Taxpayer billions to bail out Spanish power line builder

Construction of the Lake Turkana Wind Power substation project in Laisamis, Marsabit on January 28, 2016. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

The Main owners of Turkana Wind farm

  • The 40,000-acre wind farm, situated 9km from the shores of Lake Turkana, will inject power to the grid at a tariff rate of €7.52 cents (Sh8.34) per kilowatt-hour.
  • It is owned 12.5 per cent by search engine giant Google.
  • Other shareholders are Dutch firm KP&P Africa, London-based energy company Aldwych International, Danish investment fund IFU, Finnish state-backed investment fund Finnfund, Norwegian PE firm Norfund, and Sandpiper Ltd.

Kenyan taxpayers have been forced to bail out a debt-ridden Spanish contractor building the Lake Turkana Wind power transmission line to ensure the project is completed by June.

Energy Cabinet Secretary Charles Keter said the government has moved in to pay subcontractors and suppliers owed by Madrid-based Isolux, the firm which bagged the tender for the 428km high-voltage line in 2011. The project is yet to be completed.

The deal will see the government directly pay suppliers and recover the cash later from the €42.7 million (Sh4.7 billion) balance due to be wired by the Spanish Government, which is funding construction of the power line.

“We want to deal with contractors directly and then seek reimbursement from the Spanish government. An account has been opened at Kenya Commercial Bank. The bank will issue letters of credit to suppliers to guarantee timely payments,” Mr Keter said in an interview with the Sunday Nation.

“We want to give comfort to suppliers. We are working to beat the June deadline,” the minister added.

About Sh1.6 billion is currently owed to suppliers, the minister said. Isolux was initially expected to complete the power line by the end of 2013.

This latest twist comes at a time when the government and Lake Turkana Wind Power Ltd are locked in a tussle over payment of a hefty Sh700 million monthly fine for the delayed transmission line, which would have seen electricity from the wind field fed into the national grid.

Isolux is battling debts that resulted in Fitch Ratings downgrading the engineering firm’s long-term credit rating to “restricted default”, from ‘C’ short-term default risk.

The total cost of the Loiyangalani-Suswa power line is €142 million (Sh15.7 billion). The line will evacuate electricity from the 300-megawatt Lake Turkana Wind Power, billed Africa’s largest wind farm.

The line is now 60 per cent done, with a target finish date of June, according to Kenya Electricity Transmission Company (Ketraco).

The Loiyangalani substation, being constructed by German firm Siemens, is currently 91.5 per cent complete, Ketraco said.

Mr Keter said the debt and liquidity challenges at Isolux had greatly affected delivery of the line, which saw the firm miss a revised completion date of October last year.

“The company has confirmed that, to date, it has met payments but non-payments are planned under restructuring plans. Group entities are still operating, albeit with liquidity and other financial constraints,” Fitch Ratings said in its latest update on Isolux.

The minister also cited disputes related to land acquisition for wayleaves as slowing down the power line project, as landowners on the project’s path dig in for fat pay cheques.

The Energy ministry, Ketraco and Kenya Power have disputed the Sh700 million monthly penalty, saying the wind power farm was yet to table a technical report showing the project’s output as required in the power purchase agreement (PPA).

“They do not have a system of confirming what they can generate. The PPA envisaged them installing a Scada system,” Ketraco chief executive Fernandes Barasa said in an earlier interview.

Mr Carlo van Wageningen, a director of Lake Turkana Wind Power, confirmed the dispute on the online system, technically known as supervisory control and data acquisition (Scada).

“They have an interpretation of the PPA which is different from ours,” said the project’s founder.

Lake Turkana Wind Power Ltd slapped the punitive penalty after the government missed the December 2016 deadline to complete the transmission line to evacuate the first 50 MW to the grid — to allow the owners to earn income and service bank loans due in June.

The final 365th Vestas turbine was erected on March 5, and the company is now racing to connect all the wind turbines to the substation.