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Private Menengai projects delayed until mid-2017

Geothermal well at Menengai, Kenya (source: flickr/ ScientificDrilling)
Alexander Richter 9 Sep 2015

The private IPP projects at Menengai of Sosian Energy, Quantum East Africa and OrPower 22 are delayed by around 2 years, due to the failure of governmental and other stakeholders to provide partial risk guarantees in time.

Earliers this week, Standard Media from Kenya reports that the Sh25.5 billion ($210 million) construction of three geothermal power plants in Menengai, Nakuru County, will be delayed for about two years.

“The setback in the 105 megawatts project has been caused by the Government and other value chain players’ failure to provide Independent Power Producers (IPPs) with the necessary documents, project stakeholders have said. The Government said the project would have been completed by December, but in the absence of documentation, the likely completion date is now June 2017.

Risk guarantees

The project was expected to give 500,000 households and 300,000 businesses access to low-cost power under the Government’s 5,000MW initiative.

However, the Government, African Development Bank (AfDB), Kenya Forest Service (KFS) and Energy Ministry are yet to provide partial risk guarantees, letters of support, sub-leases and power generation rights to the companies contracted last year to produce power to boost the national grid. During the launch of a pilot project on direct utilisation of geothermal power in Menengai last week, Energy Principal Secretary Joseph Njoroge confirmed the project has been delayed as IPPs are yet to receive the necessary permissions and guarantees. The documents are supposed to offer the companies protection against any political upheavals, enhancing ownership of the project. The partial risk guarantee additionally covers the Geothermal Development Company (GDC) in case of loan defaults. In October last year, the AfDB board approved a $12.7 million (Sh1.3 billion) partial risk guarantee for the project, which also mitigates the risk to IPPs — and the providers of debt financing to the producers — of non-payment from State-owned Kenya Power, and non-supply of steam from GDC. Mr Njoroge, however, said the Government and other project stakeholders are working together to ensure the documents required to set up the Menengai power plants are made available soon. AfDB is supposed to produce the partial risk guarantees, the Treasury the letters of support, and KFS the sub-leases. The Energy Ministry is working on generation rights to give the private-sector players full authority over the project. “We are keen on avoiding scenarios, such as the one that nearly halted the Kinangop Wind Power project. The documents the IPPs need to start the project will be given out soon,” Njoroge said.

GDC Acting Managing Director Godwin Mwawongo also moved to calm fears that the project has stalled, saying all required documents would be issued.

However, once the necessary documents are handed over to the IPPs, it will take them an average of 18 months to complete the three projects. This means the earliest the country can enjoy the power is in second quarter of 2017. The Government had last year said boosting the national grid with 105MW of electricity would save the country about Sh13 billion in fuel levies a year. In November last year, GDC handed over three geothermal power sites to the three IPPs — Sosian Energy, Quantum East Africa and OrPower 22.

The three investors, who were selected through competitive bidding in 2013, are mandated to build operate and own three geothermal plants in Menengai, each generating 35MW. Construction was supposed to have started in October 2013 to be completed by the end of last year. However, GDC said the initial stages of the project were delayed by lengthy negotiations on power purchase agreements. GDC, which is financing the drilling of more wells to boost power supply, has mined steam equivalent to 110MW, which is enough for the first phase of the Menengai project. To supply steam for the three power plants, the firm has contracted H Young to construct a steam-gathering system.”

Source: Standard Media