Private equity firms set sights on power sector

Private equity investors are showing increased interest in Kenya’s power sector as lower investments by the government in building new power plants opens a fertile business opportunity for private capital.

Lawyers and players in the power sector say that consortia led by private equity funds are making enquiries on the investment opportunities in the energy market as investments in the local power sector emerge as a high-return business.

The country is targeting to add 800 megawatts of electricity to the national grid in the next five years at cost of Sh111 billion, but the government and power generator KenGen say it can only meet part of cost with balance being met by private investors.

“We are getting enquiries from two to three PE (Private Equity) firms every month asking about investment interests and the power sector is receiving the highest enquiries,” says Mr Nani Mungai of Murui Mungai & Co Advocates.

Normally, investors turn to lawyers for due diligence and guidance through the correct processes in acquiring the various licences and approvals required.

Joseph Njoroge, the managing director of Kenya Power and Lighting Company (KPLC) echoes the sentiments: “We are receiving a number of unsolicited enquiries from a wide range of investors including private equity players.”

Already global PE shops such as Aldwych International, Globeleq and local PE Transcentury are active in the local market but indications are that they would be increasing their stakes through new projects being lined up across the country.

With ready demand for power, it guarantees the PE funds a steady flow of profits and cashflow — a major attraction for private investors.

Citadel Capital of Egypt and Helios Partners are some of the PEs that are keen on deploying their funds on Kenya’s infrastructure projects.

Aldwych International has a controlling stake in the 300 megawatts Lake Turkana Wind Power project and has a stake in Rabai thermal power plant.

Transcentury is linked to Simba Energy, which is constructing a Sh7.5 billion ($100 million) electricity generating plant in Mombasa while Globeleq has a stake in the 75 megawatts Tsavo thermal plant.

“We have been approached by various entities in the region to participate in other wind and clean energy projects and we are evaluating these proposals. We remain interested in this industry in this region with an intention to invest further,” Mr Carlo van Wageningen, the chairman of Lake Turkana Wind Power Limited (LTWP) told Business Daily without elaborating.

Mr van Wageningen said the group was optimistic of breaking ground by September and have the project completed by 2012 following a successful equity partnership agreement.

“All the equity is fully committed and the final balance debt is being arranged,” he said in response to a question on financing status. “It is our intention to work on phase two of this project once the first phase will have reached financial close envisaged for July/August this year.”

The chairman said that the equity would form 30 per cent of the total project capital cost and that partners had fully committed.

“The balance 70 per cent debt is being arranged by African Development Bank as lead debt arranger with themselves providing Euro 100 million,” Mr van Wageningen said.

LTWP’s entry into other East African markets could bring a major relief for regional economies hard-pressed for reliable and affordable supplies.

For instance, in Kenya statistics show that the country has an installed power capacity of 1,480 mega watts, including temporary emergency power of 290MW, but is supplying about 1,050MW at peak time.

The country’s power reserve capacity has dipped to record levels of 65MW or 5.6 per cent of the effective demand, which is well below the reserve limit of 15 per cent, triggering panic that the country could run short of power from 2012 if generation does not improve.

Projections by the Energy Ministry show that Kenya requires at least 2,013MW in additional power supplies to the national grid by 2014 even though such dreams have been thwarted by financing hitches.

The Energy Regulatory Commission identifies lack of investment in the sector as a major contributor to the crisis despite widespread claims that poor weather was to blame.

Kenya heavily relies on hydro-based source that accounts for about 60 per cent of capacity.

Current generation mix is 719MW hydro, 163 MW geothermal, and 407MW thermal — including 290MW from emergency power producers.