The Kenya Electricity Transmission Company (Ketraco) is edging closer to signing a Sh45 billion contract to build two key transmission lines, which will supply at least 300MW power to the national grid.
Ketraco’s Chief Executive John Mativo said in an interview that negotiations for construction of the lines under the Public-Private Partnership (PPP) model are expected to be concluded by March, even as the cost of the project rises by Sh3.6 billion from projections made last year.
Construction of the 73km 220Kv Kisumu-Kakamega-Musaga line, and 179km 400kV Lessos-Loosuk line will be undertaken by pan-African firm, Africa50 and India’s national electricity transmission firm, Powergrid.
Negotiations for the project draws to a close just three months after Ketraco terminated a Sh96 billion contract with India’s Adani Group, in the wake of revelations that it had engaged in corrupt activities in other countries.
Adani was to build 206 km 400kV Gilgil-Thika-Malaa -Konza, 400/220/ 132 kV substation at Rongai and 95 km 220 kV Rongai-Keringet-Chemosit lines, at a cost of Sh96 billion.
The Treasury had last year projected that the transmission lines set to be built by Africa50 and Powergrid would cost Sh41.59 billion, but new details from Ketraco show that the total project cost has since risen to Sh45.19 billion.
On Thursday, Ketraco said that it had agreed with the companies on four of the six key components of the contract, including total cost of the project ($347.67 million), cost of debt (7.25 percent) and the project’s annual revenue requirement ($60.32 million).
The two sides are still negotiating about the debt-equity ratio to be applied for the project, and what return investors should earn from the money they put in the project as equity.
“So far the cost of debt is around 7 percent which is lower than how much we borrow at. We are trying to get them to reduce from 16 to 14 percent but we know in their country they get 15.5 percent. We hope we can get a position in between,” Mr Mativo said.
Ketraco is also pushing the companies towards a debt:equity ratio of 80:20, from their current position of 77:33, since the cost of debt is nearly half of the cost of equity.
Initially, the two investors proposed to have a 75:25 debt/equity ratio mix and an 18 percent return on equity.
The two sides are hoping to conclude negotiations ahead of next month to give room to public participation to be undertaken and for Ketraco to seek approvals from relevant authorities, Mr Mativo said.
Ketraco said it hopes that all processes will be concluded this year, followed by the construction that will take two years.
“We’ll try as much as possible to see how we can reduce annual revenue requirements so that the overall tariff on the day we apply will have minimum impact. We’ll have to ensure that it’s below the inflation rate at that time so that it's affordable to Kenyans,” Mr Mativo said.
Africa50 expressed interest to build and operate the two lines in 2018 and negotiations have been happening since.
Mr Mativo said the line from Loosuk to Lessos is expected to evacuate 300MW power generated by the geothermal development corporation (GDC) in Longalani.
“This line allows wind generated power from Longalani to flow to the western part of the country and allows the 300MW that GDC plans to generate in the Mpaka area to also flow into the grid,” he said.
The line from Kibos to Kakamega to Busaga will see a 220kv substation built in the Western region, to address frequent power outages in the region.
