Thanks to new renewable power projects, Kenya’s generation capacity now exceeds 3,000 megawatts. This success is partly attributable to investments from independent power producers.
Conversely, power transmission projects have been the poor cousin when it comes to receiving private sector investment.
The gaps in our national transmission network forces remote regions to rely on expensive electricity from thermal plants, thus inflicting higher costs on consumers.
Transmission projects have historically been funded by the public coffers and debt, including through sovereign borrowing which the government on-lends to the Kenya Electricity Transmission Company (Ketraco).
However, as financial pressure piles on the Exchequer, there is a shift towards the adoption of PPPs for transmission infrastructure.
This raises the question of how Kenya can stimulate private-sector investment in such PPPs.
First, the government can address land acquisition. By their nature, transmission networks extend over large stretches of land which calls for rights of way over land.
This complicates the land acquisition process due to the stakeholders involved and the level of compensation.
The government should develop a comprehensive plan for transmission line routes and start the acquisition of land rights under a land banking system to mitigate against inordinate project delays and cost overruns.
Closely related to land is social and environmental concerns for investors. These include the impact on wildlife, resettlement of communities, and security against vandalism and injury.
Investors should be ready to manage grievances and ultimately win the support of communities. Failure to handle this effectively has proven fatal for projects such as the 60MW Kinangop wind park, which was cancelled due to strong opposition from the local community.
There is a need for an enabling legal and regulatory framework to support independent power transmitters. Fortunately, Kenya’s Public-Private Partnerships Act and Energy Act, provide for this.
To this should be added regulations governing transmission or wheeling charges that may hamper investors’ ability to reliably assess financial returns.
Model project agreements should be developed to bring clarity and consistency to the sharing of risks between the public and private parties.
These deals can be tailored to accommodate the unique characteristics of each project.
Lastly, it is essential to ensure that the transmission projects are bankable. Given the novel nature of such projects in Kenya, the government should consider providing enhanced Government Support Measures (GSMs) to attract funders.
Over time and with a proven track record on such projects, the necessity of special GSMs can be revisited. Third-party credit enhancement tools such as Partial Risk Guarantees from institutions like the World Bank can also be employed to de-risk further.
Happily, Kenya has now started on her inaugural transmission of PPP projects.
Nyabira is Partner and Head of Projects, Energy & Restructuring Practice at DLA Piper Africa, Kenya (IKM Advocates); Muigai (Director) and Kibagendi (Associate) are in the same practice.
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