KenGen secures Sh38b loan from Japan for new plant

The electricity generating agency has secured a Sh38 billion loan from Japan to fund a new power plant in Olkaria.

Kenya Electricity Generating Company (KenGen) says the deal  with the Japan International Cooperation Agency (JICA) will fund the construction of the the Olkaria 5 Geothermal Power Plant.

JICA is a Japanese government agency that coordinates official development assistance.

Olkaria 5 is expected to add 140 megawatts of power to the national grid. The drilling for the project is already underway and the company said it was only waiting for financing to start the plant.

KenGen Chief executive Officer Albert Mugo said JICA is injecting in the project 45,690 million Japanese Yen or $387.2 million (Sh38.7 billion).

The electricity generator had earlier said it would have a financing gap of Sh2 billion but the latest JICA funding seems to have covered the entire construction given that the project had been estimated to cost Sh35.3 billion.

“The loan agreement has been negotiated and will be signed between the Government of Kenya and JICA in February. The project is expected to be completed in the third quarter of 2016,” KenGen said.

Mr Mugo said tenders for the project will be issued next month and a contract awarded in July 2016.”Connection to the grid will be done by end of 2018,” he said.

The new funding comes at a time when the company is pursuing various means to raise capital to fund its lined-up infrastructure projects.

The firm is understood to be working out on an equity restructuring plan as it considers venturing into asset-backed securities.

It also has various ongoing capital restructuring considerations, among them conversions of Government on-lent loans to equity, whose approval has already been granted, as well as talking to various financial institutions.

It recently concluded restructuring of its short-term debts to medium-term to allow it more headroom to borrow. It has also been pushing for private investments in the geothermal sector in line with the Government’s plan to add 5000 MW to the national grid.

Mugo said the company has shifted focus to affordable and environment-friendly green energy sources, mainly geothermal and wind, resulting in reduced cost of power by up to 30 per cent.

Kenya has more than 14 high temperature potential sites along the Rift Valley that are estimated to have the potential to produce more than 10,000MW. This is against the current installed capacity of 2,200MW of Geothermal.

 

Geothermal now accounts for 51 per cent of the national power generation mix.

Mugo says the company’s strategy now is to push forward with the projects lined up, hoping to bring an additional 385MW from geothermal in the next two years.

It is estimated that Kenya will more than double its power demand to 4196MW by 2018.

The drivers of this power demand will be the Standard Gauge Railway, ICT parks, Iron & Steel industries and the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor Project.