Monday, 30 July 2012

2016: Kenya's Magic year in energy supply


Geothermal steam wells. Coming to the rescue
TWENTY SIXTEEN. Twenty sixteen is the year by when Kenya's electricity supply will be boosted by an estimated 1432MW from clean energy sources, including wind power and geothermal. And the cost of energy will decline by nearly 10 US cents.

But twenty fourteen is also significant. That is when these sources will begin coming on stream. The players in this sector are going full steam to beat the target time.

AWind Turbine: A clean energy generator
The players include; Geothermal Development Corporation (GDC); Kenya Electricity generating Company (KenGen) and Lake Turkana wind power project.  Both KenGen and GDC are wholly government owned. Lake Turkana wind power ltd is a privately owned company whose goal is to generate some 300MW into the national grid from wind power.

GDC was set to spearhead the development of geothermal power. Kenya is said to have a capacity to generate 10,000MW of electricity from geothermal sources. GDC expects to have developed some 5500MW by 2030. Its initial output will be 400MW to come on stream in 2016. GDC develops the steam wells for concessioning to private power producers.

KenGen on the other hand, the only power generator in the country expects to add some 1832 MW into the national grid by 2016 from various sources including Hydro, Thermal Geothermal and even coal.

Hydro electric Dam; Taking a back seat

 In short, by 2016 Kengen will double its current capacity to 3000MW of which geothermal will the dominant source generating 882MW; Hydro at 820 MW; coal 600MW; wind 62 MW. The viability of a 150MW windfarm is being studied at Marsabit Country. There is also potential for a 400MW import from Ethiopia and another 300MW LNG import from Tanzania.

But before 2016, another magical year for power generation in this country is 2014. That is the year some of the on-going projects are expected to start  generating power into the national grid.

Last week, KenGen Commissioned the construction of a 280MW project at OL Karia IV that will be completed in 2014. Lake Turkana wind project expects to produce some 90 MW by 2013 and be fully operation by 2014.

This is to say that by 2016, Kenya’s power supply is expected to stand at 3700MW of which renewable sources will contribute 1582 MW. Hydro will generate 820MW while other sources will generate the rest. 

Going by the geothermal and wind energy prices, Kenyans have every reason to look forward to 2016 when energy price will shrink significantly. The price per kilowatt hour is fixed at six US to eight cents which is more than half the current price of 16 US cents a Kwh. 

Currently for every dollar worth of expenditure on power, the cost of fossil fuel used to generate thermal power takes 35 per cent, energy consumption stands at 52.7 per cent, forex  charge 5 per cent taxes take 2.7 per cent other charges take 2.8 per cent. From this analysis, fuel index is a large contributor to power costs in the country. In fact, at 35 per cent, it is very low. Depending on the cost of crude in the world market, Fuel index sometimes rises up to 70 per cent of the total bill.

Now come 2016 and much of the thermal power Capacity will be retired reducing the cost of power by between 35 and 70 per cent. Looked differently, a dollar will buy more power in 2017 than it does now. That is why Kenyans look to the year with great optimism. It will set them free of the tyranny of high electricity bills.

 Apart from low bills, the entry of  renewable sources of energy will mean the  end of power outages caused by rationing. That will mean cheap and efficient production of goods and services in the country.

Tuesday, 24 July 2012

East-West Rivalry in Africa: Can the West prevail?

An over-pass crossing Thika Highway in Kenya: Funding
 such projects 
has become the preserve of the East and AfDB 
  
AS THE EAST-WEST RIVALRY  in Africa gets stiff, the question can be asked:Will the west hold its ground?

 The answer is No and YES. NO because the government in the West have lost their clout in Africa. YES because the bold in the west's private sector are in Africa and could uphold its interests, say experts.

This is because an emboldened Africa has defined its development agenda and stands by it.  Consequently, the Dark Continent is dealing with its partners on its terms, according to its needs.

The official west does not get this. The result is waning influence of the West in Africa.  The official West is here defined to include governments; official development agencies and NGOs funded by such agencies. This group wants to make Africa the world’s largest charitable project.

The west has no idea what are Africa’s real needs.  Its official strategy demands political and legal reforms before the purse strings are loosened. This is a lengthy and uncertain strategy hence unpopular in Africa. The West is thus losing its grip on Africa.

An Oil Rig:  Well heeled Private sector is welcome in Africa
Africa’s greatest need for now is infrastructure (Dams, irrigation systems, water supplies, roads, rail roads, airports, sea ports, name them). And will do business with anyone who supports this development agenda. This is why the less fussy emerging Economies of the East are gaining popularity in Africa.

The East is here defined to include; China, South Korea and Japan.  The East hand understands Africa’s real needs and support efforts to satisfy them. It therefore uses a no frills business approach.

Last week, China made this understanding clear by doubling aid to Africa to US$20 billion over the next three- years. That is a whopping US$6.7 billion a year.  Compare that to US$4.5 billion that the World Bank lends to Africa annually. Also compare with US$8.0 billion in US assistance to Africa each year. Add to this figure Chinese Investments in Africa and you can see why the West is worried.

Studies show that Chinese investment in Africa is greater than is reported.  For instance, a February report published by Carnegie Endowment says that “Chinese investment in Africa is likely higher than the official figures suggest as Chinese investment involves state-owned enterprises that use a range of financing instruments, such as export credits, which are not included in FDI figures.”

 This is supported by a report by Reuters that “Industrial and Commercial Bank of China for example, the world's most valuable lender, has invested more than $7 billion in various projects across the continent.” Official figure show that Chinese investment in Africa up to 2012 stands at US$5.5 billion.

 Early this year, China lend  South Sudan- which does not enjoy the support of the West- a hefty US$8.0 billion to finance core projects in infrastructure, agriculture, small scale enterprises. If we add this to the US$20 billion that was committed to Africa by China last week, the one can appreciate why the West is worried.

In the private sector realm, PTTE&P a Thai fuel exploration firm, beat Shell/BP in the bid for Cove energy, a LNG exploration company that has significant interests eastern Africa.

PTTE&P offered US$1.9 billion for Cove while BP-Shell offered US$1.6 billion.  Shell pulled out arguing that it did not want to pay more for Cove energy plc. Whatever, the case Shell was locked out the lucrative eastern Africa fuels exploration sector-at least for time being.
 The message here is loud and clear: only the bold and daring would do business in Africa. Hesitant suitors will lose out.

Surprisingly, despite the waning significance of western official aid, there is a growing presence of western private sector in key Africa sectors. This is a clear indication that Africa chooses its partners according to its needs.

The western private sector has a lot to offer to Africa. First it has the Technology and the financial muscle to help Africa develop its resources. 

Despite the humiliation of BP/Shell by PTTE&P over the Cove energy affair, all fuels exploration Licenses in Eastern Africa for example are held by Western exploration companies such as France’s Total and Italy’s ENI.  There are other players such Anadarko of the US and Tullow oil of UK.

These western companies have announced major oil and LNG finds in Eastern Africa since January this year. Put together they have discovered an estimated 120 trillion cubic feet of LNG in eastern Africa and are still counting.


Tullow oil plc a British independent Exploration firm has made discovery of significant oil reserves in Africa a routine affair. She has made discoveries in Ghana, Uganda and Kenya and is still searching.

The lesson here is Africa is ready to do business with anyone who can support its development agenda.
However, Africa also has experience with building critical infrastructure with start-ups. The African telecoms landscape is dominated by homegrown telcos that were upstarts just a couple of years back.

 Going by the look of things then, in future the West will have to look at the bold in the private sector to protect and advance its interests in Africa. But even the bold and daring will have to take Africa serious because it can look elsewhere. Just ask the giant international telecoms, such as Orange and Dutch Shell and BP. Getting into Africa, late is very expensive.

Tuesday, 17 July 2012

Lapsset: The biggest business venture in east Africa


Artist's  impression of Lamu Port
THE LAMU PORT SOUTH Sudan- Ethiopia Transport Corridor (Lapsset), is the biggest business venture ever to be undertaken in east Africa and probably beyond. It is a juicy venture. The returns are mouth-watering, ranging between 14 per cent and 24 per cent for some of the projects. It will serve in excess of 100 million  in Kenya, Ethiopia and South Sudan.

The venture Comprises of thousands of kilometres of Highway. Railways and oil Pipelines, three resort cities, a sea port with 32 berths and two international Airports.  According to its feasibility study,the project  is to be undertaken on a Private- Public Partnership (PPP) basis. The consultants, Japan Port Consultants, estimates that the corridor willcost  US$23 billion.

There is something for everyone in the project for every sector is involved. According to an analysis by Kenya’s Ministry of Transport, Lapsset, comprises of; 1,710 KM of standard Gauge railway line, 880 KM of a standard highway, 1260 KM of crude oil pipeline, 980KM of white oils pipeline, a 120,000 bpd refinery, 32 berths of a sea port covering a 9km area among others.

There are three resort cities whose major goal is to increase tourism in the arid but high potential lands. The cities, to be driven by the Tourism Ministry, are Lamu, Isiolo and Turkana resort cities.  Already Isiolo city, to be built at Kipsing Gap, has been Okayed by the local authorities. It will cost some US$220 million. The construction of the US$12 million Isiolo international airport is on-going.

 Lamu resort city and the international Airport, it is expected, will take off together with the Port and other facilities. It is also expected that with the Discovery of Oil in Turkana, the Resort city here too has an added advantage.

Although components of the project could be developed on PPP basis, a majority of the components,  it seems, will be developed by the kenya government together with its partners in the east. Even the consultant has recommended that the venture would be viable if private sector were to lease the infrastructure from the government, rather than participate in building them.

 This creates room for development partners in east to come in. The east is defined to include China, South Korea and Japan. The Chinese have shot the first volley. The Chinese Deputy Minister for Trade, Chen Jian, on a recent visit in the country, said China would provide Kenya with critical expertise on the project. This, analysts say, is likely to have Japan sit up. The minister virtually promised  funding of Chinese companies to do the work.

A Japanese consultant did the feasibility study, and the Japanese are also said to be interested in a piece of the Lapsset action. The country has in the recent past witnessed increased activity between China and Japan in funding infrastructure projects. The same rivalry could be extended into Lapsset, say observers.

Even then, there is plenty of activity on Kenya’s second transport and economic corridor over the next 20 years or so. Already, the government has set aside some US$300 million for the construction of the first three- berths at the Port of Lamu.

The three are; a general cargo berth, a bulk cargo berth and a container berth. These three will be used to transport material for the development of the corridor.

The entire port itself will cost an estimated US$3.5 billion. Located on 1000 acres of land at Manda Bay within Lamu, the Port will comprise of 32 berths three of which will be financed by the Kenya government. The other 29 will be built on PPP basis.

A 1,710 KM Railway line from Lamu to Juba in South Sudan will be constructed at a cost of US$8.1 billion according to Kenya railways Corporation, www.krc.co.ke. The  feasibility study recommends a lease rate of US$343  Million a year in case of a PPP. The study calculated that the freight cost will be as low as US$0.98  per ton- Kilometre for break bulk; US$0.65  ton- KM for container and US$ 0.131 for bulk cargo.
The line is seen as the beginning of the Equatorial Land Bridge linking the Port of Lamu on the Indian Ocean to the East to the Port of Doula in Cameroon on the Atlantic Ocean to the West. Such a link, it is envisaged, will cut freight travel time by at least two to three weeks and increase shipping lines’ turn-around times and hence their revenue.

The bulk of the entire cost of the Lamu-Transport corridor will fall on Kenya. At the peak of the project, between 2013 and 2018 sources say, it is expected that the Kenyan government will be spending about 6 percent of the country's Gross Domestic Product or 16 per cent of its annual budget on the project. The project is in turn expected to generate an additional five percent increase in Kenya's GDP once operational.

At the time of the feasibility study, oil had not been discovered in Turkana County. This discovery raises the viability of the project on Kenya’s economy. Some observers are looking at an EIRR greater than 25 per cent. Its contribution to kenya's GDP will be even higher than the projected five percent.
 Related Stories     http://eaers.blogspot.com/2012/02/kenya-to-begin-construction-of-gateway.html 
                                http://eaers.blogspot.com/2012/04/awaiting-birth-energy-cities-in-kenyas.html                                        

Monday, 9 July 2012

Construction of JKIA's Green Field terminal begins in August.


A parking lot at Terminal 4: the Green Filed
 terminal will add another 60 parking bays
CONSTRUCTION OF THE  US $640million Greenfield Terminal at JKIA,Nairobi, will commence in August 2012, we can report. Officials are cagey about the details, only confirming the commencement date. They would not say who the contractors are. However, we have reliably learnt that the contract has been signed.

Among the contracts signed is the supervision contract for the development of a green field terminal at Jomo Kenyatta international Airport, Nairobi. The terminal will be developed on a design, build, finance, operate and transfer (DBFOT) basis. The work will last 30 months, meaning terminal shall be completed early in 2015.


The Greenfield terminal will have a floor area of 172, 000 m2. It will be the premier hub terminal in Africa equipped for efficient connectivity for transiting passengers. It will have 50 international and 10 domestic check-in positions; 32 contact and 8 remote gates; an apron with 45 parking bays and linking taxiways and a Railway terminal.

The Greenfield terminal to be developed in two phases will expand JKIA’s capacity by 12 million passengers to more than 20 million passengers a year in Phase I. It will have a parking capacity, including “remote parking” for 60 aircraft bringing the total numbers of available parking slots over one hundred aircraft. It will also separate the arrival and departures gates.


The terminal complements a five- year plan that began in 2007 to expand the capacity of the airport from 2.5 million people a year to 6 million to date. The previous expansion plan which incorporates the construction of terminal 4 increased the size by creating a parking for 37 aircraft up from 20 previously. This phase cost a whopping US$200 million.

The green field project has a phase II. This will be constructed after the second runway which will connect the green field terminal Phase I. Phase II will expand capacity by the same proportions as Phase I. This will raise the size of JKIA to more than 600,000M2


It is not clear who will fund the project. However, it is understood that the authority was in negotiations with two Chinese banks for a concessional financing deal for the project. The financing deal is meant to “protect KAA’s interests.” This means that contractor cannot just accept any interest rate from his financiers, but will have to negotiate a financing deal acceptable to KAA. Alternatively, he will have to accept the financing negotiated by KAA.  For the works to begin in a month’s time, a financing deal acceptable to both parties must be in place.

Officials still cagey about the contract details, citing lack of authorization. However, a Chinese Construction company CATIC is working on terminal 4 which is due for completion next month. Could it be the one to build the green field terminal? That is a matter of speculation.
 
The new terminal, once complete will make Jomo Kenyatta International Airport, JKIA, the aviation hub of East and central Africa. In fact owing to its geographical location, Nairobi is the natural aviation hub of Africa. Already the airport is the busiest cargo hub in Africa, handling some 30 Million tones of cargo a year. The cargo is mainly Horticulture and floriculture products from Kenya and the East Africa region.

 Nairobi has become the financial, manufacturing, medical, educational and diplomatic hub in the east and central Africa region. These factors put lots of pressure on the Airport to also modernize and become the aviation hub of Africa.

JKIA is also home base for Kenya Airways, one of the most successful airlines in Africa.
The airline plans to expand its fleet to 107 from the current 39 over the next ten years.

Given such an expansion plan by its natural airline, JKIA would need to expand its facilities to accommodate her. Passenger traffic at JKIA is projected to grow at an average 12 per cent for the next twenty years. It is expected that by 2016, when the green field terminal is expected to be completed, the airport will be handling more than 15 million passengers.

 To be developed on a PPP basis, the new terminal has an internal rate of return of 16 per cent, a feasibility study established. JKIA directly contributes about 10.9 per cent of the GDP, says the authority’s handbook for 2011/2012.

The Airport will be connected to the city by a high speed Commuter railway Line. 
see Related story http://eaers.blogspot.com/2012/02/authority-awards-640-m-contract-for.html
For updates on this story please visit http://eaerb.blogspot.com/2012/08/kaas-green-field-terminal-back-on-track.html

Thursday, 5 July 2012

Fueling a fossil fuels glut?

NEWS ABOUT NEW FINDS OF natural gas and crude oil fields has become regular in this region this year.  Every week, we are bombarded with the good news of a new oil find inn Kenya of LNG find in Tanzania. 


Our neighbours such as Uganda and South Sudan have been there before. Uganda is expected to start producing  20,000 barrels per day(bpd) soon; South Sudan has just shut down its 355,000 barrels per day wells.


News in Kenya is that the crude oil potential  exceeds expectations. In Tanzania reports of new finds of natural gas  wells are almost a weekly thing. 


We should cheer the new finds. After oil are causes for abundance elsewhere. But these news began to worry me. No I am not worried about  civil strive. I am worried about Economics of fuels: Could we be fueling a fuel glut in future? But I thought I was just letting my mind run wild until I stumbled  on a review of a paper  by a senior fellow at Harvard University, who thinks in the same lines.


He argues that new oil finds coupled with advances in extraction technologies could pump 110 million barrels per day by 2020 just when the oilfields in East Africa are expected to come on stream. At that time production could exceed demand leading low crude prices.  


Could our investment go to waste?  or are our imaginations running wild?
 Read  the review at http://www.thenewamerican.com/economy/markets/item/11942-harvard-senior-fellow-peak-oil-is-history

Monday, 2 July 2012

Africa’s largest wind project still steaming on


A wind power farm: LWTP steamingon
THE LAKE TURKANA Wind power project, Africa’s largest wind power farm is on course. However, it is running behind schedule because guarantee from the World Bank are yet to be granted, investigations by this publication have established.

This puts paid to  rumours that the government has poured cold water on the project. The World Bank, which is to co-guarantee the €582 million debt, has slowed down the progress on the project. This is because it came on the scene only this year and has to do some due diligence of its own before giving the nod. The other co-guarantor, the Kenya government, has already issued its letters of support.

Due to the comfort from the government’s commitment, all contracts necessary have been signed and loan documentations are in place. Among the development contracts in place include; Aldwych international will oversee construction and operations of the plant.  Vestas BV will provide the maintenance of the plant in contract with LTWP.  

The debt financing is being provided by a consortium led by the African Development Bank. Standard Bank of South Africa and Nedbank Capital of South Africa are co-arrangers.

 The power produced will be bought at a fixed price by Kenya Power (KPLC) over a 20-year period in accordance with the signed Power Purchase Agreement (PPA).  Among the contracts that are in place is a 20-year fixed price Power purchase Agreement (PPA) with Kenya Power and lighting Company, KPLC.  KPLC is the sole distributor of electric power in Kenya.

The World Bank’s commitment is expected later this year the way for the project’s roll-out.  The project is expected to roll later this year. Both the financiers and contractors are confident that the World Bank approval will be granted soon.

Lake Turkana wind Power farm, at full capacity will generate 300MW of wind power, the cheapest power in Kenya. This will be 20 power cent of the total power generated in Kenya for now.  Based in Loiyangalani in Samburu County, the Lake Turkana wind power project includes installation of 385 wind Turbines on a 40,000 hectare piece of land, the associated overhead electric grid collection system and a high voltage substation.  See related story at http://eaers.blogspot.com/2012/01/africas-largest-wind-power-farm-set-to.html

The Project also includes upgrading of the existing 204km road from Laisamis to the wind farm site, as well as an access road network in and around the162Km2 site for construction, operations and maintenance. 
The Kenya Electricity Transmission Company Ltd (Ketraco) is constructing a double circuit 400kv, 428km transmission line to deliver the LTWP electricity to the national grid.  The line will also be used to transport the proposed power import from Ethiopia.

In fact, our investigations established, it is this proposed link from Ethiopia, also funded by the World Bank, which is said to have run into a storm due to the Bank’s social reform agenda, which does not sit well with Ethiopia. It is this reform agenda which, analysts fear, could stall the project.  

The Turkana project, which will cost €582 million, is the largest private sector investment in Kenya’s history. It will engender a lot of benefits to the country in its 20-year life span, company officials say.
Among these is cheap power at US$0.12 cents per Kwh. Further, being a green energy project, Lake Turkana wind power will earn carbon credits at a rate of €10 million a year for a total of€200 million over the life of the project.  The income is to be shared with the government and invested in the community.
It will save the country €120 million a year in fossil fuel imports  as it will cut demand for  fossil fuel used in power generation. Other benefits include tax-revenue estimated at €22.7 million per year or €450 million over the life of the investment.