Kenya Tea Development Agency (KTDA) on Thursday signed a Sh5.5 billion syndicated loan to fund the construction of seven small hydro-dams as part of strategy to tame operational costs at its various factories.
“With the funding that we have received today, construction works for Nyambunde, Kiringa, Kipsonoi and Nyamasege small hydropower stations will commence in 2016,” said chief executive Lerionka Tiampati.
Construction of KTDA’s three hydropower projects in Gura, Chania and North Mathioya are at advanced stages, funded by an earlier credit line from French Agency for Development.
The loan is arranged by the World Bank’s private sector lending arm, International Finance Corporation (IFC) in partnership with the Global Agriculture and Food Security Program, French development institution Proparco, and the Netherlands Development Finance Company.
“Access to power is one of the key constraints for agriculture in Africa. KTDA is innovating to address power shortages by developing its own captive and renewable power supply.
“Reducing costs of processing will help make Kenya’s tea sector more competitive in a global marketplace and increase revenues for the 560,000 farmers who supply green leaf to the 66 KTDA-managed tea factories.” Oumar Seydi, IFC Director for eastern and southern Africa said following the signing of the deal in Nairobi.
The KTDA management has frequently cited high cost of production as part of the reasons the bonus paid to small-scale farmers has reduced over the years.
Official data indicates that energy costs account for about 30 per cent of the operation costs in tea factories with electricity alone accounting for 17 per cent.
On average, individual KTDA tea factories spend between Sh30 million to Sh65 million annually on electricity, depending on size, crop level and variable costs such as fuel cost adjustment and forex that the Kenya Power use to calculate electricity bills.
“The excess power generated will be sold to the national grid, providing farmers with an additional revenue stream,” Mr Tiampati said in reference to the hydro dam projects.
Each of the seven small hydropower plants (SHPs) will have an installed capacity ranging from 1.1MW to 6.5MW. They are to be located in Kirinyaga, Meru, Kericho and Kisii.
The projects will be managed by KTDA Power, a subsidiary established by KTDA in 2010 as part of a strategy to reduce energy costs.
KTDA Power is presently developing a portfolio of small, run-of-the-river SHPs with an aggregate generation capacity of up to 29MW across 10 sites in various locations in Kenya.
Three out of these 10 sites are fully funded while the remaining seven sites will be covered by IFC’s financing. Each SHP will be owned by newly created asset holding companies, Regional Power Companies (RPCs). In turn, each RPC is jointly owned by several KTDA Tea Factories located in the region where the relevant SHP is constructed.
KTDA is Kenya’s pioneer independent power producer player in hydro and owns a 1MW plant in Imenti. The power is used at Imenti Tea Factory with the balance of 0.3MW being sold to the grid.