96906 PUBLIC-PRIVATE PARTNERSHIPS BRIEFS Kenya: Thika Power Overview In Kenya, where only 25 percent of the population has access to electricity, the World Bank Group is 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 combina- tion of guarantees from IDA, financing from IFC, and guarantees from MIGA. These instruments are playing an important role in increasing investor confidence and mobilizing 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 World Bank Group supports the development and implementation of public-private partnerships. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. PUBLIC-PRIVATE PARTNERSHIPS - APRIL 2015 Background relatively long development period of other sources like geothermal energy and coal. Over time, as more renewable Kenya has historically relied on hydropower for the bulk energy plants come on line, the heavy fuel plants are of its power generation. But during times of drought, expected to transition from base to peak-load operation. when hydropower drops in supply, Kenya has had to turn to costly emergency diesel-fired plants. To avoid this, the government wanted to develop a series of thermal World Bank Group Role and renewable IPPs to replace the expensive, diesel-fired The project benefited from: rental power plants currently in use. It is envisioned that • MIGA-issued guarantees of up to $61.5 million covering subsequent IPPs will use only low-carbon resources such as ABSA Capital of South Africa’s non-shareholder loan (in- geothermal and wind, and the thermal plants will transition cluding estimated swap exposure) to Thika Power Ltd. in to peak-load operation. Kenya. The guarantees will have a term of up to 15 years, The challenge for the government was attracting investors providing coverage against the risk of breach of contract. and lenders to deliver the program in the absence of • A further guarantee through an IDA partial risk guarantee sovereign guarantees, which were not possible under to cover short-term liquidity. an agreed-on International Monetary Fund program. • An IFC investment of $38.3 million in Thika Power Ltd. Project Description Outcomes The first IPP to be implemented under the program was The Least Cost Power Development Plan is expected the Thika Power Project. The Thika project is a result of the to move Kenya away from a reliance on hydropower, Kenyan government’s 2009 tender of three power plants, to alleviating power shortages that have hampered economic encourage private sector participation in electricity supply. growth in Kenya. The government goal is to triple the The project consists of the construction (on a build, own, national electricity supply of dependable energy to 3,000 and operate basis) of an 87 MW heavy fuel oil plant located MW by 2018, with emphasis on the development of at Thika, approximately 35 kilometers from Nairobi. alternative power sources—especially geothermal. This Melec PowerGen Inc. (an affiliate of the Matelec Group project is a step in this direction. of Companies from Lebanon ) was awarded the contract The IDA guarantee, IFC long-term financing, and MIGA following a competitive bidding process. The total project termination coverage have optimized the use of the World cost is estimated at $153 million. Thika has entered into a Bank Group instruments, setting a standard for mobilizing 20-year power purchase agreement with Kenya Power, to investment that can be replicated to address emerging- which it will sell all its output. Heavy fuel oil plants offer a market infrastructure deficits. viable and lower cost alternative than diesel-fired plants to address the short-term energy deficit in Kenya, given the Photo (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 worldbank.org/ppp @WBG_PPP scribd.com/wbg_ppp