Ideas & Debate

Why Kenya must join Energy Charter Treaty

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Securing finance for large-scale renewable energy projects in East Africa is a major obstacle. FILE PHOTO | NMG

Kenya has huge and growing energy needs. Among the power strategies Kenya is implementing is an aggressive last mile connectivity campaign for electricity, which aims to connect 300,000 non-commercial households located within 600 metres of a transformer, in a bid to enure universal access to electricity by the year 2020.

Kenya’s primary source of energy is mostly from hydro (40 percent) and geothermal (49 percent) sources. Kenya continues to develop renewable energy sources for her growing needs, and the Turkana Wind Farm (310 MW) is poised to be the biggest wind farm in Africa. Kenya also hosts the region’s largest solar facility in Garissa with 55MW.

This huge deficit of energy is replicated across East Africa. Tanzania has major sources of power in natural gas, petroleum and hydropower. More than 85 percent of Tanzania’s population uses traditional fuels for domestic use. However, abundant natural gas reserves, wind and solar resources present opportunities for boosting connectivity through investment in electricity generation.

Similarly, Uganda is endowed with renewable energy sources particularly hydro, biomass, and solar. Biomass acounts for 94 percent of the country’s energy consumption, followed by hydroelectric. The country is considered to have enormous hydro potential, estimated at 2,000MW.

Cross-border electricity trade has become increasingly important for energy security and resilience, since it is a result of access to a diversified basket of power sources and suppy. Climate change poses threats towards power generation, especially for countries that are dependent on hydropower.

That is why the East African Power Pool (EAPP) came into being, bringing together the nine countries of Kenya, Burundi, Democratic Republic of Congo, Ethiopia, Rwanda, Sudan, Tanzania, Libya and Uganda. South Sudan and Djibouti also aim to join and are included in the Regional Master Plan Study. Through economies of scale, these countries will be able to reduce costs associated with power generation and transmission, improve power supply, and attract investment in the region. The regional Power System Master Plan and Grid Code Study for the Eastern Africa Power Pool shows that countries in the sub-region have been planning and implementing their power systems in an isolated mannner, focussed sorely on the national demand for growth.

While bilateral power exchange agreements between some countries in the sub-region exist, the volume exchanged is insignificant. Moreover, exporting countries have frequently failed to meet their commitments to deliver power because of deficits in their systems.

The EAPP is expected to improve quantum as well as the reliability of affordable electricity in East Africa, with cleaner surplus from bordering countries. Nonetheless, for the EAPP to realise its energy security dreams, it will require investment estimated at $178 million (Sh1.78 trillion). For East African countries to continue pursuing common goals while attracting investments through public-private collaboration, they will need a formidable instrument that assures investors, and secures their investments. This is where the Energy Charter Treaty (ECT) comes in. And it is not only in electricity that massive investment is needed to boost Kenya’s, and the region’s, energy deficit. The Lamu-Port-South-Sudan-Ethiopia-Transport (Lapsset) Corridor has, among other components, an oil pipeline to evacuate petroleum products from South Sudan via Kenya, and a 32-berth port and refinery in Lamu. Oil and gas findings are exerting pressures on governments of the region to get financing for projects to exploit these resources and evacuate them to market.

Securing finance for large-scale renewable energy projects in East Africa is a major obstacle. Challenges abound. These include lack of adequate investments, regulatory and legal frameworks, political boundaries and sovereignity concerns, devolution and community interests, governance, environmental concerns, and terrorism.

It is clear that external financiers will have to consider the above factors and invest in local partnerships, capitalise on local market knowledge, gain an understanding of local customs and business culture, and create value beyond complying with legal and regulatory frameworks. Taking these steps will enable them to identify risks and plan for uncertainty. That is why Kenya must accede to the ECT if it wants to give confidence to investors to put their money in energy projects in the country.

The ECT dates to 1994 when nearly 50 countries across Eurasia established this leading international instrument on investment protection in the energy sector. It entered into legal force in 1998, following its ratification by the 40th country, and has become the world’s only multilateral energy investment treaty. It encompasses energy investments, rules for trade in energy commodities, the transit of such commodities across borders, as well as the Protocol on Energy Efficiency and Related Environmental Aspects.

Kenya, Uganda, Tanzania and Rwanda are signatories to the ECT, and are at different levels of acceding to the Treaty. The East African Community (EAC) also became an observor to the Energy Charter Conference in 2016, which creates a foundation for the development of a meaningful energy co-operation at the regional level.

Mr Nyamongo is the head, Right of Way Management at the Kenya Pipeline Limited. Ms Nyamongo is a development expert.