IISSUE NO. 3627 

  July 05 - 11, 2013


 Coastweek   Kenya

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MIGA finances construction
of Nairobi 83 MW fuel plant

the heavy fuel plant is part of Kenya’s
Least Cost Power Development Plan

NAIROBI (Xinhua) -- The World Bank’s political risk insurance arm, the Multilateral Investment Guarantee Agency (MIGA), said Wednesday it supports the construction of Kenya’s heavy fuel plant to help address frequent power outages in the East African nation.

MIGA Chief Operating Officer Michel Wormser said it will provide investment guarantees for the construction of a 83- megawatt heavy fuel oil plant, operated by Triumph Power Generating Company Limited.

“We are pleased to support this investment that will help Kenya address the severe power shortages it has been facing. Additional generation provided by the project will contribute to economic growth in the country,” Wormser said in a statement issued in Nairobi.

Wormser said the heavy fuel plant is part of Kenya’s Least Cost Power Development Plan, which calls for an increase in the number of independent power producers (IPPs) and a more diversified energy mix.

The World Bank arm will be providing 102.5 million U.S. dollars in breach of contract cover to Industrial and Commercial Bank of China and Standard Bank of South Africa for their long-term commercial financing to Triumph.

“The heavy fuel oil plant is being developed on a build, own, and operate basis approximately 25 km from Nairobi. Triumph will enter into a 20-year power purchase agreement with Kenya Power and Lighting Company,” the World Bank said.

This represents the first time MIGA has issued a contract of guarantee to a Chinese investor or lender.

The East African nation is facing twin pressure of electricity connection and generation. The interconnected installed capacity currently stands at 1,672 MW, including the 120 MW of the emergency capacity, according to Kenya Power.

The current national interconnected system peak demand is 1,330 MW. But the country is banking on several power generation projects are currently under implementation.

The company said the industry regulator, Electricity Regulatory Commission (ERC)  has commissioned a study to inform the sub- sector on new connection costs, and the findings will be ready in two to three months’ time.

Kenya Power said the new connection costs are independent of electricity use tariffs and are based on the actual financial cost of connecting a customer.

World Bank Group Through its lending and guarantee instruments, is helping to mobilize the nearly 1 billion dollars in financing required to add 600 megawatts to the grid through IPPs.

MIGA is also providing coverage for Thika Power Limited and Olkaria III, Kenya’s first geothermal IPP.

“In addition, MIGA is providing 11.1 million dollars in coverage to CfC Stanbic Bank Limited covering its swap arrangement with Triumph to hedge against long-term interest rate risk,” the statement said.

The project is further supported by a partial risk guarantee from the World Bank’s International Development Association that backstops a letter of credit from JP Morgan Bank of London.

The East African nation has historically relied on hydropower for the bulk of its power generation. During times of drought, when hydropower drops in supply, Kenya has had to turn to costly emergency diesel-fired plants.

Heavy fuel oil plants offer a viable and lower cost alternative than diesel-fired plants to address the short-term energy deficit in Kenya.

Over time, as more renewable energy plants come on line, the heavy fuel plants are expected to transition from base to peak- load operation.

Electricity utility, Kenya Power estimates that in 2012/13 electricity demand growth rate will be 4 percent based on trends recorded up to December 2012 and the economic growth forecast for the current financial year riding on on-going economic recovery.

The company projects that in the years 2013/14, 2014/15 and 2015/16, the demand growth rate will be 6 percent per year.

Of this capacity, Independent Power Producers (IPPs) will generate 851 MW while KenGen, the quasi-government listed power generator will add 397 MW.


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