers, including hearings by the commission

Reports on complaints and hearings



10 m

Develop automated systems for handling consumer complaints and disputes


Develop an automated system for customer service, including handling complaints and disputes

Operational customer service software

ICT Manager Information Technology


Objective 2

To protect the interests of consumers, investors and other stakeholders

App

endi

ces

45




&Value 2007/08

Target Year

1 2 3 4 5

Ensure the objects and purposes of the Energy Act, and the goals of Vision 2030, particularly those under the ERC mandate, are carried out

Electricity supply to all.Cost effective supplies.Reliable electricity.Competitive industry.Safe industry.Environmentally friendly industry.Support for increased energy efficiency.Efficient and effective corporate operations

Make proposals to the minister, and draft necessary regulations and guidelines based on best practice and consultation

Proposals to the minister, draft regulations and guidelines

Director General


Develop draft policy/ coherent position paper on the ERC’s roles for government review and approval

Draft policy/ coherent position paper

Director General


Obtain clarification on the roles of other related statutory authorities (e.g. KEBS, NEMA, Kenya Forest Services, Weights and Measures, Competition Commission) to ensure there is no duplication or overlap

Clarificationobtained

Director General


Review Energy Act to ensure it is comprehensive and clear on regulations and guidelines developed for the three sub-sectors

Revised Energy Act



Objective 3

To influence, advise on and implement government policy in order to meet the statutory objects and functions set for the ERC

Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

46




&Value 2007/08

Target Year

1 2 3 4 5

Propose and lobby for amendments to the Energy Act

Amended Energy Act

Staff assisted by consultants

Director General


Influence policy on low income consumers and other vulnerable groups

Influence policy on special interest groups (large consumers)

Electricity supply to all.Cost effective supplies.Reliable electricity.Environmentallyfriendly industry.Support for increased energy efficiency

Collect data on energy consumption

Reports Staff assisted by consultants



Maintain consumer profiles Reports Staff time (man-hours)



Advise government on the impact of its policy on these consumer groups

Reports Staff time (man-hours)


Review government policy on quality of supply, pricing and efficiency issues


Take inventory of existing policy and regulatory instruments in the electricity sub-sector vis-à-vis the ERC mandate

Reviewed regulatory instruments


Director Electricity Director Economic Regulation


Review government policy on quality of supply, pricing and efficiency issues


Identify areas where regulatory tools (rules, regulations, codes and technical standards) are required and initiate the process of formulating standards in conjunction with other statutory authorities

Reports and updated regulatory tools





App

endi

ces

47




&Value 2007/08

Target Year

1 2 3 4 5


Electricity supply to all.Cost effective supplies.Reliable electricity.

Review, transfer and customise all existing regulations from MOE to ERC strategic storage.Initiate stakeholder discussions. Initiate development of standards and practices for biofuels, and petroleum fuel conservation measures. Initiate public awareness and education

Director Petroleum



Implement and ensure that government fiscal controls, auditing policies and practices, and budgetary controls are adhered to

Less audit queries.Good audit certificate

In-house capability. External auditors

Directors and department heads


Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

48



&Value 2007/08

Target Year

1 2 3 4 5

Collect and maintainenergy data

Support for increased energy efficiency.Efficient and effective corporate operations

Collect, collate and analyze energy data

Bi-monthly petroleum price surveys

Recruit petroleum data collection and entry officer

Collaboration with KPC for other towns


Directors and department heads


Internationalcrude oil price data

Subscriptions, e.g. to Platts, Petroleum, Economist, etc.

Collaborate with NOCK

1.2 m

Oil port charges, refining, storage and transport cost data

Collaboration with shippers, KPRL, KPC

Nil

Petroleum price build-up framework

Staff time (man-hours) stationery


Indicative monthly petroleum prices

Staff time(man-hours) Stationery


Electricity generation and sales data

Staff time(man-hours)Stationery


Renewable energy technology data



Objective 4

To be at the forefront of planning, research, preservation and dissemination of energy sector data, information and best practice.

App

endi

ces

49



&Value 2007/08

Target Year

1 2 3 4 5

Prepare and monitor indicative national energy plan

Establish national energy planning committee

Energy planning committee

Staff time (man-hours) Stationery



Establish power planning sub-committee

Power planning sub-committee



Establish fossil fuel planning sub-committee

Fossil-fuels planning sub-committee



Establish renewable energy planning sub-committee

Renewable energy planning sub-committee



Coordinate preparation of least cost power development plans

Updated least cost power development plans



Review investment programmes for petroleum products supply and distribution infrastructure

Reports on planned investments on petroleum industry installations




Review investment programmes for renewable energy technologies

Reports on planned investments for renewable energy technologies



Procure, install and undertake training on power systems planning tools/software (MAED, LEAD, etc.)

Planning tools procured and training undertaken. Prepare 25-year national energy plans

Consultant, counterpart staff


Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

50



&Value 2007/08

Target Year

1 2 3 4 5

Research and development

Undertake energy research and studies

Study on energy use patterns



30 m

Structure conduct analysis (SCA) of the petroleum industry


30 m

Study on renewable energy pricing



15 m

Study on expanded opportunities for co-generation


30 m

Re-assessment of potential for small hydro


30 m

Position paper on role of biomass in energy supply mix


15 m

Position paper on role of renewable energy in the energy supply mix

Staff time (man-hours)

Nil

Study on viability of LNG for power generation in Kenya


30 m

Study on role of LPG in energy supply mix


30 m

Study on the role of community based distributed generation systems in Kenya


15 m

App

endi

ces

51



&Value 2007/08

Target Year

1 2 3 4 5

Collect and maintain energy data

Develop resource centre with modern technology

Modern resource centre Resource centre policy and rules

Investment in IT infra-structure, platforms and software

Senior Manager Human Resource and Administration


Develop an effective knowledge management database

Internet based research OPAC (online public access catalogue).Proper charge in/out systems

In house capability R-MIS consultancy

Manager Information Technology


Participate in developing a state-of-the-art resource centre

State-of-the-art resource centre. OPAC

In house capability with assistance from a consultant, R-MIS

Senior Manager Communications and Public Affairs



Obtain appropriate software to support the internal processes and knowledge management

Updated database. Updated OPAC

In house capability with assistance from a consultant.R-MIS




Purchase adequate space, quality furniture and computers

Modern resource centre In house capability



Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

52



&Value 2007/08

Target Year

1 2 3 4 5

Recruitment Realisation of corporate objectives

Identification of vacant positions, preparation of position profiles and advertisement, received applications, shortlists, interview schedules, reference checks, letters of offer

Availability of skilled human resources

Recruitment costs

Senior Manager Human Resources and Administration


Employee attraction and retention

Motivated and productive employees

Internal survey to establish employee expectations, and satisfaction levels. Formulation of attraction and retention strategy

Employee turn-over. Performance and results


Create a learning organisation

Efficient and effective discharge duties

Equip the resource centre according to identified needs. Subscribe to energy related journals, and other professional magazines, newsletters, journals, etc

Availability of relevant value-added reading and reference materials

Subscription fees



Performance management

Realisation of corporate objectives

Formulate a policy on performance management.Design a performance appraisal tool

Policy, appraisal tool, set and agreed upon targets


Staff training and development

Efficient service delivery

Identify organisation training requirements and relevant training programmes

Availability of competent staff

Training costs



Objective 5

To strengthen the ERC’s institutional capacity to discharge its functions

App

endi

ces

53



&Value 2007/08

Target Year

1 2 3 4 5

Create a learning organisation (learning culture)


Subscribe to journals, e.g. on energy and economics, finance, EHS and energy auditing

Subscription to three journals

Subscription fees



Procure books 3 per section – economic regulation, financial, EHS and energy audits

Financial resources


0.6m

Training One international and two local trainings per officer, per year

Two local trainings and one international training attended





Attend conferences One international and two local conferences per officer, per year

International and local conferences attended



Train in ICT skills on databases Become ICT compliant

Regular database training



Carry out training needs and study tours

Attend one international and two local capacity building trainings



Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

54



&Value 2007/08

Target Year

1 2 3 4 5

Encourage regular team building activities


Attend all ERC team building exercises

Participate in team building exercises


3.5 m



Develop a good resource centre World class resource centre

In house capability with assistance from consultant



Twinning with other regulatory agencies or institutions with technical expertise for knowledge and skills transfer

At least one international twinning or attachment and two regional and local

In house capacities in liaison with other regulators


6 m



Subscribe to relevant journals and periodicals, newspapers, Kenya Gazettes, newsletters and other specific journals requested by departments

Subscription fees paid on time




Regular circulation of e-mails to all staff informing them on what’s new

Circulatedjournals to staff


Senior ManagerCommunications and Public Affairs


App

endi

ces

55



&Value 2007/08

Target Year

1 2 3 4 5

Set up effective internal processes and controls


Review financial management policies

Strong financial regulations and procedures manual (good budgetary controls)

In house capability plus use of latest technology i.e. upgrading current financial system

Senior Manager Finance


Ensure adequate financing


Identify sources of financing

Sound financial statements e.g. a balanced budget

In house capability


Encourage regular team building activities


Find out the level of team work in the ERC

Written report In house with assistance of consultant

SeniorManagerHuman Resources and Administration


Identify potential trainers, and/or consultant and training

Trainer identified.Periodic training

5 m

Recruitment Efficient and effective corporate operations

Recruit persons with following skills and knowledge: petroleum supply, chain logistics, petroleum facilities design. Petroleum market analysis. Training of persons directly and indirectly involved in petroleum regulation. Secondment of newly recruited personnel to KPRL, KPC, NOCK for hands-on familiarisation

Petroleum experts SeniorManager Human Resources and Administration

Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

56



&Value 2007/08

Target Year

1 2 3 4 5



Draft internal summary guidelines on human resources, fleet, correspondence, registry and stores management

Transport requisition guide. Fleet Control guide. Mail controls and distribution. Filing, storage, retrieval and archiving stores. Management and requisition

In house capabilities





Continue second phase of ISO certification training

ISO certification Consultant Senior Manager Human Resources and Administration

0.6 m

Operate the human resource management system

Updated human resource status





Carry out training needs assessment/training plan and secondment study tours for best practices

Training needs assessment report




Training plan projection




Secondment/ attachments




App

endi

ces

57



&Value 2007/08

Target Year

1 2 3 4 5



Carry out training needs assessment/training plan and secondment study tours for best practices

Study tour In house capabilities



Research on best practices




Twinning with other regulatory agencies or institutions with technical expertise for knowledge and skills transfer

Twinning arrangements

In house capabilities in liaison with other regulators



Build a robust ICT infrastructure and knowledge management system


Carry out a study on the current MIS and recommend appropriate improvements

Study report with viable recommendations

R-MIS consultancy


IDA(WB)

Formulate ICT strategic plan ICT strategic plan R-MIS consultancy

ManagerInformation Technology

IDA(WB)



Formulate ICT policy document

ICT policy document

R-MIS consultancy


IDA(WB)

Redesign and implement a dynamic ERC website

Attractive, informative and interactive website

In-house capability with assistance from a website design consultant




Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

58



&Value 2007/08

Target Year

1 2 3 4 5

Obtain appropriate ICT software to support the internal processes and knowledge management

Appropriate software

In-house capability with assistance from R-MIS consultant


10 m

Obtain (new, additional and renewals) software licenses

Licensed software In-house capability with assistance from R-MIS consultant


3 m



Put in place and maintain a knowledge management system

Knowledge management system in place



2 m

Improve integration of various systems

Integrated systems



2 m

Train ICT end-users on ICT skills

ICT end-users trained on ICT skills

Local and overseas training


3 m

Train ICT professionals on emerging technologies

ICT professionals trained regularly

Local and overseas training


Included in the budget under training costs

Encourage the use of the internet for research

Internet based research

In-house capability



App

endi

ces

59



&Value 2007/08

Target Year

1 2 3 4 5




State-of-the-art resource centre




Nil

Develop and produce communication materials and ensure their distribution to the ERC’s internal and external public.


Research, compile and collect information. Consult with various departments on messages.

Annual reports Designers and printers

Writing, editing and design of publications

Newsletters, brochures, calendars.

Develop and produce communication materials and ensure their distribution to the ERC’s internal and external publics



State-of-the-art resource centre

In-house capability with the assistance of R-MIS consultant



Nil

Write specifications for the various materials for procurement.Liaise with procurement

Branded merchandise (calendars, Christmas cards, key holders, caps, umbrellas, T-shirts, ERC folders, diaries, executive pens, etc)

Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

60



&Value 2007/08

Target Year

1 2 3 4 5

Public information and awareness campaigns to create widespread understanding of, and support for ERC amongst the target audience and the public at large


Draft messages for management approval

Approved messages

Media consultant


Carry out a survey to establish the three most listened-to TV and radio stations

Names of three top stations

Liaison with the selected TV and radio stations

Draft commercials

Present draft commercials for management approval

Approved commercials

Production and airing of commercials

30 second commercials

Media advocacy to strategic partner


Identify chief editors of various media houses

List of the various editors

Media experts

Senior Manager Communications and Public AffairsPrepare press kits Press kits

availableInvite the various editors to a press reception

Well attended press reception

Development and production of 30 min ERC documentary to raise positive awareness of the ERC as the energy sector regulator


Prepare paper management approval of field production-filming locations, shooting, script edits, final script

Airing of documentary

Consultant Senior Manager Communications and Public Affairs

Media training Efficient and effective corporate operations

Carry out a training needs assessment.Develop specifications for trainers

Trained staff Consultant Senior Manager Communications and Public Affairs

CSR policy Efficient and effective corporate operations

Write draft CSR policy and present to management and commission for approval

Approved CSR policy


App

endi

ces

61



&Value 2007/08

Target Year

1 2 3 4 5

Initiate or join existing initiatives by identifying a CSR activity that supports sustainable exploitation of natural sources of energy


Identify a CSR initiative. Liaison with the various stakeholders.Carry out CSR activity

Attendancelist of CSR event

Various stakeholders


Develop provincial outreach programme for individual and small scale consumers


Identify various consumers in each province. Identify relevant energy related issues.Liaise with a coordinator to identify issues faced by consumers. Collect and compile related information for discussion.Prepare and distribute information packs. Hold public seminar with consumers at grass roots level

Information packs, brochures, minutes and resolutions of public seminar


Promote community relations activities by ERC staff, such as tree planting at the various licenses


Identify license and activities. Participate in community relations activities.

Approved license.Attendance list

Stakeholder Senior Manager Communications and Public Affairs

Participation in energy related activities


Identify relevant energy related activities. Participation in the activities

Information packs, brochures Attendance list

Camera, video, laptop



Participation in PRSK activities


Prepare material for entry in the various competitions

Report/award Senior Manager Communications and Public Affairs


Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

62



&Value 2007/08

Target Year

1 2 3 4 5

Membership of professional associations


Participate in various activities

Report Senior Manager Communications and Public Affairs


Capacity building Efficient and effective corporate operations

Participate in training Report Senior Manager Communicationsand Public Affairs


Conference/ seminars Efficient and effective corporate operations

Participate in conferences and seminars and present papers

Report Laptop, camera, video



Corporate branding Efficient and effective corporate operations

Drafting of brand manual for ERC materials.Branding of all ERC stationery and vehicles

Approved ERC brand manual. Branded materials, vehicles and stationery



ERC inaugural launch Efficient and effective corporate operations

Set up planning committee.Plan and organise launch

Minutes of planning committee. Successful ERC launch

Consultant Senior Manager Communications and Public Affairs

3.8 m

Plan and coordinate innovative events to showcase the ERC and generate publicity


Identify activities that can be showcased.Management approval of activities and budget

Special events Consultant Senior Manager Communications and Public Affairs

Promote sponsorships for various community activities which will accord ERC opportunities to interact with the community and generate a positive image for ERC activities


Identify activities to sponsor. Carry out sponsorship activity

Approved sponsorship activities.List of attendance


App

endi

ces

63



&Value 2007/08

Target Year

1 2 3 4 5

Promote staff award scheme as motivational tool


Prepare staff award scheme proposal. Select outstanding staff

Present awards to outstanding staff


Carry out a communication audit with the objective of assessing the implementation and impact of communication through monitoring and evaluation


Prepare justification paper for M&E.Carry out communication audit

Communication audit report

Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

64

Appendix B. Detailed budget

General assumptions

The budget estimates were prepared for a five-year period from 2007/08 to 2011/12. The general assumptions are based on the ERC’s latest forecast for 2007/08 and the proposed budget for 2008/09. These assumptions were validated and informed by discussions with relevant staff at the ERC.

Table 4: Economic assumptions

Economic indicator RateYear on year inflation (based on the government’s target inflation rate)* 5% US Dollar exchange rate Ksh 67Growth in gross domestic product (GDP) (based on the first quarter of 2007

7%

(*Source: Central Bank of Kenya website)

Revenue assumptions

The ERC will have two primary sources of revenue - the electricity levy and the petroleum levy. No revenue from renewable energy was included in this budget as this sector is considered to be under-developed and the revenue drivers for the sector have not been defined. Other revenue sources include interest income and miscellaneous income.

Electricity levy

The ERC electricity levy is assumed to be 3 cents per kilowatt hour (kWh). The unit sales for 2008-2009 are assumed to be 5.8 billion kWh as per the ERC’s proposed budget for 2008-09. This was used as the basis to project the revenue for the five-year budget period at an average annual growth rate of 7% (GDP growth). In addition, it is assumed that the ERC will collect 96% of this levy as per its historical financial statements.

Table 5: Historic electricity sales volume

Year 2004 2005 2006 Electricity sales volume (kWh) to the nearest billion 3.8 4.1 4.4

Abb

revi

atio

ns

65

Table 6: Electricity sales volume forecast

Year 2007/08 (Proposed)

2008/09 (Proposed)

2009/10 (Forecast)

2010/11 (Forecast)

2011/12 (Forecast)

Electricity sales volume (kWh) to the

nearest billion

5.0 5.6 5.7 5.8 6.0

Petroleum levy

The ERC petroleum levy was set at 5 Kenya cents for super, regular, kerosene and industrial oil and 4 Kenya cents per litre for automotive diesel oil. The projections for the petroleum sales volume are assumed to be as per the ERC budget for 2008/09. A growth rate of 7% per annum has been applied for the remaining years of the five-year budget period.

Table 7: Petroleum sales forecast

Year 2007/08 (Proposed)

2008/09 (Proposed)

2009/10 (Forecast)

2010/11 (Forecast)

2011/12 (Forecast)

Petroleum sales volume (kilograms or litres) to the nearest billion

Nil 3.7 3.8 4.0 4.1

Interest income

Interest income is assumed to be Ksh1.75 million per annum as per the ERC’s budget for 2008/09.

Operating cost assumptions

The operating cost projections are based on estimates for 2008/2009 provided by the ERC and adjusted for inflation.

Commissioners’ expenses

These include board member salaries and allowances, monthly fees, sitting allowances and other expenses such as travel and accommodation, telephone, medical, etc. The salaries are based on the ERC budget for 2008/09 and increased by 10% per annum for the remaining years of the budget period. All allowances are assumed to remain the same as that provided for in the ERC 2008/09 budget. The projections for the other expense items are based on the proposed ERC budgeted figures for 2008/2009 and adjusted for inflation.

Ener

gy R

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ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

66

Personnel emoluments

This includes staff salaries, allowances and pensions. Personnel costs as per the ERC budgets for 2007/08 and 2008/09 were used in the forecast budget. Salaries and pensions are based on the ERC budget for 2008/09 and increased by 10% for the remaining years of the budget period. All allowances are assumed to remain the same as that provided for in the budget for 2008/09. Other expense items under personnel emoluments are increased by an inflation rate of 5% per annum for the remaining years of the forecast period.

Training and other personnel costs

These costs include staff medical expenses, staff welfare, uniforms, subscriptions, training and group life insurance, and were projected using an inflation rate of 5% per annum.

Office supplies

These costs are assumed to increase with inflation each year.

Transport and travel

This is assumed to increase with inflation.

Public relations and consumer services

These costs are assumed to be pegged at 10% of all other expenditure per annum.

Utilities

These include telephone, water and electricity, as per the proposed ERC budget and are increased with inflation for the remaining years of the forecast period.

Information and communication related expenses

These include annual internet costs, software licenses and web-hosting costs, which were assumed to be Ksh 4.8 million per annum as per ERC budget for 2008/09.

Occupancy and office services

Occupancy and office services include the following expenses as per proposed ERC budget estimates 2008/2009.

Table 8: Occupancy and office services

Description Cost (Ksh) 2008/2009 Office rent 14,400,000 Security 720,000 Office cleaning 1,200,000 Repair and service of office equipment 700,000 Insurance 800,000 Total 17,820,000

Office rent was assumed to remain at Ksh14.4 million per annum as per ERC budget for 2008/09. Other occupancy service costs are assumed to increase with the rate of inflation.

Table 9: Consultancy and other services

Cost (Ksh) 2008/2009 Cost (Ksh) 2008/2009

Audit fees 250,000 Bank charges 300,000 Consultancy and technical assistanceImplementation of ISO certification programme 600,000Web redesign and maintenance 180,000Customer satisfaction survey 500,000Design and implementation of a modern filing and document retrieval system

250,000

Employee and work environment survey 100,000Payroll support and maintenance 50,000Accounting software support and maintenance 250,000Studies in the energy sector 25,000,000Other 250,000Total 27,730,000

This total was increased by the rate of inflation to project consultancy costs for the remaining years of the five-year budget period. Any additional activities resulting from the strategic plan, have been identified below (under strategic planning activities) and require additional funding and re-prioritising.

Abb

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atio

ns

67

Table 10: HIV/AIDS Programme

The following amount has been set aside as a health care fund for this programme. Year Amount (Ksh) 2007/2008 200,000 2008/2009 1,005,000 2009/2010 2,211,000 2010/2011 2,432,100 2011/2012 2,675,310

Contingency

A general provision of 1% of the annual revenue from the electricity and petroleum levies is assumed.

Tax assumptions

The ERC is exempt from corporate tax.

Strategic planning activities

The table below provides a summary of the costs of the proposed new strategic plan activities. The details of the activities are provided in Appendix A of this report.

Table 11: Breakdown of the proposed strategic planning activities

Strategic planning activities

2007/08 2008/09 2009/10 2010/11 2011/2012

Ksh Ksh Ksh Ksh KshEconomic regulation and EHS

30,240,000 73,540,000 77,040,000 82,040,000 62,040,000

Petroleum (not included above)

1,000,000 1,000,000 1,000,000 2,500,000 1,000,000

Customer service

6,000,000 24,750,000 4,250,000 750,000 750,000

Information communication technology

600,000 12,350,000 12,350,000 2,350,000 2,350,000

Human resources

2,000,000 2,000,000 1,700,000 1,700,000 1,700,000

Public relations 7,832,709 16,265,988 16,981,518 17,737,406 18,536,285Power systems 6,800,000 12,050,000 11,050,000 7,050,000 9,050,000Total 54,472,709 141,955,988 124,371,518 114,127,406 95,426,285

Ener

gy R

egul

ator

y Co

mm

issio

n St

rate

gic

Plan

200

8-20

12

68

Table 12: Proposed strategic planning activities mapped into relevant line items

These costs have been mapped into the relevant budget line items as illustrated in the table below. Description 2007/08 2008/09 2009/10 2010/11 2011/12

Ksh (‘000s) Ksh (‘000s)

Ksh (‘000s)

Ksh (‘000s)

Ksh (‘000s)

Expenditure Capital expense for the year 241 52,128 69,250 12,000 -Recurrent expenditure Commissioners’ expenses 26,333 22,073 26,207 28,642 30,517 Personnel emoluments 58,747 68,730 128,884 141,773 155,950Training and other personnel costs 21,311 22,884 23,432 31,492 34,642 Office supplies and expenses 3,563 3,672 4,020 4,686 5,154 Transport and travel expenses 5,822 5,560 12,827 15,097 16,607 Public relations/consumer services 7,619 22,680 25,000 34,570 38,027 Telephone 1,758 1,506 3,336 3,636 3,936Information and communication technology related expenses

1,190 1,850 3,160 6,000 6,000

Occupancy and office services 5,954 6,314 20,060 25,000 27,500 Consultancy and other services 9,269 85,366 23,300 45,653 50,219 HIV/AIDS programmes - 1,005 1,410 2,432 2,675 Sinking fund provision 8,467 10,000 10,000 10,000 10,000 Contingency and other services 467 2,000 2,000 12,074 12,380 Total expenditure for the year 150,741 305,768 352,886 373,055 393,607

Table 13: Strategic planning activities not covered by the five-year budget

The following table highlights the shortfall of activities not covered by the ERC budget. These will require re-prioritising by ERC management and/or additional funding from other sources.

Description 2007/08 2008/09 2009/10 2010/11 2011/12 Ksh Ksh Ksh Ksh Ksh

Consultancy services 14,850,000 41,570,000 48,883,500 49,427,675 27,899,059 Printing, photocopying and binding

9,290,000 7,615,000 6,112,000 7,608,850 6,105,543

ICT 28,550,000 7,550,000 Public relations 14,383,333 34,210,000 3,389,962 157,560 Total 38,523,333 111,945,000 65,935,462 57,194,085 34,004,602

App

endi

ces

69

The five-year budget shows surpluses, which contribute towards achieving the strategic planning activities not covered by the budget. Table 14 highlights additional external funding requirements for the activities during the budget period.

Table 14: Additional funding requirements for the proposed strategic planning activities

Description 2007/08 Ksh ‘000

the 2008/09 Ksh ‘000

2009/10 Ksh ‘000

2010/11 Ksh ‘000

2011/12 Ks ‘000

Surplus/(deficit) as per budget 19,760 25,511 (74,336) (63,853) (74,227)Strategic activities not covered in the budget

(38,523) (111,945) (65,935) (57,194) (34,004)

Additional funding required (18,763) (86,434) (140,271) (121,047) (108,231)

Capital expenditure Based on the ERC’s expanded mandate, the following capital items have been provided for in the budget for 2008/09:

Table 15: Capital expenditure items

Capital expenditure item Units Unit cost (Ksh)

Cost (Ksh) in 2008/09

Motor vehicles 1 4.5 million 4.5 million

Computer equipment and softwareComputers for additional staff 15 80,000 1.2 million UPS equipment 20 10,000 200,000 Computer software 10.5 million Printers/copiers 10 40,000 400,000 Blackberry/handheld devices 10 30,000 300,000 Networking and internet connections 1.5 million Furniture and fittings This includes all the partitioning, work stations, kitchen, meeting rooms, resource centre, etc.

36 million

Equipment Telephones 15 7,500 112,500 Fax machines 3 15,000 45,000 Other office equipment 1.25 million TOTAL 56 million

For the remaining years of the budget period, Ksh 24 million has been provided for in 2009/10 and Ksh 12 million for 2010/11, for capital expenditure items. There is no provision for capital expenditure in 2011/2012.

Pages 9 and 31

Pipeline for the Sondu/Miriu Hydropower Project (SMHPP), which was developed by KenGen and has an average annual energy production of 330 GWh. Unlike other hydropower projects in Kenya, SMHPP does not have a major dam and associated large reservoir, but relies on the flow of the river with only a small storage capacity at the intake, thus reducing the environmental impact.

Page 13

Power lines in a field in the Kisumu area.

Page 16

A geothermal power plant at Lake Naivasha.

Page 22

Wind turbines on a wind farm in Gudihalli village.

THE PICTURES

Page 25

The PS10 solar power plant at Sanlucar la Mayor outside Seville. The solar power tower, the first commercial solar tower in the world, run by the Spanish company Solucar (Abengoa), can provide electricity for up to 6,000 homes. Six hundred and twenty four heliostats (movable mirrors) concentrate the sun’s rays to the top of a 115m high tower where a solar receiver and a steam turbine are located. Page 28

Bujagali Falls, Uganda, the proposed site of a new hydroelectric dam to supplement the Owen Falls Dam.

Page 33

Petroleum fuels constitute the main source of commercial energy in Kenya.

Energy Regulatory CommissionP.O. Box 42681-00100 NairobiEagle Africa Centre, Longonot Road, Upper HillTel: +254-20-2847000/200Cell: +254-722-200947/0734-414333Fax: + 254-20-2717603

Email: [email protected]

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