Donor fund hitch spells doom for electricity sector

Kenya’s wavering energy sector may find it harder to access financing, which may lessen the chances of a quick solution to the pricing crisis in the domestic economy.

While the government is looking to borrow Sh205 billion over the next five years to secure its electricity needs, donors say they are not keen on spending money on traditional power financing projects such as hydro plants, transmission line and rural electrification.

This donor position, coupled with tighter credit lines in the wake of the global economic meltdown could complicate the government’s fund-raising efforts.

The power deficit and the high cost —which has increased by 60 per cent since March — have been attributed to under investment in the sector and delayed completion of new low cost power projects.

The Government on Thursday said it would raise Sh168 billion out of the Sh373 billion required and ask donors to raise the rest Sh205 billion.

But development partners including European Investment Bank (EIB), Japan International Cooperation (JICA) and French Agency for Development (AFD) say this effort could run into problems as they were unlikely to be enthusiastic about it.

“The energy scale up project is a noble one, but the government might face challenges in getting cash as fast and in the size it desires,” Kurt Simonsen, the head of regional representation at EIB, said at a conference in Nairobi, opened by finance minister Uhuru Kenyatta and bringing together donors from JICA, World Bank, AFD and top executives in the power sector.

The lack of financing could spell doom to the economy since it means the country will continue to bear the risks of expensive electricity and power shortages at a time when it badly needs secure electricity to propel economic growth.

This could also open up the field for increased participation of thermal-driven Independent Power Producers (IPP), whose stake in the local power market has contributed to the high electricity tariffs on high fuel cost charges—a varying item on the bills that is linked to the amount of power on the national grid generated from thermal sources.

Mr Simonsen added that it might be easier to get funds for the geothermal projects compared to the hydro ones, distribution enforcement and new transmission lines due to the global clean energy revolution.

Of the Sh205 billion the government is looking to borrow, $540 (Sh41 billion) will be earmarked for rural areas through the Rural Electrification Authority (REA), $302 (Sh22.9 billion) for upgrading Kenya Power and Lighting Company infrastructure and $767 million (Sh58.2 billion) for new transmission lines.

The remaining $734 million (Sh55.7 billion) will be spent on generation projects with a small fraction of it being raised through private capital and equity debt to KenGen.

The country is aiming at increasing 800 mega watts to the national grid in the coming five years with a focus on cheaper geothermal power.

Though the set-up costs for geothermal plants are expensive, they deliver cheaper power compared to thermal and hydro power.

Mr Kenyatta said the support of development partners would be critical for the success of the power enhancement project since Treasury could not foot the entire bill.