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February 04, 2014

Kenya’s Investment Climate Generates New Energy

by Reuben Kyama

President Barack Obama launched the Power Africa Initiative last June to boost electrical power generation in Kenya, Ethiopia, Ghana, Liberia, Nigeria and Tanzania. With support from the World Bank and the African Development Bank, the goal is to add more than 10,000 mega­watts of clean, efficient electricity generation capacity for 20 million new businesses and households in sub-Saharan Africa with some access to electrical power.
 
In Kenya, USAID has fostered a public-private partnership between the Cummins Cogeneration Kenya Limited, a local firm, and the Government of Kenya to develop 12-megawatt biomass-fueled, on-grid electricity generation. 
 
Officials from the United States Agency for International Development (USAID) visited Kenya last week to evaluate the progress of President Obama’s initiatives to foster public-private partnerships. These initiatives underpin the U.S. and Kenya’s shared development goals.
 
More profitable than charcoal
 
Three USAID officials visited a biomass energy plant in Marigat, Baringo County, about 220 kilometers northwest of Nairobi. The USAID assistant administrator for Africa, Earl Gast, spoke about the plant, which is run by Cummins Power. Gast said the people in the community used to cut down the trees to make charcoal but now sell the wood to the plant which converts it into steam to generate electricity.
 
“We estimate that through this process they will earn four times of what they are earning now for the same amount of wood that they are cutting now,” he said. “So, it’s very lucrative to them. Actually, it’s lucrative to the villages and to the people of Kenya throughout because that power that’s being produced goes to the grid and benefits the local community as well as national community.”
 
Listen to Reuben Kyama's interview with Earl Gast

President Obama wants to focus on smaller communities where the U.S. and Kenyan government and private business can lift people out of poverty. Gast said the Baringo project can be repeated in other parts of Kenya and Africa.
 
“These small biomass projects can help immediate supply of electricity to communities and provide economic opportunities to them by selling the fuels.” He said power is transformational. “it means that people have access to health care because equipment can run.
 
Light is a key to economic growth
 
“It means people have access to lighting and that means children can learn and read at night. And, of course, power can contribute even more for economic growth. It means business can operate and can produce their products at a very reasonable and competitive price.”         
 
Gast also described some other Power Africa projects in Kenya’s future: Wind parks in Kinangop and Lake Turkana. He estimated they could generate 450 megawatts of power.
 
He said Kenya is blessed with natural resources. USAID also signed a contract last year with Geothermal Development Corporation to further support the development of a geothermal project.
 
“I know your President has set some very ambitious targets for power generation, some 5,000 megawatts,” Gast said. “A lot of that will come through clean energy – geothermal energy – and so we talked about ways of moving that forward much more rapidly. We hope to be able to do that on some of the geothermal fields over the next year here in Kenya.”
     
Kenya is better off than the five other targeted countries in terms of identifying private partners with good credit, Gast said, adding that finding private partners with good credit is essential.
 
“That’s probably one of the biggest deterrents across Africa and so we are exploring with other development partners like the African Development Bank, ways of shoring up the credit-worthiness of the off-takers to include providing partial risk guarantees and other mechanisms.”
 
Kenya is a good place to start
 
Kenya also has more experience with public-private partnerships, he said, like the energy projects going on in the country. Nairobi has become an African hub of energy activity.
 
The world’s largest manufacturer, General Electric – a company he said is worth $110 billion dollars - has Africa headquarters in Nairobi. Power Africa headquarters are also located in Nairobi.
 
“So, a lot of investors are waiting to see how it plays out. We have a saying in the U.S. which I think it definitely applies to Africa - that ‘success breeds success.’
 
“Once you have one investor coming in, proving high valuable power to the country but being able to make a reasonable profit and employing local people, you will see other investors as well and we are seeing that in the case of Kenya. We feel that this is a great place to be.
 
Beyond the legal issues of a public-private partnership for generating energy in Africa, Gast said USAID looks for a good climate that will attract private investors. And they have transaction advisors in all six countries to make sure each of the deals succeeds.
 
“With the transaction advisors working on each of the deals we will be able to see in real time where the bottlenecks are, and we feel that this is a proven model and it’s working quite effectively.
 
“For example with the 300-megawatt Turkana project, the critical constraint was on the grid and the grid management, and so we were able very quickly to develop a technical assistance package to help train people and put in place a better grid management so the deal could go through.”
 
China has become a major player in building Africa’s infrastructure in recent years. Gast replies to a question regarding comparisons of the two major world players in the world of African economic development.
 
“Well, I am not familiar with the way China operates its power deals. What we do is make sure that there is complete transparency. There’s got to be complete transparency because you got the private sector involved, you have got donors involved and you’ve got the government involved.”
 
Public-private partnerships are complex business agreements that demand transparency and constant monitoring, Gast says. If that happens, all of the partners – and the public they serve – can learn who earns the profits from the investment and who among the Kenyan public benefits from the services.