World Bank has announced plans to leverage $400 Million to Thika Power to increase Kenya’s electricity generation capacity by 87 mega watts.
This is the first project under the series of Partial Risk Guarantees (PRG) of $166 million from the World Bank’s International Development Association (IDA). The series targets 285 megawatts to stimulate economic growth and improve competitiveness in the sector.
Representatives from the Government, Kenya Power, Citibank and the World Bank yesterday signed agreements yesterday between. The project will add 87 megawatts of capacity and the electricity it will produce will be purchased and distributed by Kenya Power.
The investment is supported by the Kenya Private Sector Power Generation Support Project, which will provide a series of Partial Risk Guarantees (PRG) of $166 million from the World Bank’s International Development Association (IDA).
“The PRG is an innovative approach to leverage private sector investment to meet Kenya’s power generation needs,” said Johannes Zutt, World Bank Country Director for Kenya.
“It will enable Kenya to attract private investment in the energy sector, bridging critical financing gaps from public sector funding.” The Bank’s PRG instrument for the four private power producers was approved by the Bank’s Board of Executive Directors on February 28, 2012, to help expand reliable power supply to domestic and industrial consumers, reducing constraints to growth and creating jobs.
These PRGs are expected to leverage private investments of almost $400 million in Thika Power and three other private power generation projects—Triumph Generating Company, Gulf Power, and the expansion of Or Power 4 geothermal project.
“The PRGs will enable Kenya Power to mobilize long-term commercial financing to purchase electricity from the private independent power producers,” said Pankaj Gupta, the Sector Manager of the World Bank’s Financial Solutions Unit, which specializes on guarantees.
Funding sources will include the African Development Bank, ABSA Capital of South Africa and the Bank’s affiliate, the International Finance Corporation (IFC). In addition the Multilateral Investment Guarantee Agency (MIGA) of the World Bank will be providing termination guarantee of around $49 million in support of the commercial finance provided by ABSA Capital. Citibank London will also provide letters of credit in support of the project.
“These investments will support Kenya to rapidly build up its power generation to address short-term constraints of severe power shortages on development,” said Karan Capoor, the Bank’s Task Team Leader of the project. “It will also diversify Kenya’s power mix, reducing the present high dependency on unreliable hydro electricity and expensive emergency diesel plants.”
The government’s plan is to increase private sector participation and utilize low carbon resources such as wind and geothermal to increase electricity generation capacity by an additional 2,000 MW in the medium term. The additional power will contribute to Kenya’s Vision 2030 strategy of expanding electricity access to 40 percent of the population from about 30 percent in 2012.
Kenya’s energy investment program is in line with the Bank’s Country Partnership Strategy for Kenya and its Africa Strategy, which identifies mobilizing private capital for infrastructure development as a key pillar of Africa’s development.
The writer is a Communication and Journalism Student, Moi University