“Proceedings at the National Energy Conference held in Nairobi revealed that securing funding for projects is a challenge that might impede realisation of Vision 2030 goals”

Between now and 2030 the energy sector is looking for about $57 billion to finance various projects. On one hand, closing financing deals for various projects is taking too long to achieve, while on the other financiers are reluctant to take risks in the absence of sovereign guarantees. With a weak balance of payment, Treasury might not be in a position to issue such guarantees.

At the conference, government and energy-related parastatal representatives said they were frustrated by the slow financial closures of projects meant to provide electricity. Such projects include wind power, geothermal, and a number of plants supported by independent power producers. The trend has prolonged the country’s reliance on expensive thermal generation that depends on imported oil.

From the World Bank’s , the country has fulfilled most of the requirements needed for energy projects financing. The bank said local projects are viable citing strong and secure power demand; the existence of an effective regulatory and institutional framework that is both efficient and transparent; full government support for power projects; and private investors and financiers’ willingness to invest. The bank has instruments in place to provide partial credit and risk guarantees to both foreign direct investors and commercial financiers.

However, the government has to provide guarantees to cover such risks due to political uncertainty, currency fluctuations, and regulatory risks that may impact on tariffs and licenses. These country risks have the potential to frustrate debt servicing. President Kibaki, speaking at the conference, directed both Treasury and the Energy ministry to come up with modalities to raise funds locally from institutions such as pension funds to finance key projects.

The government has been raising funds through infrastructure bonds and recently targeted the Kenyan Diaspora. A player in the energy sector has also issued bonds for power generation development.The president also urged local banks to form a consortium that will provide funding for rebuilding the ageing Mombasa-Nairobi petroleum pipeline.

A consortium of local banks provided over Sh8 billion to Kenya Pipeline Company (KPC) to fund construction of the second Nairobi to Eldoret pipeline which is about to be completed. KPC has one of the strongest cash flows in the country, secured on a base of reputable customers with a strong current and future demand base.
If funding from western financiers proves difficult to conclude mainly because of lengthy processes and insistence on sovereign guarantees, the country might pursue the eastern-window provided by emerging partners such as China and Japan. Many have argued that investment arrangements with eastern partners have not always been transparent or necessarily competitive. However, traditional western financiers have shied away from local projects.

The Kitui coal project is a potential candidate for eastern sourced capital. If mined, coal will have the greatest multiplier effect on the economy. It will produce power, fuel heavy industries, power potential steel and cement industries, replace imported oil, and provide exports in case of surpluses. The government should recognise this enormous “game-changer” sitting in Kitui and develop the right regulatory and institutional framework to fast track the mineral’s exploitation.

At the conference, Prime minister Raila Odinga urged Treasury to speed up formulation of the legal and regulatory framework for public private partnerships (PPP).As far as petroleum infrastructure development goes, private investments should be enticed to free government funding to other priority areas. For this to happen, policies and long term planning for infrastructure projects should be clear, consistent, and predicable.

The conference touched on other energy areas that need funding. Already, the African Development Bank is providing financing for green projects. There is also need for funding of research in renewable energy as well as human resource development. Conference participants included private investors interested in the energy sector. They expressed concern over bureaucracy and the absence of relevant, supporting, information on investment.

Conference attendants concurred that a one-stop-shop should be established within the Energy ministry to guide aspiring investors. Kenya has a lot to work on if it has to successfully close power project finance deals. The country’s leadership needs to focus on minimising risks to unlock finances. At the same time, Vision 2030 managers need to rethink how the country will finance all the goals, for without sufficient funding the dream may as well turn into a nightmare.