Markets & Finance

Athi River Mining now enters financing deal to produce own power

arm

Athi River Mining. ARM is seeking to cut high energy costs that have been eating up its gross margins and ensure stable power supply. Photo/File

Cement manufacturer Athi River Mining (ARM) has entered into a financing agreement with Aldwych International Ltd, a specialist in power projects, to fast-track its coal-fired plant.

ARM is seeking to cut high energy costs that have been eating up its gross margins and ensure stable power supply. Besides firing its plant, the balance will be sold to the national grid.

“We already have power purchase agreement (PPA) for 33 megawatts, but we are negotiating with the Ministry of Energy to increase that to 66 megawatts now that we have partners,” said ARM’s chief executive Pradeep Paunrana.

Mr Paunrana said the installation of a 66MW plant was estimated to cost Sh8 billion ($95 million) over a period of two years.

ARM will join a list of other companies in the country that have decided to produce their own power in order to reduce costs and ensure consistent supply.

READ: Sasini plans hydro power plant to cut electricity expenses

Power fluctuates with rainfall patterns owing to the country’s overreliance on hydro-electric power. ARM said that its Kaloleni cement plant suffered 93 power outages last year.

Energy costs in the country have been listed as one of the factors discouraging the setting up of production factories in the country with companies opting for Egypt and South Africa.

Economic activities requiring energy input have also grown at a faster rate than the investment in energy production, leaving a yawning gap between its supply and demand.

Current generation mix stands at 719MW hydro, 163 MW geothermal and 407 MW thermal power--including 120 MW capacity of emergency producers.

The installed capacity is estimated at 1,400 MW against peak demand of 1,300 units, but frequent breakdown of machines or routine maintenance has seen the reserve margin dip to negative zone.

Last month, Sasini Ltd announced plans to set up a mini-hydro-electric power plant to run its coffee milling plant in Ruiru.

Mumias Sugar Company runs a 28 MW power project using fibrous waste from sugar cane, referred to as bagasse.

“This not only reduced clinker production volume and efficiency of our plant, but led to increased maintenance costs,” said Mr Paunrana of the power outage.

Last year, the cement producer was in the cross hairs of the environment regulatory agencies a factor that the MD also attributed to power outages.

He said that the outages impaired the emission monitoring and control equipment at the cement plant. A report by Standard Investment Bank (SIB) identifies volatility in cost of energy as one of the major challenges facing the cement industry and states that it contributed to the industry margins declining for the fourth straight year.

“Averaging between $90 and $105 (Sh7,560-Sh8,820), cash cost per ton in the region remains high; driven by high energy costs and dependence on imported clinker” said SIB.