Economy

Fresh regulatory headwinds face Lamu coal plant project

lamu coal

Lamu coal power plant site. FILE PHOTO | NMG

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Summary

  • The fate of the Centum-backed Lamu coal power plant hangs in the balance after recommendations in a report presented to President Uhuru Kenyatta said its power purchase agreement (PPAs) with Kenya Power had lapsed.
  • President Kenyatta appointed the taskforce in March after it emerged that Kenya Power had signed contracts committing it to take more electricity than it can sell.
  • The move marks the latest setback for the proposed project by Amu Power, a joint venture in which Centum Investment Company is the majority shareholder with a 51 percent stake.

The fate of the Centum-backed Lamu coal power plant hangs in the balance after recommendations in a report presented to President Uhuru Kenyatta said its power purchase agreement (PPAs) with Kenya Power had lapsed.

The task force to review power purchase agreements signed between Kenya Power and all electricity generators with a goal of renegotiating the energy prices and other terms downwards has since called for termination of some agreements and renegotiation of others.

President Kenyatta appointed the taskforce in March after it emerged that Kenya Power had signed contracts committing it to take more electricity than it can sell.

The move marks the latest setback for the proposed project by Amu Power, a joint venture in which Centum Investment Company is the majority shareholder with a 51 percent stake.

“There were instances of signed PPAs with inactive plants whose PPAs had lapsed with no construction including OrPower 22 (Menengai), Akiira Geothermal and Marine Power Generation Company, Roadtech Solutions, Amu Power, Gatiki and Tindiyo Falls Resort,” said the John Ngumi-led taskforce.

The Lamu coal project has faced a series of setbacks since its inception including revocation of an environmental licence, delays in raising funds from banks and an announcement by the technical partner General Electric that it is exiting the coal power business.

Amu Power has been in talks with its partners in the stalled 1,050-megawatt coal-fired power plant in Lamu with a view to advance the project.

Amu Power had made substantial progress, including securing a power purchase agreement with Kenya Power, loan agreements and a Government of Kenya Letter of Support.

It has, however, not yet secured a partial risk guarantee which is required to access funds from lenders. The project’s environmental approvals have also been revoked by the National Environment Tribunal.

Standard Bank, which is among the lenders that had agreed to finance the Lamu power plant, recently issued a new lending policy that severely restricts its participation in coal energy ventures.

Acknowledging the challenges facing the project, Centum said it had made an impairment provision of Sh2 billion against the carrying value of the investment in Amu Power Company Limited in its annual report.