Kenya loses out on US $2bn Lamu coal plant deal

Kenyan loses out on US $2bn Lamu coal plant deal

Kenyan banks have lost out on the lucrative financing deal for the US $2bn Lamu coal plant project due to lack of depth from the local lenders to finance mega projects over a long period.

According to Amu Power Company, the consortium that won the tender to construct the plant the project will instead be financed through debt which accounts for three quarters , US $1.5bn per quarter, along with shareholders’ equity of US $500m.

“The local market does not have the depth in terms of quantum and the tenor. We need 15-year money or more. The local commercial banks would struggle to do 15-year money,” said Amu Power CEO Francis Njogu.

Also Read:Menengai geothermal project receives US $49m funding

Regulation limits

Central Bank of Kenya regulations limit the value of loans that banks can lend to a single individual based on their capital strength. The Kenyan energy sector regulator has however announced plans to start denominating tariffs for power projects in shillings, which is expected to raise project financing by local banks.

The project developers received a US $1.2 bn finance package from the Industrial Commercial Bank of China in February 2015, and said it was looking for the more debt funding. The African Development Bank, AFDB is also expected to provide a partial risk guarantee for the coal plant, the first in the region.

“We will be looking at environmental and human concerns surrounding the project before we make our commitment to it,” said Gabriel Negatu, the AfDB regional director-general.

LAPPSSET

The coal plant is part of the planned Lamu Port South Sudan-Ethiopia Transport (Lapsset) corridor and is set to place Kenya among African nations that use coal energy such as South Africa. Its electricity will be priced in the same range as geothermal power at 7.52 US cents per unit, almost a third of what diesel-fired plants charge on average. Construction has, however, suffered delays since 2015.

The Energy ministry reckons that the coal plant would help diversify Kenya’s power mix and drive growth. At 1,050 MW, the proposed coal plant is equivalent to 44 % of Kenya’s current installed capacity of 2,400MW.

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