MULTILATERAL DEVELOPMENT BANKS’ COLLABORATION: INFRASTRUCTURE INVESTMENT PROJECT BRIEFS Kenya: Thika Power Overview In Kenya, where only 25 percent of the population has access to electricity, the African Development Bank (AfDB) and the World Bank Group are supporting the government’s Least Cost Power Development Plan, which calls for an increase in the number of independent power producers (IPPs) and a more diversified energy mix. The program benefits from a combination of financing from the AfDB, guar- antees from IDA, financing from the International Finance Corporation (IFC), and guarantees from Multilateral Investment Guarantee Agency (MIGA). These instru- ments are playing an important role in increasing investor confidence and mobiliz- ing the long-term financing needed to construct power plants. The Thika power plant was the first plant to be commissioned under the plan. This series showcases how the Multilateral Development Banks’ collaboration supports the development and implementation of infrastructure investment. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. - MULTILATERAL DEVELOPMENT BANKS’ COLLABORATION: INFRASTRUCTURE INVESTMENT PROJECT BRIEFS - APRIL 2016 KenyaThikaPower_WBG__AfDB.indd 1 4/6/2016 4:33:05 PM Background Multilateral Development Banks’ Role Kenya has historically relied on hydropower for the bulk of its The project benefited from: power generation. But during times of drought, when hydropower • An AfDB investment of €28.1 million in Thika Power Ltd. drops in supply, Kenya has had to turn to costly emergency diesel- fired plants. To avoid this, the government wanted to develop a • MIGA-issued guarantees of up to $61.5 million covering ABSA series of thermal and renewable IPPs to replace the expensive, Capital of South Africa’s non-shareholder loan (including estimat- diesel-fired rental power plants currently in use. It is envisioned ed swap exposure) to Thika Power Ltd. in Kenya. The guarantees that subsequent IPPs will use only low-carbon resources such as will have a term of up to 15 years, providing coverage against the geothermal and wind, and the thermal plants will transition to risk of breach of contract. peak-load operation. • A further guarantee through an IDA partial risk guarantee to The challenge for the government was attracting investors cover short-term liquidity. and lenders to deliver the program in the absence of sovereign • An IFC investment of €28.1 million in Thika Power Ltd. guarantees, which were not possible under an agreed-on International Monetary Fund program. Outcomes The Least Cost Power Development Plan is expected to move Project Description Kenya away from a reliance on hydropower, alleviating power The first IPP to be implemented under the program was the shortages that have hampered economic growth in Kenya. The Thika Power Project. The Thika project is a result of the Kenyan government goal is to triple the national electricity supply of government’s 2009 tender of three power plants, to encourage dependable energy to 3,000 MW by 2018, with emphasis on the private sector participation in electricity supply. The project development of alternative power sources—especially geothermal. consists of the construction (on a build, own, and operate basis) of This project is a step in this direction. an 87 MW heavy fuel oil plant located at Thika, approximately 35 kilometers from Nairobi. For more information please contact: Melec PowerGen Inc. (an affiliate of the Matelec Group of World Bank Group: Nadine Ghannam Companies from Lebanon ) was awarded the contract following Email: Nsghannam@worldbankgroup.org a competitive bidding process. The total project cost is estimated African Development Bank: John Phillips at $153 million. Thika has entered into a 20-year power purchase Email: j.phillips@afdb.org agreement with Kenya Power, to which it will sell all its output. Heavy fuel oil plants offer a viable and lower cost alternative than diesel-fired plants to address the short-term energy deficit in Kenya, given the relatively long development period of other sources like geothermal energy and coal. Over time, as more renewable energy plants come online, the heavy fuel plants are expected to transition from base to peak-load operation. Photo Credits Front: Christopher T. Cooper/Creative Commons license, creativecommons.org/licenses/by/3.0/deed.en Melec Power Gen Minority (BVI) investor Govt. of Kenya Letter of Support Indemnity Loan under “Common Terms Agreement” Guarantee AfDB Thika Power Ltd. L/C Bank Reimbursement L/C Agreements Power Purchase ABSA Capital Agreement KPLC EPC O&M Contract MAN Diesel + MAN Diesel + Melec Power Gen Turbo France SAS Obligor Guarantee holder afdb.org @AfDB_Group ifc.org @IFC_org miga.org @MIGAWorldBank worldbank.org @WorldBank KenyaThikaPower_WBG__AfDB.indd 2 4/6/2016 4:33:07 PM