Markets & Finance

Former investment banker in Sh52bn geothermal deal

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Mr Mohamed Hassan is a co-director at Agil which is constructing a Sh52 billion geothermal power plant set for ground breaking next year. FILE

Mr Mohamed Hassan, a former investment banker who was involved in structuring the Safaricom IPO, is seeking Sh39 billion from local pension funds and commercial banks to finance a 140-megawatt geothermal power plant in Longonot.

Mr Hassan is a co-director at the African Geothermal International Limited (Agil), which is constructing the $600 million (Sh52 billion) plant set for ground breaking next year.

The firm, owned by local and foreign shareholders, will start drilling of wells next April.

“We plan to have 75 per cent financing of the entire project as debt while the other will be in equity,” said Mr Hassan in an interview on Tuesday.

Other directors of the company include Fred Ojiambo, a prominent lawyer with Kaplan & Stratton and UK-based Brian Mitchell. Agil’s chief executive is Fassine Fofana, a Guinean who is also a founder director.

Already $10 million has been secured in equity to start the exploration and another $8.4 million is to be signed for between Agil and the African Union Commission. The rest of the money will be raised once the first four wells are drilled in the course of next year.

Some of the money is expected to come from development financial institutions and insurance companies.

Mr Hassan said the bias for using more debt is because it is considered cheaper at a rate of 7-8 per cent, but equity requires a return to investors of not less than 15 per cent.

“The weighted average cost of the capital will be less when we use more debt in the project,” said Mr Hassan.

At Dyer and Blair Investment Bank, owned by investor Jimnah Mbaru, Mr Hassan led the teams that arranged and advised on the Safaricom IPO in 2008 and KenGen initial public offering in 2006.

Agil got the licence for drilling in 2009, the same year it was incorporated. It was given an area of 132 square kilometres around Mt Longonot for exploration and production for 30 years.

“We have also received requests from other investors who want to come on board. We will consider this after we complete the digging of the four wells next year as part of the possible equity we will need in running the company,” said Chris Maranga, the Kenya country representative for Agil.

Among those who have shown interest in strategic investment in geothermal energy generation are utilities in Japan and China, Mr Maranga said.

Agil is among the few private sector geothermal energy producers since the others, both KenGen and Geothermal Development Company, are majority owned by the government. Most other private power producers are mostly in thermal or diesel power generation.

“Our assessment has shown that the area allocated to us can produce even more than 140MW. If turns out that it is indeed the case, we would apply to the government so that we can produce more power,” said Mr Maranga.

The firm intends to drill four exploration wells around the Mt Longonot, just next to the Olkaria geothermal power production plants in Naivasha.

The first drilling in 2014, when the firm will use one rig, will then give way to more wells in 2015, when it will be using two rigs.

“With two rigs, we will escalate the work such that we can dig 10 to 30 wells in a year,” said Mr Hassan.