MIGA backs long-term commercial financing for Kenya power plant

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The Multilateral Investment Guarantee Agency (MIGA), the political risk insurance arm of the World Bank Group, is continuing to support  Kenya’s energy sector by providing investment guarantees for the construction of a 83-megawatt heavy fuel oil plant.

The power plant, operated by Triumph Power Generating Company Limited,  is part of Kenya’s Least Cost Power Development Plan, which calls for an increase in the number of independent power producers (IPPs) and a more diversified energy mix. Through its lending and guarantee instruments, the World Bank Group is helping to mobilize the nearly $1 billion in financing required to add 600 megawatts to the grid through IPPs. MIGA is also providing coverage for Thika Power Limited and Olkaria III, Kenya’s first geothermal IPP.

MIGA is providing $102.5 million in breach of contract cover to Industrial and Commercial Bank of China and Standard Bank of South Africa for their long-term commercial financing to Triumph. This represents the first time MIGA has issued a contract of guarantee to a Chinese investor or lender. In addition, MIGA is providing $11.1 million in coverage to CfC Stanbic Bank Limited covering its swap arrangement with Triumph to hedge against long-term interest rate risk. The project is further supported by a partial risk guarantee from the World Bank’s International Development Association that backstops a letter of credit from JP Morgan Bank of London.

“We are pleased to support this investment that will help Kenya address the severe power shortages it has been facing,” says MIGA Vice President and Chief Operating Officer Michel Wormser. “Additional generation provided by the project will contribute to economic growth in the country.”
The heavy fuel oil plant is being developed on a build, own, and operate basis approximately 25 kilometres from Nairobi. Triumph will enter into a 20-year power purchase agreement with Kenya Power and Lighting Company.

Kenya has historically relied on hydropower for the bulk of its power generation. During times of drought, when hydropower drops in supply, Kenya has had to turn to costly emergency diesel-fired plants. Heavy fuel oil plants offer a viable and lower cost alternative than diesel-fired plants to address the short-term energy deficit in Kenya. Over time, as more renewable energy plants come on line, the heavy fuel plants are expected to transition from base to peak-load operation.

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