We may have to wait longer for cheap power if the financiers have their way

Tuesday June 19 2012



When will the Kenyan consumer start enjoying cheaper electricity? I was hoping that the deal we are forging with Ethiopians would mature quickly.

Just to bring readers up to date, we plan to import power from Ethiopia which, unlike Kenya, is endowed with massive hydro-electricity potential.

As a matter of fact, negotiations have moved quickly. In March, we signed a power purchase agreement committing the Ethiopians to sell to us 400MW for 25 years.

Mark you, 400MW is just under 30 per cent of all the electricity consumed in Kenya right now. This deal could be a game-changer for Kenya especially if the power connection is done within two years.

The price we have negotiated with Ethiopia is very competitive. At 7 US cents per unit, the Ethiopian connection will give our national grid its cheapest source of power.

Critics say that it does not make strategic sense for Kenya to give away nearly 30 per cent of its power needs to a country with questionable democratic credentials.

Have we handed Ethiopia a tool it may want to use in future to blackmail Kenya as it presses its hegemonic and geopolitical interests?

What I see in this deal is perhaps the most significant attempt so far to develop trade in electricity in the region. It is an important step towards rolling the much-vaunted East Africa Power Pool.

And, Ethiopia has merely moved to grab an opportunity to sell surplus electricity to its power-hungry southern neighbour.

This is going to be one of the biggest energy projects in the region. It is a complex scheme involving the construction of a power line with the capacity to carry 2000MW from a place called Welatya Sodo in Ethiopia all the way to Suswa in Rift Valley, a 1,045- kilometre distance.

Besides the power line itself, multiple sub-stations and boosters will have to be built along the way.

The fear right now is that this project may face major delays mainly due to conditions imposed by the World Bank.

In the initial stages, indications were that the project would go to the Chinese who are very good friends of the Ethiopians.

Indeed, it was planned against the backdrop of concerns in Western capitals that the Chinese Exim Bank was beginning to out-compete the World Bank and the OECD countries in major infrastructure projects in sub-Sahara Africa.

In this specific case, the Chinese were coming in with several advantages. Ethiopia, with its poor governance record, was not going to meet the project level safeguards which the World Bank usually demands.

And, the Bank was not going to weaken its own standards to compete with the Chinese on the project.

The choices for the governments of Kenya and Ethiopia were stark: Either accept World Bank financing and expose the complex project to politically difficult social and environmental conditions, or go with the Chinese who are usually prepared to fund projects without insisting on too many conditions.

It was the World Bank which clinched the lucrative deal, committing $243 million to the government of Ethiopia to fund its side of the transmission line, and  another $441 million to the Kenyan Government to fund the construction of its side of the line.

Two other international lending institutions joined the fray, with the African Development Bank committing a total of $119 million for the Kenyan side and $236 million for the Ethiopian side, and the French Development Agency committing $82 million for the Kenyan side.

The upshot is that just after a few months of implementation, the project is suffocating with excessive World Bank conditions.

The Bank has demanded that the Ethiopian utility regulator be subjected to a completely new audit in accordance with the disclosure standards it has prescribed.

Both Kenya and Ethiopia must produce resettlement action plans specifying the safeguard measures for people who may be displaced by the transmission line.

It is a very long list of conditions which Ethiopia and Kenya must comply with before the loan approval goes to the Bank’s board. Clearly, this thing will not happen soon.