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Wednesday, 17 October 2012

More delays for Wind Power Project in Kenya

A few months ago I wrote an article “Wind Power in Kenya why all the delays?”, the article explored the reasons behind the delayed implementation of the 300MW Lake Turkana Wind Project (LTWP) and other wind projects in Kenya. Reading an article in today’s Business Daily these delays are bound to persist.  

This is after the World Bank Group withdrew its support of guaranteeing the project through a Partial Risk Guarantee that mitigates the project against perceived political and operational risks via its underwriter, the Multilateral Insurance Guarantee Agency (MIGA).

According to the Business Daily article a spokesman for the project a Mr. Peter Warutere said “The World Bank will not offer guarantees for energy payments under the power purchase agreement or to cover termination obligations to project lenders and equity holders,” 

While the World Bank Group communicated that “After extensive discussions between the World Bank Group and the project, the bank reached the conclusion the LTWP project, as currently proposed, is not a good fit for it. We have informed the government and the project sponsors of this decision,”  

The Ministry of Energy, Kenya is not clear on the way forward in terms of supporting the implementation of this key project, now that the World Bank Group has withdrawn their support.

There seems to be a stalemate around the terms of the Power Purchase Agreement (PPA). Safeguards within the agreement  should protect both debt and equity investors that the MIGA agency will pay the investors, if for an unfortunate political or operational reason Kenya Power Ltd(Local utility) is unable to buy the power generated by the project.

This project is being watched closely as it’s a benchmark of how large renewable energy projects may be implemented in Kenya going forward. The Project is also classified as a Vision 2030 flagship project.

It’s unfortunate that challenges keep popping out of the woodwork before this project has taken off. The current challenges relate mainly to the perception of the business climate in Kenya. A lot needs to be done to change this, which should eventually reduce the risk perception and make projects like the LTWP easier to implement.