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Kenya looks to private investors for new coal plant project

Out-Law News | 28 Mar 2014 | 1:57 pm | 2 min. read

Kenya’s energy and petroleum ministry has issued a call for tenders from private investors to build a coal-fired plant in the country’s eastern Kitui county.

The proposed 900 to 1,000-megawatt Kitui plant, which the ministry expects to be built by December 2016, would be required to use coal from Kenya’s Mui basin – which the ministry said has estimated deposits valued at more than $40 billion.

Proposals for the plant are part of Kenya’s ‘Vision 2030’ infrastructure development programme, aimed at making the country more attractive for investment by increasing domestic energy supply and achieving an annual “sustained economic growth” target of at least 10%.

The Kitui project will be based on a ‘build-own-operate’ basis or ‘build-own-operate-transfer’ – with the transfer carried out after “full amortisation of the capital investment framework” – the ministry said. Tenders must be submitted by 3 April 2014.

The company selected to develop Kitui will be required to buy coal under an arrangement with the concessionaire of blocks ‘C’ and ‘D’ of the Mui basin and the government. Chinese company Fenxi is the blocks’ concessionaire, according to China’s state run news agency Xinhua.

Kenya’s government wants to work with private investors to increase overall domestic electricity generating capacity by 5,000 MW by 2016. It is envisaged that this capacity will be made up of natural gas-fired plants [1,050 MW], geothermal [1,646 MW], wind [630 MW] and coal [1,920 MW].

The tender for a second coal-fired plant at Lamu, which will initially use imported coal, is already under way. Ten companies have pre-qualified for that project and have been sent formal requests for proposals, the ministry said.

Power generated from both coal-fired plants will be sold to the Kenya Power & Lighting Company Limited under long-term power purchase agreements.

Power generation in Kenya has been liberalised since 1996. According to the energy ministry, independent power producers contribute about a third of the country’s domestic generating capacity – which stands at just over 1,600 MW and comprises hydro [770 MW], geothermal [241 MW], thermal [622 MW], co-generation [26MW] and wind [5MW]. The maximum recorded demand is around 1,410 MW, while the ministry said actual demand is estimated at 1,700 MW – a shortfall of 536 MW after provision of a 30% reserve margin.

According to figures from Kenya’s finance ministry, the country’s total infrastructure investment needs for the period 2012 to 2020, including the energy sector, amount to more than $62bn. However, with government allocations estimated to be some $25bn, there is a funding gap of $37bn.

The World Bank has said Kenya has the “opportunity to achieve higher, more sustainable growth if it increases investments in infrastructure”. As of 2012, the bank had a portfolio of $2.8bn in Kenya invested in 21 national and 6 regional projects, with the largest share of commitments [83%] covering the transport, energy, water, urban development and agriculture sectors. The bank has invested an additional $316 million through the International Finance Corporation and $149m in insurance cover by the Multilateral Investment Guarantee Agency to five private investment projects.