Kenyan oligarchs edge foreign rivals out of big power contracts

Kenyan billionaires are increasingly winning big-ticket contracts to mine coal and develop new power sources, edging out well-established global conglomerates that have dominated the industry.

The list of deep-pocketed investors with high-level political connections who have bagged lucrative energy contracts includes Centum chairman Chris Kirubi (Lamu coal plant), businessman George Kariithi (Mui Coal Fields) and Zeph Mbugua of TransCentury, which is developing a 50-megawatt wind farm in Limuru, Kiambu.

The group of local oligarchs has, however, battled to squeeze out global giants such as Tata Power, Toyota Tsusho, Samsung, Aldwych International and Wärtsilä to win multi-billion-shilling tender.

In most cases, the Kenyan dealmakers have teamed up with foreign companies, mostly from China, in consortia that pair local knowledge and networks with Beijing’s formidable war chest to execute the capital-intensive projects.

Mr Kirubi, whose company Centum recently won a multi-billion-shilling contract to build a coal powered power plant at the Kenyan coast, says the transition is being driven by an emerging middle class with higher disposal incomes that is ready to invest in energy.

“The returns from energy are very good and the investment is guaranteed. It is a long-term investment and it is time Kenyans invested in infrastructure and reclaimed what is ours,” said Mr Kirubi, who owns a 25.1 per cent stake in Centum.

READ: Kirubi steps out as Kenya's top corporate fixer

The Jubilee Coalition is racing to develop an additional 5,000 MW by end of 2016 mostly through public–private partnerships, whetting the appetite of both local and foreign investors who are now locked in vicious tendering wars.

Kenya’s draft Energy Policy and Integrated Energy Plan requires the government to facilitate citizens to take part in the entire power production chain, including generation, building of power plants, as well as manufacture of energy-related equipment and appliances.

Centum in September last year created Mvuke Power, a Mauritius-based special purpose vehicle, to steer its entry in the power sector, with a focus on geothermal and coal.

The investment firm was in September awarded a tender to develop a 960-megawatt coal-fired power plant in Lamu as part of the Lamu Port South Sudan and Ethiopia Transport corridor (Lapsset) project.

The Nairobi bourse-listed firm plans to develop the electricity plant at a cost of $2 billion (Sh180.4 billion) under a build, own operate (BOO) model.

Centum teamed up with Gulf Energy, a local firm associated with Meru Senator Kiraitu Murungi, to place the bid to produce power at the cost of Sh6.82 per kilowatt hour (¢7.56), beating two other finalists, Shanghai Electric Power Company and HCIG Energy.

READ: Kirubi, Ahmednasir in dog fight for coal power tender

London-based HCIG, which partnered with South African firm Liketh Investments, has moved to court contesting the tender award.

TransCentury last week announced it was constructing a Sh11.7 billion ($130 million) 50 MW wind power plant.

The investment firm, which started off as a ‘chama’ has grown to become a force to reckon with on the infrastructure development scene.

The list of its founders includes Nairobi Securities Exchange (NSE) chairman Eddy Njoroge, investment banker Jimnah Mbaru, former Treasury permanent secretary Joseph Magari, ex-taxman Michael Waweru and businessman Peter Kanyago.

Mr Mbugua, the chairman and a founder member of the infrastructure-focused firm, has recently shepherded TransCentury to deepen its stake in Kenya’s power sector. He owns 16.2 million shares in the firm, a stake that is presently valued at Sh325.8 million.

The NSE-listed firm has teamed up with Chinese firm HydroChina and Aperture Green Power through its subsidiary Civicon, which will offer engineering services during installation of 33 wind turbines at the wind farm located 40 km north of Nairobi.

Civicon is also part of a consortium developing 35 MW of steam power at Menengai geothermal field. The company is constructing the power plant for New York Stock Exchange-listed Ormat Technologies.

Mr Mbugua reckons that Kenya’s low level of access to electricity estimated at about a quarter of the population, low consumption per capita, and growing demand makes the energy sector one of the most lucrative to invest in.

“The business outlook is positive for our core power and engineering businesses with a strong pipeline of projects underway in regional electrification, urban, industrial development and mining,” said Mr Mbugua.

“We want to enter into the power generation space as an independent power producer (IPP),” he added.

The emergence of local oligarchs as formidable power producers comes at a time when national distributor Kenya Power has spent Sh10.6 billion to purchase expensive thermal electricity from foreign-owned IPPs.

The billions paid to Aggreko and four other IPPs, including Tsavo Power, Iberafrica Power, Rabai Power and Thika Power, underlines the lucrative nature of Kenya’s electricity sector and the interest that local firms have in it.

Mr Kirubi said the Centum-Gulf Energy consortium will deliver cheaper power at nearly a third of the Sh20 per kWh consumers are currently paying for diesel-fired plants.

“Most of these deals were signed under unclear terms. The government has tried to renegotiate the tariffs in vain,” he said.

The increased interest in Kenya’s energy sector is informed by the growing demand for electricity in East Africa’s biggest economy and the relatively high pricing structure — which is foreign currency-denominated.

Kenya also has one of the best structured bulk tariffs, according to Standard Bank analysts.

The State helps power producers get partial risk guarantees (PRG) – which cover the risk of a possible government failure to meet contractual obligations to a project - from the World Bank and African Development Bank (AfDB).

The government also provides letters of comfort to winning bidders to help them secure financing for the multi-billion-shilling deals.

The deal is sweetened by the fact that IPPs are provided with a 20-year power purchase agreements (PPA) from Kenya Power.

The energy race has also seen Kenyans seek a pie of the emerging coal mining industry that is expected to feed coal-fired power plants as well as manufacturing industries.

“We need to seek out joint venture partners because mining is capital-intensive and requires specialised technology,” said Mr Kariithi, the millionaire businessman who in 2011 won the concession to mine coal in the Mui basin’s blocks C and D.

The two blocks are thought to have more than 400 million tonnes of coal reserves valued at Sh3.4 trillion ($40 billion), according to the Ministry of Energy estimates.

Using his company, Great Lakes Corporation, which he co-owns with a New Zealand national, Ian See, Mr Kariithi has formed a consortium with Mr Yuxin and Mr Yusheng, the Fenxi Mining Industry Group.