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The East African : March 31st 2014
The EastAfrican OUTLOOK MARCH 29 - APRIL 4, 2014 ENTIRE COST OF PROJECT COVERED $858m gets L Turkana wind power plant moving AfDB to the ≥escue with fi≥st eve≥ gua≥antee as Wo≥ld Bank ≥ed flag igno≥ed By WASHINGTON AKUMU The EastAfrican A s what the invite had aptly dubbed “financial closure” for Lake Turkana Wind Power (LTWP) took place at a Nairobi hotel this week. LTWP chairman Carlo Van Wageningen’s eight-year dream of a 300MW wind-based power project in Kenya’s arid north was finally coming true. The signing of funding agree- ments totalling $858.12 million between LTWP and financiers last week means that the project, which would be Africa’s biggest wind farm, is back on course. The financing deals, headlined by African Development Bank as lead arranger, cover the entire cost of the venture. In what an expert in devel- opment finance described as an “unprecedented first,” AfDB provided, through the government of Kenya, a $27.54 million guarantee against the risk of delays in the construction of the transmission line linking the project to the national grid, thereby giving LTWP’s lenders the necessary level of confidence. The guarantee had been set as a condition by the financiers to the government and LTWP. The reasoning was that the project could only be viable and sustain the cash flows necessary to repay the debt if the power generated got to the market, hence the importance of the transmission line. The Kenya Electricity Trans- mission Company (Ketraco) is set to build a 428km 400kV transmission line between Loyangalani, where the project is located, and Suswa on the floor of Kenya’s Rift Valley, to join the national grid. Kenya received Ksh15 billion ($170.3m) in funding for this component of the From left: Kenya Power MD Ben Chumo, LTWP chairman Carlo Van Wageningen, Ministry of Energy PS Joseph Njoroge and regional director of AfDB Gabriel Negatu during the signing of financing documents on March 24. Picture: Diana Ngila project from Spain. “We are proud to note that the Kenyan government is the first country to take up a partial risk guarantee (PRG). It not uncommon that complex projects of this nature will require guarantees and assurances from government in order to attract private investment,” said Gabriel Negatu, AfDB’s director for the Eastern Africa Resource Centre based in Nairobi. So why would AfDB support a project whose viability was once questioned by the World Bank? “Our confidence in the project is based on feasibility studies that we have done over the years, and a detailed appraisal of the wind farm, which includes among other issues, technical due diligence,” said Mr Negatu. The guarantee by AfDB led to the high number of direct foreign investors (DFIs) and private financiers that lined up this week to invest in the project. They include the European Investment Bank (EIB), DEG (German), Proparco (French) and FMO (Dutch). Regional DFIs also took part, with PTA Bank and East African Development Bank (EADB) investing in the project as did South African banks Standard Bank and NedBank. A number of funds have also taken up equity in the firm. RENEWABLE POWER The Lake Turkana Wind Project will comprise 365 wind turbines (each with a capacity of 850 kW), the associated overhead electric grid collection system and a high voltage substation. The project also includes upgrading of the existing road from Laisamis to the wind farm site, a distance of 204km, as well as an access road network in and around the site for construction, operations and maintenance. “The participation of AfDB, EIB and many other DFIs and commercial banks that have committed and signed loans to LTWP for a total of €498 million ($685.9 million) is testimony to the technical, economic and financial soundness of LTWP,” Mr Wageningen told The EastAfrican last week. But things have not always been this straightforward. Last October, the project was as good as buried. The World Bank declined to provide a guarantee to the project, after it was approached by the Kenyan government. The Bank issued a statement announcing its withdrawal from the project. Believed to have been at issue The proposed site was selected following an extensive survey of the region focusing on environmental, social and sustainability, technology and commercial considerations, including the remoteness of the area, the strength and stability of the winds, proven technology, benign environmental setting, low population density, security of the area, fresh water availability and road accessibility. was the project’s viability on two fronts; whether the transmission line would be completed in time, and the capacity of consumers and electricity utility, Kenya Power, to take up the 300 MW that the project would add to the national grid. “The WB stands alone in its decisions and red flag, and they are entitled to their opinions. We simply disagreed with their findings and moved on. We have AfDB to thank for carrying us over that hurdle,” said Mr Wageningen. With the funding side sorted, the pressure now shifts to Ketraco to deliver the transmission line within deadline and ahead of the power plant. The organi- 39 sation says it can have the line ready in 22 months. “We are yet to start con- struction but the contract has been signed. Compensation to persons affected by the project is ongoing. Houses and structures are 90 per cent complete. Land compensation starts in April 2014,” said John Mativo, the chief manager in charge of planning and development at Ketraco. The company feels the AfDB partial guarantee protects it financially should there be any delays. From the LTWP side, Mr Wageningen will be hoping everything goes smoothly from here. “What is paramount is that the construction starts by the time we start working on the wind farm and the rest of the plant. Hopefully, notice to proceed will not delay further. We intend to produce the first 100MW in mid-2016, and full completion in the first quarter of 2017,” he said. The AfDB’s ability to assemble funding for the LTWP, which has been dubbed the largest private investment in Kenya’s history, signals an increasingly assertive institution. It also shows that the stature of the World Bank is diminishing, considering that the Bretton Woods institution used to be the final authority on project finance in the region. AfDB recently launched a $200 million fund for renewable energy projects in Africa. The World Bank spokesman Peter Warutere declined to comment for this story. The LTWP is a key component of Kenya’s plan to generate 5,000 MW of electricity as outlined in its Vision 2030 blueprint. Its own contribution will be a material 20 per cent of current installed capacity. The power generated from wind will be sold to Kenya Power at $0.36/kWh, half of the current rate, which could lead tocheaper power. The project also stands to save Kenya up to $150 million a year in foreign currency currently used to pay for fuel. Dono≥ aid cuts could ≥eve≥se Uganda’s gains in fight against HIV By BARBARA AMONG Special Correspondent THIS WEEK’S suspension of aid by the US, Uganda’s biggest HIV/Aids and security financier, could hurt gains made in the fight against the Aids pandemic as they target critical aspects of ongoing efforts to stem the spread. But perhaps careful not to tip its military programmes with Uganda, the US made largely symbolic cuts to its military engagement with the country. In announcements on Monday, as the Obama administration took the first steps to punishing Uganda for enacting a law criminalising homosexuality, the US suspended funding for a pending HIV survey intended to map at-risk populations like sex workers, men who have sex with men, and bisexuals. Understanding the trend within these marginalised minorities is considered important as they represent latent reservoirs from which the virus could spring another epidemic. US State Department spokeswoman Marie Harf said the survey was being suspended because proceeding with it would expose both staff and respondents to risk under Uganda’s anti-gay law. According to Asuman Lukwago, the Per- manent Secretary in Uganda’s Ministry of Health, the cuts will “have a significant impact since it is not only the US cutting aid. The World Bank has cut about $90 million meant for rehabilitation of major hospitals, and the Global Fund has suspended a Ugandan doctor who was a board member.” An earlier suspension by donors has seen Uganda run out of HIV/Aids testing kits. Health practitioners say the suspension of funding will affect access to health care services by Ugandans. Most at risk are 500,000 people who are on HIV/Aids treatment, with 70 per cent funding coming from donors. “We shall find a mechanism of dealing with the gay people because we cannot discriminate against them. We are coming up with guidelines to handle those who are homosexuals,” said Dr Lukwago who did not give details citing doctor-patient confidentially. There is an ongoing engagement between the government and donors to reconsider their suspension of funding to the health sector, Dr Lukwago said. Uganda’s health sector gets about $320mil- lion in aid annually. The country has traditionally been one of the largest recipients of international aid.
March 24th 2014
April 7th 2014