|Rift Valley Railways: Frustrated by|
IFC's last minute withdrawal
The World Bank, as a development Finance institution, is conspicuously absent in the high profile sectors in east Africa such as transport and energy infrastructure. And where it is present, there are loud complaints that its drags progress.
Africa’s major development bottlenecks include transport and energy infrastructure. Given their multiplier effect on economic progress, Africa has prioritized investment in infrastructure which has been wanting for years. Now there is a backlog that has to be produced before we even begin to talk of meeting future demand.
|Bujjagali:Funded by WB after Uganda |
threatened to go it alone
The backlog is partly blamed on the West which for years tried to make “Africa the biggest charity project in the world,” says the Foreign policy Journal. Consequently, Western aid to Africa was for years, just promises with momentary flickers of real investment. Now Africa is in a hurry to expand and modernise her Sea Ports; Airports, roads, Railways and power generation capacity- in most cases, large projects are needed.
For instance to open up the Northern region and link with her northern neighbouring countries, Kenya must build a second transport corridor from Lamu Port to Ethiopia, South Sudan and even further to D R Congo. That corridor requires huge investment (US$23 billion) to build a 32-beth harbour, a railway line extending more than 2,000KM and, a highway and an oil pipeline. See also http://eaers.blogspot.com/2012/07/lapsset-biggest-business-venture-in.html
In addition, the country needs to expand its power generation capacity and build other roads inland, expand the Mombasa Port and upgrade the Northern transport Corridor. These are huge demands that would put immense pressure on anyone, making them impatient with laggards.
The World Bank is one such laggard for there is wide chasm between its procedures and Africa’s development ambitions. While Africa is in a hurry to invest in infrastructure to meet pent-up demand, the World Bank is still talking small projects- a few Kilometres of tarmac roads, go slow on railways, build small power generation plants ad infinitum.
And Africans are pissed off. Consequently, many high profile borrowers look elsewhere for funds conveniently ignoring the World Bank. They seek for funding either in the east or look inwards in the domestic capital markets or even the African Development Bank. A number prefer a mix of all sources of finance.
Take Kenya’s energy sector for example, for a period of 35 years, between 1978 and 2013, the World Bank has spent US$300 million to generate 150 MW of geothermal power in Kenya. To meet the demands of Vision 2030 and jump to be a middle income country, Kenya will need to build a power generation capacity exceeding 10,000MW by 2030. At World Bank’s pace, this will take more than 2000 years.
To meet their targets, Kenya’s power generation companies, KenGen and the Geothermal Development Company,GDC, have found other options. Among these are PPPs, joint-ventures, budgetary allocations and capital market instruments. The government of Kenya, for instance, together with AfDB and other financiers, has financed GDC to the tune of US$500 million to develop 400 MW(equivalent of 26 per cent of current output) of geothermal power at Menengai by 2016.
GDC is preparing to start phase two of its Menengai wells to produce another 1500 MW. The company plans to produce 3000 MW of geothermal power by 2020, just seven years down the road. The Africa development Bank is ready to finance the second phase. In fact, sources say, it is studying the application for funds.
AfDB is exploiting the knowledge acquired financing the Kenyan model to craft similar models for geothermal development in Tanzania and Mauritius.
For its part, Ken Gen, the leading power generator in Kenya, which inherited the 150 MW Olkaria geothermal power plant funded by the World Bank, is looking east for US$5 billion over the next to five years to generate an additional 1500 MW of geothermal power. The company plans to raise its generating capacity to 3000 MW by 2018 from the current 1286 MW. It will commission an additional 280 MW of geothermal power later this year. funded by a mix of sources. KenGen also borrows from the local capital markets by issuing corporate bonds. She has a US$250 million bond in the market and will soon float an asset backed bond worth US$350 million.
The World Bank, on the other hand, is busy funding expensive power sources in Kenya, such as the 80 MW thermal plant near Nairobi worth an estimated US$50 million. It has also funded a 50 MW wind power unit at Thika on the Northern outskirts of Nairobi.
It is notable that the Bank refused to provide sovereign guarantees for the US$650 million Lake Turkana Wind power project. The project is expected to generate 300MW of wind power. The AfDB, which is the lead arranger for the project, is said pressing the government of Kenya to provide such guarantees in order to unlock the funds. Both the government and AfDB rejected World Bank’s reasons for refusing to guarantee the project.
It is not just in Kenya where the World Bank is an irritant. In Uganda, the government rejected the Bank’s advice to reduce the Karuma hydro project from 750MW to 400-450MW choosing instead to finance the project from own resources. Uganda has good reason to reject World Bank’s advice; in 2005 she rejected a similar advice on the 250MW Bujagali hydro project. The Bank only relented when Uganda also chose to go it alone. Bujagali is now on stream, but demand for power in Uganda has more than doubled necessitating the construction of another large source.
In the late 1990s, Tanzania proposed to build a second hydro dam at Kihanzi which the World Bank shot down owing to protests over the potential demise of Kihanzi toads. To date, Tanzania still suffers power outages due to rationing. Industrialization in Tanzania has stalled due to lack of power.
On transport infrastructure, the World Bank is wholly absent in Africa. Perhaps because it still wants to do micro-project while Africa is looking at mega projects. Here is where the African development Bank and other DFI’s from the east such as JICA - the Japan international co-operation agency, come in. In fact, AfDB and JICA are in what may be called a healthy competition in Africa. These two have teamed with African governments to build thousands of kilometres of roads running into hundreds of millions of US dollars in just about a decade.
Some of the projects such as the Iringa- Arusha-Nairobi -Addis-A-baba road link several countries. It is also funding a number of roads in Kenya and Tanzania including the magnificent Thika superhighway in Kenya. Where they do not act jointly, they invest in complementary projects. http://eaers.blogspot.com/2012/04/roads-upgrade-open-up-tanzania.html
The World Bank is also blamed for stalling the privatisation of Kenya-Uganda Railway. Although IFC, the bank’s private sector lending arm was the lead advisor on the project, she refused to inject her investment in the project 2006 almost killing it. To date the concessionaire, Rift Valley Railways, is still grappling with teething problems.
Of course, the World Bank is financing infrastructure projects in Kenya such the building of unit 4 of Terminal 1 at Jomo Kenyatta international Airport, but the Bank is accused of delaying the completion of the project due to delays in approving and releasing the funds.
This seems to be the case with the 1068KM Kenya –Ethiopia high Voltage direct current (HVDC) electricity highway. The US$ 1.26 billion project is co-financed by the World Bank, the African development Bank, the French Development agency and the governments of Kenya and Ethiopia. AfDB has already approved a US$337.5 million, other financiers and the respective governments have funds ready, but the World Bank is yet to approve US$ 684 million.
|The proposed Nairobi Over pass. Another Berlin wall?|
To its credit, the Bank appears to have woken up to the reality that there are alternatives to its funding and upped its act. It set a record of sorts when it approved the double decker road in Nairobi in a record two months. However, the highway’s economic value is not clear since the Nairobi Southern by-pass serving the same populations is under construction. Analysts in the construction industry have dismissed this project as a white elephant.
See also http://eaers.blogspot.com/2012/10/is-nairobis-double-decker-road.html
See also http://eaers.blogspot.com/2012/10/is-nairobis-double-decker-road.html