The World Bank has issued its first ever guarantee to a Chinese firm to borrow cash from banks for power generation in Kenya.
The World Bank announced Wednesday its Multilateral Investment Guarantee Agency (MIGA) will provide Triumph Power Generating Company Limited a Sh8.7 billion ($102.5 million) cover for possible failure to repay the amount to Industrial and Commercial Bank of China and Standard Bank of South Africa.
Such guarantees make it easier for the power generating company to attract cheaper funding and sell at a lower price than would have been the case if the arrangement did not exist.
“This represents the first time MIGA has issued a contract of guarantee to a Chinese investor or lender,” said MIGA, the World Bank’s political risk insurance arm in a statement.
To hedge against long-term interest rate risks, MIGA is also providing $11.1 million in coverage to CfC Stanbic Bank Limited covering its swap arrangement with Triumph.
The project is further supported by a partial risk guarantee from the World Bank’s International Development Association that backstops a letter of credit from JP Morgan Bank of London.
“We are pleased to support this investment that will help Kenya address the severe power shortages it has been facing,” said MIGA vice president and chief operating officer Michel Wormser in a statement. “Additional generation provided by the project will contribute to economic growth in the country.”
The heavy fuel oil energy plant being planned has a capacity to generate 83 megawatts.
The power plant is part of Kenya’s Least Cost Power Development Plan that involves increasing the number of independent power producers (IPPs) and a more diversified energy mix.
Through its lending and guarantee instruments under the Plan, the World Bank Group is helping to mobilise nearly $1 billion to add 600 megawatts to the grid through IPPs.
READ: World Bank in deal to guarantee power purchase contracts
MIGA is also providing coverage for Thika Power Limited and Olkaria III, Kenya’s first geothermal IPP.
Triumph’s heavy fuel oil plant is being developed on a build, own, and operate basis about 25km from Nairobi.
Triumph will enter into a 20-year power purchase agreement with Kenya Power.
Kenya has historically relied on hydropower for the bulk of its power generation. During times of drought, when hydropower drops in supply, the country has had to turn to costly emergency diesel fired plants.
Heavy fuel oil plants offer a viable and lower cost alternative than diesel-fired plants to address the short-term energy deficit in Kenya, the MIGA statement said.
“Over time, as more renewable energy plants come on line, the heavy fuel plants are expected to transition from base to peak-load (operated only at times of peak demand) operation,” said the statement.