World Bank gives Kenya $ 110 mm for power projects

Sep 28, 2011 12:00 AM

A World Bank agency has provided $ 110 mm (Sh 11 bn) as security to boost production of geothermal power.
The disbursement to OrPower IV, a US firm involved in generation of geothermal energy at Naivasha, by Multilateral Investment Guarantee Agency (Miga) will double its output to 84 MW on securing $ 14 mm (Sh 1.12 bn).

The deal follows an understanding with the government on how to structure the securities.
"Miga has increased its coverage against the risks of transfer restriction, expropriation, and war and civil disturbance to cover an additional equity investment of $ 110 mm for phase three of the project," said World Bank.

The plant to be completed in 2013 would support economic recovery, reduce dependency on the currently constrained hydro to geothermal sources. Kenya Power is currently rationing 90 MW daily in a programme that largely targets industries.
Failure by the Treasury and the Ministry of Energy to agree on external insurance for the implementation of planned projects is partly to blame for the latest power rationing. A steady rise in power consumption on the back of renewed economic growth has also led to inadequate supply.

The World Bank agency has insured OrPower 4 Inc's Olkaria III power plant for the past 10 years. The project became the first private geothermal power plant in sub-Saharan Africa in 2000. The current amount brings Miga's total exposure under the project to $ 134 mm.
"Miga's continued participation in the project is critical. With its involvement, the political risk profile of the project is much lower," the Ormat Holding Corporation President, Mr Yehudit Bronicki said.

Aureous Wind (100 MW), three thermal power generators (Gulf Power, Triumph Energy and Menelec with a combined capacity of 252 MW) and Lake Turkana Wind Power, the largest wind farm in sub-Saharan Africa with 300 MW capacity, are yet to close financing agreements with the lenders who are pressing for sovereign guarantees and enhanced risk mitigation packages.
"An increase in indigenous geothermal generation will guarantee a more reliable supply of energy while also reducing carbon emissions," said the statement after the signing ceremony in Washington, DC, USA.

The government has been looking into new ways of supporting the independent power producers to secure the guarantees from Miga or the International Development Association's partial risk guarantee arrangement.
Partial risk guarantees cover private lenders against the risk of a public entity failing to perform its obligations with respect to a private project and ensure payment in the case of default resulting from the non-performance of contractual obligations undertaken by governments or their agencies in the projects.

While investors have the Miga option, the challenge is that government must counter-sign it, meaning development of new power sources to diversify the national mix cannot take off without Treasury's involvement.
The Ministry of Finance has all along, been reluctant to issue sovereign guarantees to the power producers, arguing that the debt exposure would jeopardise the country's credit rating.

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