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Nov 23, 2012

KenGen pursuing PPP plan in bid to exploit geothermal opportunity

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Power utility Kenya Electricity Generating Company (KenGen) has decided to resort to public–private partnerships (PPPs) in implementing mega geothermal projects owing to the colossal financial resources required.

The company has realised that raising a staggering $4.5-billion to finance power plants to generate an estimated 1 200 MW in the Olkaria field would be a tall order.

“KenGen plans to develop up to 560 MW of geothermal power plants at the Olkaria field in phases of 140 MW each through PPPs,” the company says.

KenGen says the partnerships it is seeking will take the form of joint ventures (where the partner would be the majority shareholder) or energy conversion agreements (where KenGen would provide steam to a build, own, operate and transfer contractor).

In both arrangements, the successful companies that would be selected through a competitive tendering process would be required to design, finance, supply, construct and operate the power plant for 10 to 20 years.

To be considered, interested companies must have net assets of at least $300-million and must demonstrate that they have raised funding of at least $100-million for an infrastructure project. Further, they must have a minimum of five years’ experience in developing geothermal power plants.

The PPP route makes it easy for KenGen to build the power plants within a government-stipulated timeframe without exerting further pressure on its bottomline and without seeking Ministry of Finance-guaranteed loans from international financiers.

If it proceeds along this route, KenGen will join the State-owned Geothermal Development Corporation, which has been seeking equity investors to fund the development of 800 MW of generation capacity in the Menengai field.

KenGen, which generates about 80% of Kenya’s electricity, is already feeling the burden of a ballooning loan book after raising $900-million from international financiers including the World Bank, the German Development Bank (popularly known as KfW), the European Investment Bank, the French Development Finance Institution and the Japan International Cooperation Agency to construct the 280 MW plant.

The plant, being built by a consortium comprising Tsusho Corporation, of Japan, and Hyundai Engineering & Construction, of South Korea, has a price tag of $1.3-billion. The plant is expected to be commissioned in 2014.

Studies by the company show the greater Olkaria geothermal field, which is located 120 km from Nairobi, has potential to generate 1 200 MW, yet only 207 MW has been developed.

Since 2006, KenGen has drilled a total of 63 wells with a steam capacity equivalent to 442.7 MW. About 320 MW of the steam is being dedicated to the 280 MW plant and the company has put in place a detailed drilling programme for steam for the 560 MW plant.

Kenya, East Africa’s largest economy, has set itself a target of generating at least 5 000 MW of electricity from geothermal by 2030, in line with the Vision 2030 master plan, which aims to transform the country into a midlevel economy.

The country has identified more than 14 high-potential sites along the Rift Valley that can generate between 7 000 MW and 10 000 MW.

Edited by: Creamer Media Reporter

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