Lake Turkana Wind Power Plant is linked to growing economic activity

The government will link investors in the energy sector with the World Bank and the International Monetary Fund for funding. Finance minister Uhuru Kenyatta said Treasury was keen on reigning in public debt and would not give the investors any guarantees on funding, a position that contradicts a cabinet approval of financial backing for firms involved in electricity generation.

He said the government would talk to the Bretton Woods institutions to facilitate securing alternative credit risk underwriting. “We have established an inter-ministerial committee with World Bank and IFC participation to assist investors secure available alternative risk mitigation products,” he said.

It is the first time that Treasury has publicly stated its refusal to extend sovereign guarantees to developers in the power sector, after it emerged last month that the Ministry of Finance was not comfortable with the cabinet position announced in mid September. The reversal in policy is likely to dent Kenya’s capacity to generate power to meet the rising demand.

Kenya’s rising demand for energy is linked to growing economic activity, with annual power consumption expected to hit 1,620 megawatts (MW) by 2012 from the current peak demand of 1072 MW. Mr Kenyatta’s announcement comes at a time when concern is rising about the government’s management of public debt against a background of shrinking revenue collection by the Kenya Revenue Authority.

“We need to tap into the available private sector finances to complement the government’s resources if we are to eliminate the infrastructure deficit we currently face,” said Mr Kenyatta.

The government holds majority shares in power generating company KenGen and electricity distributor Kenya Power and Lighting Company, which Mr Kenyatta said should guarantee concessionary funding for Kenya’s biggest power firms. Electricity outages and high power tariffs add to the cost of doing business as companies have to invest in alternative energy sources such as the expensive diesel powered generators.
Among the projects that could take a knock from this development include the €600 million Lake Turkana Wind Power Plant which on completion will be the largest wind farm in sub-Saharan Africa with the capacity to produce 300 MW of electricity.

The consortium of investors in the wind energy project, led by Aldywich International, has sought financing from the African Development Bank, South Africa’s Standard and Ned banks but requires guarantees to the tune of €42.7 million.

Carlo Van Wageningen, the consortium’s chairman, said that the government’s reversal on policy was likely to see the company renegotiate the power purchase agreement of Sh7.50 per unit (7.22 Euro cents) that it entered with power distributor KPLC.

“The decision by the government to withdraw the loan guarantee will delay the wind energy project by at least one year as we may have renegotiate the contract,” said Mr Wageningen.

He said that the 365 wind turbines wind farm would require the purchase of aluminium and steel parts whose prices have risen by about 15 per cent over the last six months in the international market on increased demand by big consumers like China and India.

Other key power projects that require similar guarantees include OrPower IV, Aureous Wind farm, and three thermal power generators — Gulf Power, Triumph Energy, and Menelec with a combined capacity of 252MW.

By Moses Michira,