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Kenya doing little to develop competitive sugar industry

By | January 12th 2010

By John Oyuke

Kenya is not doing enough to encourage private sector investment in energy production despite the current demand estimated at more than six per cent annually.

The demand is still growing.

A Common Market for Eastern and Southern Africa (Comesa) team has concluded the Government should do more to encourage sugar factories to produce electricity for the national grid.

It says, for instance, that though co-generation and bio-fuel production are being encouraged in the country, there is no clear policy regarding these two forms of energy.

A cogeneration facility at the Mumias Sugar Company. Only two sugarcane firms have been licensed to invest in the generation of electricity. Photo: FILE/standard

"The documents availed to the mission showed a bio-fuel policy and strategy were under discussion and in draft form," the team said in a report on the Kenya Sugar Sector Safeguard Assessment.

The study was undertaken late last year to assess the level of competitiveness attained by the local sugar sector since the current safeguard was extended in 2008.

It was also to review the measures and policies adopted by Kenyan stakeholders to be able to compete fully by the end of comesa extension in 2012.

The report has called for greater government guidance in pricing of power from co-generation so that meaningful market signals are provided for greater investment in the activity by sugar firms.

Private sector

It said proposals that power be pegged on a higher price such as $0.10 or $0.11, based on empirical submissions made by industry players be given serious consideration.

A biting shortage of energy has forced the Government to open up the energy sector to allow private sector power generators to co-generate power to supply to the national grid.

Sugar millers are being allowed to generate electricity using bagasse and supply it to the national grid by granting them licenses from the Energy Regulatory Commission (ERC).

Mumias Sugar Company was granted a licence to co-generate 38 MW of power in May 2008, while West Kenya has been granted a similar licence.

However, the Comesa team says while the co-generation at the two factories are positive developments, the price being offered per Megawatt Hour (MWh) of power by the power distributor—Kenya Power and Lighting Company (KPLC)— is not encouraging.

"While Mumias and West Kenya do not anticipate losses from the transaction, the price of $0.06 per MWh renders payback period for a sizeable investment in this activity rather long," the report explains.

Worse still, it adds, KPLC is said to be paying $0.20 per MWh to power suppliers generating power from diesel.

Investment Incentives

According to Comesa, the industry players have advocated for a rate of $0.11 per MWh as being reasonable and would encourage more investment in co-generation, as the payback period for large projects would be financially acceptable.

It observes that there should be a deliberate policy nationally, that encourages power generation from environmentally friendly and renewable sources rather than fossil fuels, this policy appears to be lacking from the Ministry of Energy.

Sugar stakeholders have also shown interest in Ethanol, another alternative source of energy.

Mumias Sugar, for instance, is planning to produce 40 million litres of Ethanol annually from molasses its produces a by-product.

It plans to construct a $46 million ethanol plant in Mumias and has signed with India’s Avant Garde for the engineering, procurement and construction of the facility.

The company expects to commence production in July next year at the five Million Gallons per Year plant.

Since Ethanol is blended with fossil fuels before use, Comesa feels there should be a deliberate policy to encourage such blending as well as helping create a market for Ethanol for blending purposes.

It, however, says this policy incentive appears to be missing and even blending ratios appear not to be clearly defined.

Kenya’s current peak power demand is 1,188 MW, and the Government expects demand to reach 2,242 MW during the next six years.

To meet this demand, the Government says it requires $8 billion funding for power generation, transmission and distribution.

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