The new Geothermal Development Company (GDC) managing director, Paul Ngugi, started his career at Kenya Power before leaving for KenGen.
In 2009 Mr Ngugi, who is a drilling engineer, left KenGen for the then newly formed GDC where he rose through the ranks to become the CEO in April this year.
Mr Ngugi spoke to the Business Daily about his two months in the corner office and how he plans to steer the firm to financial sustainability.
You were appointed at the same time as Ketraco’s John Mativo and Kenya Power’s Joseph Siror. All of you are engineers by profession. Are we seeing a deliberate shift at the helm of critical energy agencies?
When you are at the MD’s level your work is more development of strategy and coordination and that depends on the people who are below you.
So in my opinion, I see that in every organisation we have all these different skills and they all create value.
If you understand the organisation better, then that helps you a lot in terms of how you develop or how quickly you settle in the organisation.
Experience, especially in geothermal, is critical [to run GDC]. Our industry is very expensive. Every well we dig costs us half a billion shillings and is drilled in about 70 to 100 days.
By having experienced leadership you are able to make decisions quickly and also to optimise the decisions. The more you understand the industry the easier it is for you to offer leadership.
You are now two months in office. What are the biggest challenges that you have faced so far?
Having been here from the beginning I have been part of the challenges. But as the MD the first challenge as I sit in my office that breaks my heart is joblessness.
People are trying to reach me through my parents, spouse and all types of contacts. That is heartbreaking because you notice that every year we are bringing into the job market about a million graduates but we are not creating those jobs.
MPs come in every day, through others and even my two sons are going to be joining the market this year and then I start ask myself where they will be employed. That is one of the biggest challenges as a CEO.
On GDC, we have had a journey and we have not reached the desired outcome. Becoming financially sustainable was one of the key objectives.
We have wells in Olkaria that were vested to us by the government which give us some money. We have also started in Menengai where we have drilled 105 megawatts (MW).
This project was supposed to be commissioned by 2016 and today, seven years down the line, we cannot say the project has come to the desired conclusion.
GDC still relies heavily on government funding for its operations. When do you see the company achieving financial sustainability?
Currently we have one of the independent power producers (IPPs) who is in the process of commissioning a 35MW power plant [Sosian Energy Limited]. At least that is very positive and it should be completed by end of this month.
Within two months we have also done groundbreaking of one of the power plants. The two of them are not sufficient money to give us financial sustainability, we still have to depend on the government.
When we get the third power plant of about 100MW at Baringo-Silali we will then be able to reach a point when we can actually say that we are financially stable — we are be able to pay our bills and have some spare money for investments.
If all goes according to the plan, we see that by 2029 we should be able to reach financial sustainability.
What are the timelines for completing the power plants in Menengai?
For Sosian, we have started the process of commissioning, they are already generating 12MW and they are trying to bring three other units online.
We are looking at sometime in mid-August for commissioning.
For Globeleq, upon commencement of the project, it will take us 23 months from the date you start construction to getting power on the grid. Assuming we are starting July/August, we expect that (completion) should be around the same period in 2025.
The Menengai project has delayed for more than seven years. One of the reasons for the delay is failure by the IPPs to secure partial risk guarantees from the government. What caused the delay?
GDC comes in as a unique company because we are supposed to create facilitation for the private sector to come in. We do de-risking and facilitate the company to be able to get government support.
This is the first project that we have had to require this [partial risk guarantees] and obviously these instruments are given by different people, especially the Treasury.
When provided they actually increase the country’s debt because they are guarantees. Those instruments obviously have taken us very long to get but we cannot say the delay was all about them.
What is the progress in securing IPPs for the Baringo-Silali project?
We started the journey on Baringo-Silali around 2015. We have done around 150km of roads, and about 130km of 10-inch pipeline because water is very important for us for drilling.
Today we have drilled 17 wells and we have made steam of 55MW available. We are starting the process of searching for developers.
We have two options. The first is to go to KenGen, because it was given first right of refusal. The second option is to do a tender process and that also is in progress.
Currently we are just waiting to carry out a feasibility study. We need to evaluate the sustainability of the capacity of the wells over a period of about 25 years.
We are in the process of engaging a consultant who will then be able to do simulations to check the sustainability of the wells.
What criteria does GDC use to identity wells to drill because we have had issues of unproductive wells that have been drilled for billions for shillings?
GDC was formed because it was understood that we require somebody to assume the risk on behalf of the country. One of our mandates is to de-risk the fields.
It was understood that anyone involved in geothermal would have to face that risk. To determine that risk, using science, we look at different parameters and infer what we think the resource is.
We can only prove that the resource is there after drilling. As we start to check where the boundary of the resource is, we start to look where we have been successful and step out.
As you come closer to the boundary you find that some of the wells you drill are not productive and these wells that we call unproductive are information for us.
We have tried to improve our decision making. For example, if you are drilling a well and encounter a problem, for how long should you continue drilling?
Besides Olkaria, Menengai and Baringo-Silali, what other areas has GDC identified geothermal potential in the Rift Valley?
In principle, the whole of Rift Valley has potential. It is dependent on the prevailing technology and where we are sitting we are finding that technology is improving.
There are, however, some prime areas and they are known. Some of them start from Magadi but they also differ in quality. We also have Suswa, Longonot, Arus and just below Lake Turkana.
What role will direct use play in your plan to grow GDC’s revenues?
In our estimation, in a successful project, 50 per cent of the energy goes into electricity generation and the other 50 percent is what can be used for direct use.
There are many industries that can use this heat. When, for example, you come to Menengai today you will find us growing fish and hatching chicks at temperatures of about 30°C.
The scope of direct use is really huge. One of the main areas we are having challenges is relocation.
You find that a manufacturer has already put up a factory in Nairobi and wants to use direct heat. If you ask them to come to Menengai then it means that they have to find additional funds to relocate.
What legacy do you want to leave at GDC?
Putting GDC on a financially sustainable platform is my first and most important priority. After that we need to make the geothermal dream come true.
We have this abundant resource that is at the moment not serving Kenya. In the next one year we are going to drill two fields in Silali and Kipchuk which will expand our opportunities.
In the year after, we are hoping to carry out exploration in other two fields and this de-risking is what attracts financing.
