World Bank agencies delay Lake Turkana wind project

On paper, Africa's largest wind power project seems relatively straight forward - 365 wind power turbines to be erected over 24,000 acres in Turkana and a 400kilometre transmission line to ferry the generated power to connect to the national grid at Suswa. In reality, as the Kenya government and state energy corporations involved are finding out, getting the project off the ground is far more difficult and it is now clear it will not commence next month as initially expected.

The delay has been occasioned by international financiers who are to fund the Sh80billion project who want certain assurances before they sign onto it. Essentially, they boil down to two things; one, power distributor Kenya Power stands to incur heavy penalties if it is unable to take up power from the wind farm. This could happen if the power plant is ready and the transmission line is not or the transmission line could experience other problems including vandalism and acts of God that prevent evacuation of power. Investors want to be covered.

The second issue is whether Kenya Power can be relied on to buy the power generated by the wind farm under the contract it has with the producer, that is to make regular payments as agreed. These demands have triggered a series of events that have ultimately led to the involvement of the World Bank Group and two of its agencies; the Multilateral Guarantee Investment Agency and the International Development Agency.

Kenya Power asked the Kenya government to provide the guarantees demanded and the government in turn brought in the World Bank. Another state-owned entity, the Kenya Electricity Transmission Company, has been drawn into the issue because how it performs in putting up the transmission line from Loiyangalani to Suswa directly affects the risks Kenya Power faces.

To start with, the project has two separate components each funded by different bodies; the wind power plant which will cost Sh62billion and is lead financed by the African Development Bank and the Sh15bn transmission line funded by the Spanish government and implemented by the Kenya Electricity Transmission Company.

Being independently financed, the danger is that the power plant may be completed ahead of the transmission line opening up Kenya Power to stiff financial penalties it will owe Lake Turkana Wind Power company. "The government of Kenya and Kenya Power were supposed to provide certain securities towards our lenders, the African Development Bank," the chairman of Lake Turkana Power Carlo Van Wageningen said. "The Kenya government requested the intervention of the World Bank to assist in providing them such securities."

A spokesman from the World Bank writing through the Kenya country office said MIGA has ben asked to provide investment guarantees that will act as insurance cover for lenders and possibly shareholders in case certain specified events arise. IDA which is better known for funding roads and energy projects in Kenya will backstop payment obligations that Kenya Power has to make to LTWP under their power purchasing agreement.

Under the MIGA guarantee investors would want to be covered for political risks including change of government that could bring in different policies including things such as the power tariffs regime. "When you look at the PPA with Kenya Power and Lake Turkana people, there are some severe penalties if the plant is ready and KPLC cannot take the supply and one of the reasons they may not be able to take the supply is if we delay with this line," Engineer Joel Kiilu, the director-general of Ketraco told The Star on phone. "If that penalty kicks off, Kenya Power will really suffer so (they) asked the government to see if that penalty risk can be covered and it is the World Bank which was approached to provide that cover just in the event if that took place."

Kenya Power officials had little to say when contacted only indicating that certain negotiations are ongoing. "I am made to understand that the issues you raised are matters that are under negotiation between LTWP and Kenya Power and have not been concluded," Migwi Theuri, the Kenya Power spokesman told The Star by email.

The projected timelines for both projects sheds light on the power utility's concerns. The construction of the transmission line is supposed to take 23 months while that of the power plant 26 months. If both commence at the same time, Kenya Power has only a buffer of three months within when it should have started taking power.

Concerns have now arisen as to whether the transmission line can be done in that time and government officials are hinting at renegotiating the deadlines. "The contract for the transmission line was signed, but it had very tight completion deadlines and therefore it is being reviewed with a view to extending the period so that the power station will not be completed ahead of the line. So that will be resolved," Energy permanent secretary Patrick Nyoike told The Star. "If the power station is ready and the transmission line is not ready, then the producer of the wind energy, will be entitled to compensation. We need to synchronize the timing for completion of the wind power and the transmission line so there will be no claims."

Ketraco confirmed it had received a request from Kenya Power to relook at its completion dates to make sure they are feasible. An Indian-firm, Power Grid, has been asked to review the contract Ketraco has with Isolux and has issued two reports with the final one expected soon. "Actually, those completion dates were very tight so one of the things Power Grid was looking at was those dates, are they realistic?" Eng. Kiilu said.

Funding for the line meantime is expected soon. "The communication we got from the Economic Counsellor of the Spanish government was that the Spanish government had approved that loan worth 100million euros," Eng. Kiilu said. Kiilu said Ketraco is waiting communication from Spain so that Treasury can look at the loan agreement Once it is signed, Ketraco will give final notice to proceed to Isolux. "On our side we are going on with wayleave acquisition. We are now talking to the counties so that when they hit the ground, they find that the land is clear," Kiilu said.

LTWP's Wageningen expresses confidence that the whole approval process could be through soon. "The World Bank has an internal process that is sometimes a bit lengthy because it needs to review and properly analyze the risks involved and that is what is taking some time but the process is nearing completion, hopefully by the end of this month and the middle of June, the process will be complete," he said.

But statements from the World Bank indicate the process could take much longer as the multilateral lender seeks an exhaustive mitigation of all risks. "At this time, we can only confirm that the Government of Kenya has requested the Bank's assistance in the manner described above, because timing of Board presentation depends on a range of factors including pipeline of projects, the technical team's appraisal assessment, etc," the World Bank spokesman said. "As a guarantor, the Bank will conduct its appraisal once the parties confirm that the arrangements are in place."

The lead financier, African Development Bank in the meantime has to wait before it can bring in syndication partners. " It is a complex project and we are working together with sponsors and the Kenya government and Kenya Power to make sure that the project is structured correctly, the right technology is used," Ewan Wheeler, who heads the private sector department at the AfDB regional office in Nairobi told The Star.