AfDB approves another Sh2.4bn for wind power

Lake Turkana Wind Power chairman Carlo van Wageningen (left) and Vision 2030 director-general Mugo Kibati at the signing of an agreement for the energy project in Nairobi last year. FILE 

By John Gachiri,

In Summary

• Lake Turkana Wind Project to start in April with African development financier’s backing.
• AfDB will partially guarantee construction of the 428-kilometre Kenya Electricity Transmission Company (Ketraco) transmission lines from base stations to the national grid.
• This brings the pan-African development financier’s total exposure in the project to Sh16 billion inclusive of an earlier development loan.

Work on the Sh71 billion Lake Turkana Wind Project (LTWP) is set to start next April after the African Development Bank (AfDB) issued €20 million (Sh2.4 billion) guarantee for part of the project.

AfDB Thursday said it would partially guarantee timely construction of the 428-kilometre Kenya Electricity Transmission Company (Ketraco) transmission lines from base stations to the national grid, eliminating a key concern that saw the World Bank back out of the project.

This brings the pan-African development financier’s total exposure in the project to Sh16 billion inclusive of an earlier development loan.

LTWP had initially expected work on the 300 megawatt plant, the largest of its kind in Africa, was to begin once the World Bank gave a partial risk guarantee, meant to protect investors in the event the project fell behind schedule and thus failed to generate income.

The Bretton Woods twin however pulled out of the project in late 2012 and the guarantee vacuum now has been filled by the AfDB.

“The WB was going to provide the Partial Risk Guarantee (PRG) this has been replaced with the PRG the AfDB has just approved,” said Lake Turkana Wind Power chairman Carlo Van Wageningen.

The World Bank was to guarantee the project through it two arms, the International Development Association (IDA) and the Multilateral Investment Guarantee Agency (Miga).

Besides the transmission line concerns the bank had claimed the power purchase agreement with Kenya Power would be unfair to consumers as they would have been forced to pay for the excess power.

The project is expected to produce the first 50 megawatts by March 2016 with full production expected a year later. Electricity produced from this project will be sold to the national grid at Sh8.86.

Financing of the project should be completed by the end of the year and the AfDB said that the fresh guarantees will make investors more comfortable, increasing chances of meeting the €600 million target.

“By reducing the risk profile for the sponsors of and lenders to the Lake Turkana project, the partial risk guarantee will accelerate financial closure and reduce the overall cost of capital to the project,” said AfDB acting director Energy, Environment and Climate Change Department Kurt Lonsway.

The AfDB, Standard Bank and Nedbank Capital are the lead transaction advisors in the project.

The AfDB has previously invested in the project through a €115 million loan (Sh13.6 billion). The Spanish and Kenyan governments are to fund the construction of the 428 kilometre line through loans amounting to Sh16.8 billion.

Analysts agreed the guarantee should reduce the risk of the project which is common in large-scale projects.

Francis Mwangi, head of research at Standard Investment Bank, said investor guarantees are similar to underwriting, which are meant to calm investor nerves. “If the project fails you will be paid by the guarantors,” said Mr Mwangi.