Implementing Agency: GEOTHERMAL DEVELOPMENT COMPANY (GDC)
Although the proposed ADF PRGs will be a programmatic approach designed to cover GOK, GDC and/or KPLC reimbursement obligations to the selected letter of credit issuing banks associated with non-payment by KPLC under the respective PPA for (A) power generated and ready to be evacuated by the IPP as a result of KPLC's inability to receive the power under the take or pay arrangement or (B) power not generated by the IPP as a result of GDC's failure to provide steam in accordance with the PSSA.The proposed coverage will be for payments due to the IPPs at US$0.05c/Kw/h as revenue lost for up to [insert number] months. GOK, KETRACO, GDC, and KPLC will discuss internally on which of the perceived risks are to be covered and how the risks will be allocated.The four entities will also have to agree on a detailed timeline/Gantt chart for the completion of the SGS and the TL that seeks to ensure that the SGS and TL will be completed and commissioned prior to the commissioning of the power plants and which indicates each agency's responsibility. However the project sponsors have raised concerns about other key risks, including a delay in the construction of the transmission line and delays in the construction of the steam gathering system. ADF is proposing a structure that would involve commercial banks (the "L/C Banks") issuing, at the request of KPLC and/or GDC, revolving letters of credit ("L/C") in favour of the three (3) selected IPPs, which the IPPs would have the right to draw upon in the event of a non-payment under the PPA or inability to generate electricity due to GDC's default under the PSSA. The L/C Banks will enter into a reimbursement and credit agreements with KPLC, GDC and /or GOK, pursuant to which such entity would undertake to repay the commercial banks any amounts drawn by three (3) IPPs under the L/C within a specified agreed reimbursement period.The ADF PRG would guarantee repayment obligations under the said reimbursement and credit agreement. The Republic of Kenya will enter into an Indemnity Agreement with the ADF pursuant to which it undertakes to repay ADF on demand for any payments made by ADF to the L/C Banks under the PRGs.
The objective of this Program is to provide guarantees in connection with the non-payment under the Power Purchase Agreements between KPLC and the IPPs due to either (i) KPLC's inability to take power generated and ready to be evacuated by the IPPs or (ii) the IPPs' inability to generate power due to GDC's default under the Project and Steam Supply Agreements. By mitigating the risk of non-payment to the IPPs, the Program will increase the bankability of each IPP project and will contribute to an increase access to clean energy a decrease in end-user tariffs in the medium to long term, and an increase the national electrification rate. It will also enable further development of renewable energy projects.
Kenya is currently experiencing significant shortages of power due to insufficient generation capacity. The GoK is seeking to address this by encouraging private sector participation in the power sector through the use of independent power producers (IPPs). Kenya's power industry generation and transmission system planning is undertaken on the basis of a 20-year rolling Least Cost Power Development Plan (LCPDP) that is updated every year. According to the latest LCPDP, the country has an installed electricity generation capacity of 1,424 MW and a reliable capacity of 1,397MW under average hydrological conditions. The unsuppressed peak demand stands at 1,146MW. This leaves no reserve margin to allow for reduced hydro generation as is being experienced currently, as well as plant breakdowns. In this vein, the Bank Group is trying to assist Kenya's efforts to increase its generation capacity and reduce the gap that currently exists. Poor access to energy/power is one of the major challenges for a successful economic transformation on the African continent generally and in Kenya specifically. This objective is underpinned by the AfDB's Ten- Year Strategy for 2013-2022, aiming to help member countries to gradually transition to "Green Growth" through financing sustainable infrastructure. Furthermore the project supports the Bank Group's Energy Sector Policy which promotes innovation to increase financial flow in the energy sector, energy security, increase in access, and renewable energy. To facilitate the participation of the private sector in the energy sector, the African Development Fund (ADF) proposes to extend Partial Risk Guarantees in support of the following three IPPs who won the tender to generate power from the Menengai geothermal field: Sosian Energy, Quantum Power East Africa and Ormat Consortium. The Strategic Framework for the African Development Fund Partial Risk Guarantee states that private undertakings that involve sovereign exposure carry an additional risk premium as they are subject to, among others, political risks including government's failure to honour commitments. As a result, the ADF PRG was approved by the ADF Deputies as a means of stimulating additional private sector investments in low income countries and to support the strategic objectives of the ADF and the Sixth General Capital Increase by complementing existing instruments through which the Bank Group supports private sector development and attracts private financing for development