Pension fund eyes Gulf Power stake

In Summary

• Should KP RBS buy a stake in the energy firm, it will join the International Finance Corporation (IFC) as one of the investors behind the firm.
• Talks are still at the stage where the KP RBS is evaluating whether the deal will match the retirement scheme’s required rate of return.
• The deal also has to be approved by the industry regulator, the Retirement Benefits Authority (RBA)

Kenya Power’s retirement fund has entered into negotiations to buy a 10 per cent stake in Gulf Power, a diesel electricity generator.

Kenya Power Retirement Benefit Scheme (KP RBS) finance and investment manager Douglas Indeje said in an interview Wednesday that a proposal to buy a stake in Gulf Power is on the table, but added the talks were still in the early stages.
“It (the deal) is still under analysis,” Mr Ideche told the Business Daily.

Gulf Power is an 80 megawatt (MW) thermal power plant based in Athi River.
Should KP RBS buy a stake in the energy firm, it will join the International Finance Corporation (IFC) as
one of the investors behind the firm.

In November IFC injected Sh2.17 billion (€20.7 million) in Gulf Power and arranged for an equal amount in debt financing from Standard Bank.

Mr Ideje said the talks were still at the stage where the retirement fund is evaluating whether the deal will match the retirement scheme’s required rate of return.

The deal also has to be approved by the industry regulator, the Retirement Benefits Authority (RBA).
“The RBA still has to give us permission and we have not yet reached that stage,” said Mr Ideje.
Gulf Power is owned by Gulf Energy Limited, an oil and gas trading company, and by Noora Power Limited, two Kenyan companies.

Gulf Power had not responded to our requests for comment by the time of going to press.
The investment could be KP RBS’s second in an independent power producer (IPP).The scheme has an equity stake in the 108.5 MW Iberafrica IPP.

In neighbouring Tanzania, state-owned National Social Security Fund is developing a 150MW gas-fired power plant that will sell power to Tanzania Electric Supply Company.
Energy is becoming an attractive sector for pension funds which are looking to diversify their portfolio
beyond stocks and bonds.

Long-term cash flows generated by the projects match the financial obligations of funds, which are also long-term, and typically energy projects have state backing which reduces the investment risk.

At a pensions investment conference early last month in Naivasha, PineBridge Investments chief executive Jonathan Stichbury said that power and energy joins property as new areas trustees are investing in.
“They (Trustees) are going to be very interested in any new proposals that come their way particularly in the power, energy and property sectors as they look and try and maximize returns for their clients,” said Mr Stichbury.