Breaking Kenya’s geothermal curse

The UK giant energy developer Globeleq broke ground for a 35MW geothermal power station at the Menengai geothermal fields on Thursday at a ceremony presided over by Deputy President Rigathi Gachagua.

By any measure, this is a major and important development in the energy sector because Globeleq is a serious player with deep pockets and with a sterling record at delivering large energy projects.

It owns the 52MW Malindi solar power plant. Without a doubt, Globeleq’s entry into the space is a positive statement on investor confidence in the green energy projects in Kenya.

Mark you, Globeleq just stepped into the space the other day by buying out Quantum Energy, which was part of the original three IPPs that had been selected by the State-owned Geothermal Development Corporation(GDC) to build three 35MW power plants at the Menengai fields.

I have been planning a book on the theme 'resource curse’ with a chapter devoted to the State-owned GDC. What I have in mind is a story about how, despite the fact that GDC has spent billions of shillings on drilling wells and in spite of the fact that we have contracted huge dollar loans from China Eximbank, the African Development Bank and the KFW, GDC is — after nearly 20 years — yet to produce a single megawatt of power.

We must not forget that this is a project that was procured way back in 2013.

As we all know, the Menengai geothermal fields were developed by GDC with funds from the government and international lenders.

Under the arrangement, GDC’s role was to drill the wells and then sell the steam to the three private investors who would then use steam for powering the power stations.

The three IPPs would thereafter sell the power to the only off-taker, Kenya Power, under power purchase agreements in advance of the commencement of the building of the power plants — and that come complete with negotiated tariffs.

Clearly, these three projects have dragged on for too long to reach financial closure. There was a time when the inordinate time was burnt on negotiating letters of comfort and additional guarantees with the Treasury.

Apparently, the government had initially indicated to the investors that they would be given some form of protection.

But an attitude developed at the Treasury later that investors who haggle too much for additional guarantees tended to be parties that were not serious and were most likely to turn out to be mere speculators whose main interest was to at a later date derive profit from flipping and selling away the investment opportunity to third parties.

Time was wasted when the three investors belatedly started doubting the volume of the steam in wells by insisting that the wells did not have enough steam to run 35MW power plants.

The IPPs argued that GDC had misled them by exaggerating the size of the resource and demanded that new feasibility studies be conducted to determine the amount of steam in the wells.

Much more time was lost because the IPPs demanded a second opinion on the size of the resources, arguing that an assessment by an independent party would boost the confidence of their financiers.

Consequently, an independent board of consultants had to be engaged. The wells were found to have enough steam.

In my book, there will be a chapter on battles by rent-seeking elites for the patronage of geothermal projects.

These big projects opened opportunities for local elites to enter with lucrative agencies and influence peddling arrangements with serious international investors. There was a scramble for geothermal field licences.

Was it a mere coincidence that a former chair of the Senate committee on energy that oversees the whole sector was linked to ownership of Sossian Power, one of three IPPs at Menengai?

A former chair of the National Assembly energy committee is linked with the company that was given a geothermal licence to develop a field in Homa Bay County at a place called Homa Hills.

And, a former chair of the Senate Committee on Energy got the geothermal licence and was the main patron of the Akiira geothermal project in the Mt Longonot area.

There was a time when newspapers were reporting an influential steel mogul and industrialist had become the principal investor in Sossian Power.

There will be a chapter in my book on how Chinese drilling contractors used influential local patrons to take advantage of the lack of local capacity in well drilling to dominate the scene and negotiate overpriced contracts.

And how prices of drilling contracts fell by nearly 50 percent after both GDC and KenGen acquired their own rigs. Geothermal resources produced billionaires. We celebrate green power when consumer electricity prices remain among the highest on the continent.