Language: English Original: English AFRICAN DEVELOPMENT FUND PROJECT: Mombasa - Nairobi Transmission Line Project COUNTRY: Kenya PROJECT APPRAISAL REPORT Date: 31 December 2008 Team Leader Mr. E. B. NZABANITA Principal Power Engineer OINF.3 3081 Mr. N. KULEMEKA Principal Socio- Economist OINF.2 2336 Ms. E. MUTAMBATSERE Economist OINF.3 2640 Mr. M. DIMMER Financial Analyst OINF.3 2377 Mr. T. OPIYO Infrastructure Expert KEFO Ms. E. NDINYA Environmentalist Consultant Sector Manager Mr. A.T. DIALLO OINF.3 2125 Sector Director Mr. G. MBESHERUBUSA OINF 2034 Appraisal Team Regional Director Mr. A. ORDU OREA 2064 Mr. E. NEGASH, Power Engineer OINF.3 3931 Mr. P. DURAND, Lead Infrastructure and PPP specialist OINF 3085 Mr. A. KARANGA, Principal Economist OINF.1 2607 Peer Reviewers Mr. D. LEKOETJE, Senior Public utilities Economist ONIF.3 2651
Transcript
Language: English Original: English
AFRICAN DEVELOPMENT FUND
PROJECT: Mombasa - Nairobi Transmission Line Project COUNTRY: Kenya
PROJECT APPRAISAL REPORT
Date: 31 December 2008
Team Leader Mr. E. B. NZABANITA Principal Power Engineer OINF.3 3081
Mr. N. KULEMEKA Principal Socio-Economist OINF.2 2336
Ms. E. MUTAMBATSERE Economist OINF.3 2640Mr. M. DIMMER Financial Analyst OINF.3 2377
Mr. T. OPIYO Infrastructure Expert KEFO
Ms. E. NDINYA Environmentalist Consultant Sector Manager Mr. A.T. DIALLO OINF.3 2125
Sector Director Mr. G. MBESHERUBUSA OINF 2034
Appraisal Team
Regional Director Mr. A. ORDU OREA 2064
Mr. E. NEGASH, Power Engineer OINF.3 3931Mr. P. DURAND, Lead Infrastructure and PPP specialist OINF 3085Mr. A. KARANGA, Principal Economist OINF.1 2607Peer Reviewers
Mr. D. LEKOETJE, Senior Public utilities Economist ONIF.3 2651
TABLE OF CONTENTS I – STRATEGIC THRUST & RATIONALE............................................................................1 1.1. Project linkages with country strategy and objectives......................................................1 1.2. Rationale for Bank’s involvement ....................................................................................2 1.3. Donors coordination..........................................................................................................2 II – PROJECT DESCRIPTION.................................................................................................3 2.1. Project components...........................................................................................................3 2.2. Technical solution retained and other alternatives explored.............................................4 2.3. Project type .......................................................................................................................5 2.4. Project cost and financing arrangements ..........................................................................5 2.5. Project’s target area and population..................................................................................6 2.6. Participatory process for project identification, design and implementation ...................6 2.7. Bank Group experience, lessons reflected in project design ............................................7 2.8. Key performance indicators..............................................................................................7 III – PROJECT FEASIBILITY .................................................................................................8 3.1. Economic and financial performance ...............................................................................8 3.2. Environmental and Social impacts....................................................................................8 IV – IMPLEMENTATION......................................................................................................11 4.1. Implementation arrangements.........................................................................................11 4.2. Monitoring ......................................................................................................................13 4.3. Governance .....................................................................................................................14 4.4. Sustainability...................................................................................................................14 4.5. Risk management............................................................................................................17 4.6. Knowledge building........................................................................................................17 V – LEGAL INSTRUMENTS AND AUTHORITY...............................................................18 5.1. Legal instrument .............................................................................................................18 5.2. Conditions associated with Bank’s intervention.............................................................18 5.3. Compliance with Bank Policies ......................................................................................18 VI – RECOMMENDATION...................................................................................................19 Appendix I. Kenya’s comparative socio-economic indicators ............................................20 Appendix II. Table of ADB’s portfolio in Kenya .................................................................21 Appendix III. Key related projects financed by the Bank and other development partners in Kenya ...........................................................................................................22 Appendix IV. Map of the Project Area...................................................................................24
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Currency Equivalents As of 31 December 2008
UA = 1.48797 USD UA = 1.16914 EURO UA = 114.018 KSh
Fiscal Year July 1st – June 30th
Weights and Measures
1 metre (m) = 3.28 feet (ft) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres
ABBREVIATIONS ADB or Bank African Development Bank Group ADF or Fund African Development Fund BOOT Build, Own, Operate and Transfer EIB European Investment Bank EIRR Economic Internal Rate of Return ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan FC Foreign Cost FE Foreign Exchange FIRR Financial Internal Rate of Return FNPV Financial Net Present Value GDP Gross Domestic Product GoK Government of Kenya ICB International Competitive Bidding IPP Independent Power Producer KARI Kenya Agricultural Research Institute KCAA Kenya Civil Aviation Authority KETCo Kenya Electricity Transmission Company KJAS Kenya Joint Assistance Strategy KPLC Kenyan Power & Lighting Company KWS Kenya Wild Life Service LCPDP Least Cost Power Generation Plan LC Local Cost MoE Ministry of Energy MSD Medium Speed Diesel MV Medium Voltage
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MTP Medium Term Plan NEMA National Environment Management Authority NPV Net Present Value O & M Operation and Maintenance p.a. Per Annum PAP Project Affected Person PCR Project Completion Report PIT Project Implementation Team QPR Quarterly Progress Report RAP Resettlement Action Plan SWAP Sector Wide Approach TBD To be determined WB World Bank
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Loan Information
Client’s information BORROWER: The Government of Kenya EXECUTING AGENCY: Ministry of Energy, Kenya
Financing Plan Sources of financing Amount (UA) Instrument ADF 50.00 Loan EIB 51.31 Loan AFD 51.31 Loan GOK 31.21 Equity Total cost 183.83
ADF’s key financing information
Loan currency
TBD
Interest type TBD Other fees: Commitment fees Service Charge
0.50% 0.75%
Tenor 50 Years Grace period 10 Years FIRR, NPV (base case) 17%, FNPV 52,083KSh million EIRR (base case) 33%, ENPV72,524 KSh million
Timeframe - Main Milestones (expected)
Concept Note approval
26th November 2008
Project approval May 2009 Effectiveness December 2009 Last Disbursement December 2013 Completion October 2012 Last repayment October 2059
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PROJECT SUMMARY
1. PROJECT OVERVIEW
1.1 The project consists of the construction of a 450 km 400 kV double-circuit transmission line between Rabai (Mombasa) and Isinya (located 60 km from Nairobi), the construction of new transmission lines from Isinya to Embakasi substation in Nairobi, the expansion of the Rabai and Embakasi substations, and the installation of shunt reactors at Rabai. This new infrastructure will allow for the evacuation of power from Mombasa to Nairobi and the interconnected system. The transfer capacity will be of 330 MW initially and up to 950 MW, following upgrades as national demand for power increases. 2. NEED ASSESSMENT
2.1 Domestic access to electricity remains low in Kenya and firms report erratic power supply as being one of the most important impediments to their competitiveness. As a result, the government is putting strong emphasis on increasing the number of connections nationally, particularly in rural areas and for industrial sectors. However, Kenya is currently suffering from energy shortfalls and has had to resort to using expensive ‘emergency generation’. The country is heavily reliant on hydro-power (approximately 60% of the power generated), but this source has now been almost fully exploited and the generation of existing hydro-plants has been adversely affected by recurrent draughts. As a result, it is important for Kenya to diversify its generation mix in order to sustain domestic energy security.
2.2 As part of its expansion plan for power infrastructure, the Ministry of Energy (MoE) has decided to locate all thermal plants around the port of Mombasa. This will bring transport costs to minimum as well as associated economic costs, mainly relating to road usage/congestion and pollution from road transport. Thus, in order to evacuate power from Mombasa to Nairobi and the interconnected system, a new transmission line needs to be built as the two existing lines have limited transfer capacity (100 MW, 54% of which was used up in 2008). The line will contribute to the evacuation of the power generated by three committed plants (combined capacity of 290 MW) that are planned to come on line by the time the transmission line is constructed in 2012, and a number of other plants that are included in the country’s generation expansion plan beyond 2012. 3. BANK’S ADDED VALUE
3.1 The Bank considers the support of infrastructure development, especially within the power sector, as a pillar of its strategy in the country. The support of development partners has been sought for this large-scale project and it is included in the CSP for Kenya (2008-2012) as part of the strategy to increase access to electricity and meet demand for power nationally. The development of the country’s energy infrastructure will improve the competitiveness of the economy, spur economic growth, promote local development and contribute to the achievement of the Millennium Development Goals. 4. KNOWLEDGE MANAGEMENT
4.1 The contract to be entered into by the contractors and consultant responsible for the construction of the transmission line will include specific provisions to ensure the training of Kenya Power & Lighting Company (KPLC) engineers. This is a standard feature of contracts entered into by KPLC. This technology transfer component is particularly important for this project as it will be the first time that a 400kV double circuit transmission line is constructed in Kenya. Similar technologies are likely to be used for other projects in the near future, such as for the interconnections with Ethiopia and Tanzania. Moreover, there will be a knowledge transfer towards KPLC engineers through training by the contractors and consultant for supervision and control.
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Result-based Logical Framework
HIERARCHY OF OBJECTIVES EXPECTED RESULTS REACH PERFORMANCE INDICATORS
INDICATIVE TARGETS TIMEFRAME
ASSUMPTIONS / RISKS
Goal: 1.1 To enhance socio economic development of Kenya by increasing availability and reliability of electricity.
Impact: 1.1 Improved availability of reliable and sustainable electricity for economic and social development.
new customer connections. 1.3 Increase in rural electricity
penetration rate. 1.4 Increase in economic
growth rates. 1.5 Improved well-being of the
population in Kenya. (Source & Method) KPLC and MoE annual reports, Government Statistics and Bulletins;; Electricity Tariff studies; and Human Development Report.
Progress anticipated in the long term: 1.1 Total system capacity > 3000 MW by 2018 (vs 1200 MW in 2008). 1.2 120,000 additional customers annually on average until 2018. 1.3 Increased rural electricity penetration rate from 10% to 20% by 2018. 1.4 Maintain GDP growth rate at above 5% over the period from 2008-2018. 1.5 Increased HDI from 0.521 (2005) to 0.60 by 2018.
Assumption statement: 1.1 Government of Kenya’s commitment to full implementation of the energy sector reforms and programmes. 1.2 Adequate financing of the sector by the government and the private sector. 1.3 Political and economic stability of the country.
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Project purpose: 2.1 To increase the transmission capacity between Mombasa and Nairobi in order to boost the power supply in the interconnected system.
Medium term Outcomes: 2.1 Improved electricity supply for Nairobi and the entire country. 2.2 Increased availability of reliable and affordable electricity to consumers.
Outcome indicators: 2.1 Increased supply of electricity nationally. 2.2 Additional power transmitted from Mombasa area to Nairobi and the rest of the country. (Source & Method) KPLC and MoE.
Progress anticipated in the medium term: 2.1 Increase the generation capacity of the interconnected system by 290 MW by 2013 using new plants located around Mombasa. 2.2 Electricity transmitted from Mombasa to Nairobi to be increased by 1,400 GWh per annum by 2013.
Assumption statement: 2.1 Successful construction of generation plants in Mombasa.
Inputs and activities: A. Construction of transmission lines. B. Laying underground cables. C. Expansion of substations. D. Medium Voltage (MV) & Low Voltage (LV) network development. E. Resettlement and Compensation. F. Consultant services for supervision and auditing. Inputs/Resources (UA million) ADF : 50.00 AFD :51.31 EIB : 51.31. GOK : 31.21 Total : 183.83
Outputs: 3.1 Double circuit transmission lines and cables constructed. 3.2 Substations upgraded with auxiliary equipment. 3.3. All project affected persons compensated and/or relocated.
Beneficiaries: 3.1 Contractors. 3.2 Suppliers. 3.3 Consulting firms. 3.4 Local population employed during implementation. 3.5 MoE/KETCo and KPLC.
Output indicator: 3.1 Length of 400 kV Transmission line constructed. 3.2 Length of 220 kV Transmission line constructed. 3.3 Length of 220 kV underground cables laid. 3.4 Number of substations upgraded. 3.5 Number of people compensated. 3.6 Compliance with recommendations for ESMP and auditing requirements. (Source & Method) Project Consultants, KPLC, MoE and NEMA.
Progress anticipated in the short term: By 31 December 2012: 3.1 450 km of 400 kV transmission line constructed. 3.2 5 km underground cable laid. 3.3 19 km of 2x220 kV line constructed. 3.4 Four line bays for 2x220 kV established. 3.5 Compensation of PAPs per RAP. 3.6 Project reports produced quarterly and Project audit reports produced annually.
Assumption statement: Risk factors and conditions vital to success Mitigation strategy/strategies 3.1 Availability of counterpart funding from GoK and co-financiers. 3.2 Adequate resources made available for and timely completion of compensation and resettlement program.
Loan signature Loan effectiveness Bidding Period Evaluation, Contract Award and Mobilization
Manufacturing, installation and Commissioning
PCR
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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO KENYA FOR THE
MOMBASA – NAIROBI ELECTRICITY TRANSMISSION LINE PROJECT Management submits the following Report and Recommendation on a proposed ADF loan for UA 50 million to co-finance the Mombasa – Nairobi Electricity Transmission Line Project in Kenya.
I – STRATEGIC THRUST & RATIONALE
1.1. Project linkages with country strategy and objectives 1.1.1 The Bank’s Country Strategy Paper (CSP) for Kenya (2008-2012) seeks to support two strategic pillars; namely: (I) Infrastructure development for enhanced growth (II) Creation of employment opportunities for poverty reduction. Under pillar I, the country will seek to address the problems of erratic electricity supply, inadequate road network and insufficient water and sewerage services. The CSP is in line with the country’s long term development strategy, Vision 2030, and its five-year Medium Term Plan (2008-2012), in which the expansion of electricity infrastructure is among the top priorities. 1.1.2 The broad objective of the energy policy in Kenya is to ensure adequate, reliable and cost-effective supply of energy to meet development needs, while protecting and conserving the environment. The specific objectives are to: (i) provide sustainable quality energy services for development; (ii) utilize energy as a tool to accelerate economic empowerment for urban and rural development; (iii) improve access to affordable energy services; (iv) provide an enabling environment for the provision of energy services; (v) enhance security of supply; (vi) promote development of indigenous energy resources; and (vii) promote energy efficiency and conservation as well as prudent environmental, health and safety practices. 1.1.3 As recognised in the CSP, in which this project is listed as part the Bank’s pipeline, the Mombasa-Nairobi transmission line will contribute to the sector goal of improved availability of reliable and sustainable electricity for industrial, economic and social development by providing the backbone for the growth of the country’s generation capacity by 330 MW initially, and up to 950 MW after some upgrades to the line. Moreover, Kenya has almost fully utilised its hydro-potential (which represents approximately 60% of the effective capacity), which has recently been affected by recurrent draughts. As such, the new transmission line will allow Kenya to diversify its generation mix, thereby contributing to energy security. 1.1.4 Erratic power supply is reported as one of the most important impediments by economic actors in Kenya and as such, the project will improve the competitiveness of the Kenyan economy. Besides it will benefit rural and urban populations and social institutions by allowing for increased levels of electrification. The project will contribute towards increasing the number of new connections by 120,000 annually, increasing the generating capacity by 1800 MW and increasing rural electricity penetration from 10% to 20% by 2018. It will also contribute to the reduction of dependence on wood fuel and the protection of the environment associated with this.
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1.2. Rationale for the Bank’s involvement 1.2.1 The Mombasa-Nairobi Transmission Line Project is central to the country’s power infrastructure development plan. Indeed, all future thermal plants will be installed in the Mombasa area near the port facilities1 in order to avoid the high road transportation costs of thermal fuels as well as the associated environmental, road usage and congestion externalities. The current installed transmission capacity is only sufficient for the first of three generation plants that have already been committed around Mombasa. The first plant (90MW) is scheduled to come on line by 2010 and in order to meet forecast demand by 2012, it will be necessary to fast track the other two committed plants (120MW and 80MW). Furthermore, the country is currently required to use emergency thermal generation capacity around Nairobi (100 MW) at considerable cost, which is subsidised by GoK. The timely implementation of the project is therefore seen as a priority by the Ministry of Energy (MoE). 1.2.2 The Bank considers the support of infrastructure development, especially within the power sector, as a pillar of its strategy in the country. Indeed, erratic electricity supply is identified as one of the most important impediments to the competitiveness of Kenyan firms. Moreover, the government is looking to grow connection rates for households and social institutions in order to improve livelihoods and promote local development. This project will provide the backbone for the development of generation capacity around the port of Mombasa and distribution infrastructure nationally to meet the increasing demand for electricity and thereby contribute to economic growth, employment creation, improved social service delivery and quality of life. As such, this project is included in the CSP as part of the strategy to increase access to electricity and meet demand for power nationally.
1.2.3 GoK has decided that all new transmission infrastructure will be financed and owned by the State in order to catalyse the development of the country’s generation and distribution infrastructure. As such, support from development partners has been sought by GoK for this large-scale project. The loan amount will finance part of the total costs of the project and is within the country’s sustainable lending limits for 2009. While the Bank has not yet developed a track record of expertise in this sector in Kenya, it has gained considerable experience in the neighbouring countries, which will be applied to this project. 1.3. Donors coordination 1.3.1 The ADB is involved in donor coordination in the country through KEFO, which participates as a member in almost all sector coordination and thematic working group meetings. The Energy Sector Donor Group holds regular monthly meetings with Government officials. The energy sector in Kenya does not have a SWAP, nor does it have a common basket of resources, hence joint missions or common audits are not mandatory. 1.3.2 During Project Appraisal, the team discussed with AFD and EIB representatives in Kenya all aspects of the project including the project costs, financing plan, environmental and social impact assessment and the ESMP. Discussions were also held with the World Bank and JICA, who are actively engaged in the sector. The discussions highlighted the importance
1 Details of the generation expansion plan in the Mombasa area and nationally are provided in Table A.2.1 (Annex A)
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of the transmission line to other projects funded by the development partners (as listed in Appendix III), such as the rural electrification program. Table 1.1: Donor coordination
Size Sector or sub-sector GDP Exports Labor Force Electricity sub-sector 0.9% 0.0% 1.0%
Players - Public Annual Expenditure (average 2007 - 2012)**
Government Donors
ADB 1.8% UA 765 m UA 776 m EIB 7.7%
49.6% 50.4% WB 32.6% JICA 20.8%
OTHERS – UN, EC, BILATERALS 37.1%
Level of Donor Coordination
Existence of Thematic Working Groups Y Existence of SWAPs or Integrated Sector Approaches N ADB's Involvement in donors coordination M (member but not leader) Note: Data presented in the table was extracted from Economic Survey 2008, and Budget Outlook Paper (2009), MTP (2008 -2012), and the Donor Assistance Matrix (as at November 2008)
II – PROJECT DESCRIPTION
2.1. Project components 2.1.1 The project involves the construction of a 450 km 400 kV double-circuit transmission line from Rabai (Mombasa) to Isinya (located 60 kms from Nairobi), the construction of new transmission lines from Isinya to Embakasi substation in Nairobi, the expansion of the Rabai and Embakasi substations, and the installation of shunt reactors at Rabai. The project components are as follows: Table 2.1: Project components
No.
Component Name Est. cost (UA million)
Component description
A. Construction of double-circuit transmission lines
155.4 450 km of 400 kV Rabai –Isinya transmission line Isinya-Embakasi 19 km of 220 kV of overhead transmission line Isinya-Embakasi 5 km of 220 kV of underground transmission line
B. Expansion of
substations
16.34 Expansion of Rabai substation by adding two line bays for accommodating the outgoing double circuit line to Nairobi (Isinya)
Installation of shunt reactors at Rabai Substation for reducing the reactive power in the transmission line and hence reducing power losses on the line, and
Expansion of Embakasi Substation by additional double circuit bays to accommodate the incoming line from Mombasa
C. Compensation 7.58 Compensation of affected persons
D. Project Management
4.49 Consultancy services for review of project design, preparation of tender documents including specifications and supervision of project construction activities
Environmental management including the implementation of the resettlement and compensation action plan
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2.1.2 The above components constitute Phase I of the development of the Mombasa-Nairobi transmission line. Phases II and III will consist in upgrades to the substations allowing for an increase in the line’s transfer capacity from 330 MW to 550 MW (Phase II) and up to 950 MW (Phase III). It has been estimated that Phase II will be implemented in 2019 (UA 37 million) and that Phase III in 2025 (UA 17 million). The exact timing will depend on the growth in national demand and the associated increase in generation capacity. The financing of these upgrades are not considered as part of this project. For completeness, the technical characteristics of Phases II and III are detailed in Annex C.1. 2.2. Technical solution retained and other alternatives explored 2.2.1 Several options were considered for availing power to Nairobi and the interconnected system. Attributes under consideration included the voltage level at which the power would be delivered to Nairobi and other alternative sources of generation. The table below shows all the alternatives considered and the reasons for their rejection.. Table 2.2: Project alternatives considered and reasons for rejection
Project alternatives considered and reasons for rejection Alternative name
Brief description Reasons for rejection
a) Constructing a 330 kV Transmission line
Constructing 330 kV lines from Mombasa to Nairobi instead of the 400 kV proposed.
The 330 kV has lower transfer capacity and higher system losses than a 400kV line. The 400 kV technology is used worldwide, mainly in association with the 220 kV technology and the equipments will therefore be available more cost-effectively. Moreover, the planned interconnections between Kenya and Tanzania are envisioned at 400 kV and will terminate at Isinya substation. The substation at Isinya being at 400 kV level will be of great benefit.
b) Using 220 kV transmission lines
Constructing 220 kV transmission lines from Mombasa to Nairobi instead of the 400 kV proposed.
The amount of power to be carried on these lines is not sufficient to deliver the anticipated power generated from Mombasa.
c) Generate power in Nairobi
Shifting the new generation facilities from Mombasa to Nairobi.
This would require considerable traffic of trucks to deliver fuel to Nairobi on the Nairobi-Mombasa road, which is already congested. The cost of maintaining the road and the negative externalities associated with road congestion and pollution does not make this alternative attractive. Delivery by train was also found unattractive given the current state of the rail network. Moreover, the efficiency of thermal plant is reduced with lower air density at higher altitudes, which is the case for plants located near Nairobi.
d) Imports Potential imports from neighbouring countries.
Uganda, Tanzania and the majority of other East African countries are suffering from shortfalls in generation capacity and therefore do not have the possibility of exporting power. Ethiopia has a very important unexploited hydro-power potential, estimated at up to 30,000 MW and is currently building the Gibe III hydro-power plant with a view to export power to Kenya and other neighbouring countries. A feasibility study for an interconnection between the systems
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of the two countries is currently underway (part-financed by ADB). However, this interconnection will not be in place in time to meet Kenyan demand with certainty in the medium-term. Moreover, Kenya is already heavily reliant on hydro-power and is looking to both diversify its sources of energy and ensure domestic energy generation security.
2.3. Project type 2.3.1 The proposed project is a standalone project which will make it possible to evacuate power generated in the Mombasa area to Nairobi and into the national grid. The availability of power from Mombasa will help the country in meeting the current shortfalls and future demand growth for electricity nationally. 2.4. Project cost and financing arrangements 2.4.1 The cost of the project, excluding taxes, duties and Interest During Construction (IDC) but including physical contingencies (10%) and price contingencies (5% per annum for foreign exchange cost and 10% per annum for local costs) is estimated at UA 183.83 million, comprising foreign exchange costs of UA 154.86 million and local costs of UA 28.97 million. Project costs were estimated using 2008 base prices. Detailed cost estimates are presented in Annex B2 while the summary of the cost estimates by component, sources of financing, project cost by category of expenditure and expenditure schedule by component are shown in tables 2.3, 2.4, 2.5 and 2.6 below. AFD approved the project in December 2008 while EIB is expected to present the project to its Board in July 2009. The split of the components to be financed by each institution was agreed between ADF, AFD, EIB and GoK during the Appraisal mission in December 2008. Table 2.3: Project cost estimates by component in million UA equivalents Components FC costs LC costs Total
Costs Foreign
% A. Transmission lines A.1 400kV Transmission Line A.2 220 kV transmission line comprising of overhead and underground cables
112.44
6.94
12.49
1.73
124.93
8.67
90
80
B. Substations 11.24 2.81 14.05 80
C. Compensation (Way leaves) 0.0 6.52 6.52 0.00
. Project Supervision and Management
3.47 0.39 3.86 90
Total base cost 134.09 23.94 158.03 84.85 Physical contingency 13.41 2.39 15.80 84.85 Price Contingency 7.37 2.63 10.01 73.69 Total project cost 154.86 28.97 183.83 84.24
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Table 2.4: Sources of financing in million UA equivalents Sources of financing FC costs LC costs Total
Table 2.5: Project cost by category of expenditure in million UA equivalents Categories of expenditure FC costs LC costs Total Costs % foreignGoods (Supply & Installation) 130.62 17.03 147.65 80.32
2.5. Project’s target area and population 2.5.1 The project area is the Mombasa – Nairobi route, which the line traverses, covering a total length of 450 km and passing through three provinces: Eastern, Rift Valley and Coast, and six districts: Machakos, Kajiado, Makueni, Taita Taveta, Kwale, Kilifi. The estimated total population of the six districts in 2004 was 3,866,532. The direct beneficiaries of the project output will be economic actors and the population connected to the national power grid into which the project will feed as well as people living along the line route who will be employed or provide services during construction. The project will foster an increase in economic activity (industrial, services, agricultural, commercial) and social wellbeing (households and social institutions) nationally.
2.6. Participatory process for project identification, design & implementation 2.6.1 The main participatory processes undertaken for project identification emanated from developing the Vision 2030, and the first five-year Medium Term Plan (MTP: 2008-2012), which identified development of infrastructure as a priority. Design and implementation modalities benefited from public consultations conducted as part of the ESIA study which involved interviews with communities, stakeholders and PAPs.
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2.6.2 The project benefited from insights of various stakeholders during project preparation and design. Much of the consultations were conducted during the Environmental and Social Impact Assessment study. The approach used in the public consultations involved interviews with local administration (including local leaders), consultations with local communities along the planned transmission line as well as stakeholder consultations with the management of Kenya Civil Aviation Authority (KCAA), Kenya Agricultural Research Institute (KARI) and the Kenya Wildlife Services (KWS) (both in Nairobi and in the project area), Tsavo East National Park, NGOs and other interested parties. Six public consultation meetings (barazas) were held along the route of the planned power line, and additional information was obtained from officials and key persons in the areas visited. Key outcomes in terms of project design include: selection of line route, use of underground cables for a section of the line, incorporation of safety and health campaigns as well as a number of other measures included in the ESMP. This is discussed in detail in Annex B.8. 2.7. Bank Group experience, lessons reflected in project design
2.7.1 The appraisal of the proposed project has incorporated lessons learnt from the Bank’s past interventions in Kenya and other neighbouring countries, such as Uganda and Ethiopia, where similar projects have been implemented. It must be noted that while in Kenya the Fund has not been active in the energy sector, it has nevertheless been active in the agricultural sector where some generic lessons learnt have been useful in designing the current project. One of the most important lesson learnt is that ineffective institutional arrangements very often leads to over-extended implementation periods resulting in cost overruns. Care has therefore been taken to ensure proper institutional arrangements for the project. 2.7.2 Another lesson learnt from previous projects in Kenya and its neighbours is that the non-availability of counterpart funds at the early stage of implementation, especially for compensation, could delay project implementation. This has been mitigated in the project by ensuring that funds are put into an escrow account from which they will be drawn to compensate the affected persons. 2.8. Key performance indicators 2.8.1 The project is designed to allow the transfer of power from Mombasa to Nairobi to meet part of the demand on the national grid and reduce losses on the existing lines between Mombasa and Nairobi. Therefore, the key indicators will be the length of the transmission lines constructed, the equipment installed in the substations in Mombasa and Nairobi, the addition of generation capacity in Mombasa, the power delivered through the new transmission line and the timely completion of the project within budget. The source of data to confirm these indicators will be KPLC’s statistical reports and MoE. The progress during implementation will be monitored by the timely commencement of the works, regular disbursements, consultations with the PIT, timely submission of quarterly progress and environmental monitoring reports as well as annual audit reports.
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III – PROJECT FEASIBILITY
3.1. Economic and financial performance 3.1.1 Results from financial analysis indicate that the project is financially viable. The financial net present value (FNPV) for the Base Case is positive, and the FIRR (17%) exceeds the weighted average costs of capital. Sensitivity tests were also performed linking the identified risks to the project’s financial profitability. Variations considered included changes to the Base Case scenario with regards to initial investment costs and transmission forecasts. Results show that financial viability is robust to ceteris paribus changes of 20% on each variable. A detailed discussion of the sensitivity tests is presented in Annex B.7. 3.1.2 Results from the economic analysis show with robustness that the construction of the transmission line is economically viable (EIRR of 33%). Sensitivity tests are performed taking into account the effect on the economic viability of the project of diversions from estimated investment costs, load forecast, and the cost of unserved energy. With respect to each, results show that viability is maintained on changes of 20%. The Base Case scenario assumes that the transfer capacity of the line is increased over time through two line upgrades (Phases II and III) as national demand grows (requiring investments of UA 37 million in 2019 and UA 17 million in 2025). A scenario where such additional investments are not undertaken was modelled and still supports the financial and economic viability of the project. All computations are detailed in Annex B.7. Table 3.1: Base Case economic and financial returns FIRR; FNPV (WACC of 7.1%) 17%; KSh 52,083 million EIRR; ENPV (EOCK of 12%) 33%; KSh 72,524 million
3.2. Environmental and social impacts Environment 3.2.1 The environmental category of the project is Category 1 since the line spans over a distance of 450 km with a voltage level of 400 kV. In addition the transmission line will mostly cross sparsely populated areas and grasslands used for ranching and grazing, passing along the boundaries of two national parks. As an associated activity, there will be the construction of power generation plants using fossil fuel with capacity of 290 MW by 2012. The ESIA and RAP have been cleared by National and Environment Management Authority and summaries were posted on the Bank’s website on 25 November 2008. In addition, the executing agency, KPLC, placed public notification of the project in the local papers on the 9 October 2007. 3.2.2 The most significant environmental impacts are the acquisition and maintenance of the right of way, clearing of vegetation from sites and line corridor within the Tsavo National Park, construction of access roads, tower pads, and substations. To mitigate adverse impacts, vegetation clearance through the Protected Areas will be done with the guidance of Kenya Wildlife Service (KWS) staff, and will largely follow the existing line and road way leave. 3.2.3 The proposed transmission line is linked to new generation plants to be constructed in the Mombasa area. All plants will need to comply with national environmental regulation and be granted the necessary approvals by NEMA. The design of the Rabai Power Plant, which is
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under construction and is being part-financed by AFD/PROPARCO, has been modified so that the SO2 content of emissions complies with IFC’s General EHS Standards issued in 2007, after the original design of the plant. Climate Change 3.2.4 The transmission line per se will not generate emissions that may have an impact on climate change but CO2
emissions are expected from the associated thermal plants. However, the location of all new thermal plants around the port of Mombasa will help reduce CO2 emissions associated with road transport. Indeed, if the transmission line was not built, new thermal plants would theoretically be installed around Nairobi (which is where a 100 MW emergency supply plant is currently located). It has been estimated that the CO2 emissions from trucks transporting this fuel would be of the order of 100 kt annually in early years, and increasing proportionately to the additions in the generation capacity over time. Moreover, the fuel usage efficiency of thermal plants reduces with altitude. Locating these plants at sea level is therefore best in terms of emissions. Gender 3.2.5 The Kenya National Policy on Gender and Development (2000) is consistent with the Government’s efforts of spurring economic growth and thereby reducing poverty and unemployment, by considering the needs and aspirations of all Kenyan men, women, boys and girls across economic, social and cultural lines. Mechanisms for implementation of the Policy are currently being developed. The initial step has been the appointment of gender officers within government line ministries and parastatals. KPLC has a Gender Officer that represents the organization and a draft Gender Policy for KPLC is in place. 3.2.6 The gender office at KPLC is embarking on an electricity social mobilization and marketing program from which the project will benefit. Aspects being propagated include sensitization on the importance of electricity access on social responsibilities of importance to women such as lighting at home; assisting school going children with homework and reading; security on streets without lighting; water collection in the absence of electric water pumping close to home; and child healthcare in the absence of health centers with reliable and affordable power necessary to maintain the cold chains, particularly for vaccines. Furthermore KPLC is working towards reducing gender disparity at a corporation level. This has necessitated changes in recruitment policy and training opportunities. The implications for the project are that similar equal-opportunity recruitment policies will be applied at construction and operation phases. This is expected to ensure recruitment of at least 25 % female employees during construction of the transmission line, recognizing though that although labour laws promote equal opportunities, construction work conditions have tended to disfavour women 3.2.7 More generally, better access to electricity will promote income generating activities at home which would benefit both women and men. In addition to large scale industry growth, reliable electricity supply will enable the growth of small scale industries which employ or serve women such as grain mills and other food processing activities like sugar syrup making. 3.2.8 Some negative gender related impacts may also be expected, particularly resulting from the planned resettlement exercise, which will cause disruption of economic activities.
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Cognizant of the fact that a number of the households targeted for resettlement are headed by women, the project has put in place mechanisms to ensure that the resettlement and compensation packages are designed for equality, for example, ensuring that access to, and mode of payment for compensation packages, land access and dispute resolution system are not biased against female-headed households and other vulnerable groups. Social 3.2.9 The project will impact on poverty through the creation of approximately 500 jobs during construction and maintenance of the transmission line and the associated facilities at Rabai. Beyond the line will be other financial benefits to suppliers of goods and services through subcontracting and employment created in the process of service provisions. At a national level, reliable power supply will benefit economic sectors and boost economic growth (industrial, agricultural, commercial, etc.). Reliable power supply will eliminate the use of emergency power supplies which are costly and environmentally unsound.
3.2.10 As a result of reliable power supply, social services such as rural schools and health facilities (vaccine cold chains, surgical equipment) will be enhanced. The critical negative impacts will emanate from the dislocation of communities and loss of assets and livelihood (land, crops, trees, houses, etc.). Also, envisaged employment opportunities may not go to local communities. The influx of construction workers may exacerbate the spread of HIV/AIDS/STIs and other communicable diseases among local communities. Despite consultations with KWS, visual intrusion and effects on pristine natural environments in the national parks may impact on the tourism hence job losses could occur. Involuntary Resettlement 3.2.11 Resettlement Action Plan: A detailed Resettlement Action Plan has been prepared, including a compensation plan, in order to address all major concerns relating to social economic issues. Approximately USD 8.7 million has been set aside, which will be included as provisional sums in the project for this purpose. In addition, the institutional and technical arrangements for the implementation of the RAP are outlined in the Resettlement Policy Framework. KPLC (through the Project Implementation Team) in collaboration with Local Councils and village leaders will be responsible for ensuring that vulnerable households have received adequate compensation during the process. Packages for compensation of affected persons will be developed and an implementation schedule for compensation and relocation drawn up. 3.2.12 Grievance Redress Mechanism: Grievances may arise from members of communities who are dissatisfied with the eligibility criteria, community planning measures, or actual implementation of the Resettlement Action Plan. During the initial stages of the valuation process, the affected persons will be given copies of grievance procedures. Grievances will be registered with the Compensation Committee comprising of 2 representatives of the PAPs, the area district officer, area chief(s), 2 KPLC staff from the Way-leaves and Property Sections and the leader of the CTF. The committee will not handle or rule on disputes. The task of this committee will be to receive and verify information concerning grievances such as non fulfilment of contracts, levels of compensation, or seizure of assets without compensation. The committee will seek to satisfy legitimate claimants by attempting to
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reconcile the aggrieved PAP(s) and KPLC through the PIT. If the committee is unable to reconcile the claimant and KPLC, then the matter should be taken to the local courts for settlement. The aggrieved PAP(s) will have the right to pursue the matter through the courts up to the highest level if necessary.
IV. IMPLEMENTATION
4.1 Implementation arrangements 4.1.1 Executing Agency: The Ministry of Energy (MoE) will be the Executing Agency and beneficiary of the proposed loan. MoE created in December 2008 a new investment vehicle that will finance and own on its behalf all new transmission assets: Kenya Electricity Transmission Company (KETCo). KETCo has its own Board of Directors. 4.1.2 KETCo will receive an annual budget from GoK for the financing of new transmission assets. Loans raised from DFIs for the financing of new transmission infrastructure will be paid back out of GoK’s central budget and as such, new transmission assets will be financed in a similar way to public infrastructure such as roads. 4.1.3 KETCo will enter into a management contract with KPLC for the implementation and operation of new transmission projects. KPLC, which will continue to own all existing transmission and distribution assets, has a proven experience in the implementation of transmission projects. KPLC is the largest utility in Eastern Africa and has developed over 3,400 km of high-voltage transmission lines. Moreover, KPLC will be assisted by a Consultant (PB Power) with experience in undertaking similar projects in the region. The relationship between GoK/MoE, KETCo and KPLC is summarised in the table below: Institution Activities relating to Kenya’s new transmission infrastructure GoK / MoE • MoE is the Executing Agency and Beneficiary of loans raised for new
transmission projects • MoE has created a new investment vehicle for new transmission
infrastructure: KETCo • KETCo’s budget for the financing of new transmission infrastructure is
allocated by from GoK’s central budget (including loans raised by GoK for new transmission projects)
• Funds used to pay back loans raised for new transmission projects to be sourced out of GoK’s central budget
KETCo • Investment vehicle set up by MoE to finance the investment costs of and own new transmission infrastructure
• Receives annual budget from GoK / MoE • Enters management contract with KPLC for the implementation and
operation of new transmission projects • KETCo has its own Board of Directors
KPLC • Responsible for the implementation and operation of new transmission infrastructure through a management contract entered into with KETCo
• Responsible for covering O&M costs associated with new transmission assets • Remains owner and operator of all existing transmission infrastructure
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Institutional arrangements 4.1.4 Institutional Arrangements: The project will be a turn-key operation coordinated by a Project Implementation Team (PIT) within KPLC and under the direct oversight of MoE and KETCo’s Board of Directors. The PIT has been established by KPLC to closely supervise the implementation of the project. It will be comprised of a Project Coordinator, 1 Electrical Engineer, 1 Civil Engineer, 1 Environmentalist, 1 Finance Expert and 1 Procurement Expert. The PIT will be strengthened by a consultant (PB Power) for the supervision and management of the project. The financing partners will ensure that the PIT is adequately staffed, both in terms of staff numbers and competences. 4.1.5 The finance expert within the PIT with the assistance of the consultant and the finance department of KPLC will be responsible for preparing separate financial statements and reports for the project. The project financials will be audited on an ongoing basis by the Internal Audit Department of KPLC and on an annual basis by the external auditor. 4.1.6 Procurement Arrangements: All procurement of goods and works financed by the Fund will be in accordance with the Bank’s Rules of Procedures for the Procurement of Goods and Works. The relevant Bank Standard Bidding Documents will be used. The project will be divided into five packages, namely (i) supply and installation of 400 kV double circuit lines (ii) supply and installation of 220 kV double circuit lines and 220 kV underground cables, (iii) supply and installation of substations and reactive compensators; (iv) consultancy services for project management and supervision of ESMP implementation and (v) implementation of ESMP. During the appraisal of the project, it was agreed with the co-financiers that both EIB and ADF will finance the 400 kV double circuit line package, but with two separate contracts to accommodate differences in rules of procurement. AFD will finance the double circuit line and the underground cable package plus the consultant for supervision and management. The government be responsible for financing compensations. A Procurement Plan has been prepared and agreed to. The procurement arrangements are given in Annex B5. 4.1.7 Disbursement: The disbursement of the ADF loan will be on the basis of the direct payment method which entails payment directly to the contractors. However, other methods of disbursement could be used if required, and after approval by the Bank. The invoices shall be approved by KPLC before preparation and authorisation of the disbursement applications by the Ministry of Energy.
4.1.8 Audit: The internal control system at KPLC is satisfactory. The project accounts and financial statements will be audited annually, in accordance with internationally acceptable accounting standards, by an External Auditor acceptable to the Bank. The services of the Auditor will be paid out of the GoK’s contribution. The audited accounts and financial statements of the project and of KPLC shall be submitted to the Bank within six months from the close of the financial year. Furthermore, the project will fall within the normal review program of the Bank’s Internal Audit.
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4.2. Monitoring 4.2.1 The project will be implemented over a period of 36 months. AFD, which is financing the services for supervision and management, is finalising the process of recruiting the consultant. According to the current plan the project is expected to be completed in June 2012. The critical dates for the implementation of the project are given in Annex B.9 in table B.9.1. 4.2.2 The Project will be launched in the second quarter of 2009 and will be field supervised from headquarters at least once a year from 2009 through to 2012. The Kenya Field Office (KEFO) will also carry out field supervisions once a year or on a need basis. The coordination of the missions will be done by the Ministry of Finance and Economic Development in collaboration with the Executing Agency and KEFO. The field missions will be undertaken in accordance with the tentative schedule presented in Annex B.9 table B.9.2.
4.2.3 The PIT, in liaison with the consultant, will prepare and submit to the Bank quarterly progress reports. In addition an audit report will be prepared and submitted to the Bank within six months of the end of every financial year. During implementation, monitoring of the ESMP will be done by KPLC and other stakeholders including KWF, NGOs, local authorities, and village development committees. Quarterly environmental reports will be prepared by the Consultant and copies of the reports will be submitted to KPLC, AFD, ADF, EIB and on request to NEMA. 4.2.4 The supervision consultants shall be required to prepare and submit to the Executing Agency and the Bank, final commissioning reports at the completion of their assignments. Within six months of the commissioning of the project, the Bank, together with the Executing Agency will prepare and submit a Project Completion Report (PCR). 4.2.5 Environmental monitoring will be carried out to ensure that all construction activities comply and adhere to environmental provisions and standard specifications, so that all mitigation measures are implemented. The contractor shall employ an officer responsible for implementation of social/environmental requirements. This person will maintain regular contact with KPLC’s Principal Environmental Officer and the local District Environmental Officers. The contractor and KPLC have responsibility to ensure that the proposed mitigation measures are properly implemented during the construction phase. 4.2.6 Monitoring and Evaluation of RAP: Evaluations will be conducted by assigned firms or NGOs to report on the effectiveness of the implementation of the RAP, covering physical resettlement, disbursement of compensation and effectiveness of public consultation, amongst others. The Ministry of Energy will ensure that all aspects of RAP have been adequately and expeditiously executed according to the implementation plan. The monitoring will cover the review of survey results, formation of relevant committees (including the Compensation Committee), the identification of alternative land for resettlement and farming, adherence to compensation payment schedule, movement and support of project affected persons including the vulnerable households.
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4.3. Governance 4.3.1 KPLC is a limited company listed on the Nairobi Stock Exchange. Private investors hold 52% of the ordinary shares in KPLC with GoK owning the balance. GoK is KPLC's majority shareholder thanks to its holding of preference shares and as a result, KPLC is governed by the State Corporations Act. KPLC's Board and management emphasize their commitment to good corporate governance. The Board has a published Manual; the Board Charter and Code of Conduct. As part of its Manual, the Board has adopted the Guidelines on Corporate Governance developed by the Capital Markets Authority. As a listed company, KPLC prepares audited financial statements, usually within 3 months of the end of the financial year, in accordance with International Financial Reporting Standards (IFRS) and in compliance with the Kenyan Companies Act. The company’s accounts are audited by Ernst & Young, one of the largest international auditing firms. 4.3.2 At a national level, Kenya’s record on institutional reforms and governance remains below the SSA average but is on an improving path. The Transparency International Report for 2008 ranks Kenya 147 out of 180 countries, which is an improvement on earlier performance, when Kenya was ranked among the bottom twenty. In order to improve the integrity of public institutions and governance, the Government has embarked on a review of the legal and institutional framework in a range of areas including the establishment of Public Procurement Oversight Authority (PPOA) in order to streamline procurement, which is one of the main sources of irregularities. For this project, the direct payment method will be used in the interest of efficiency and accountability. 4.4. Sustainability 4.4.1 GoK’s strong commitment to the development of the country’s power infrastructure is supported by the decision to fund transmission projects directly out of the government’s central budget through the newly formed investment vehicle KETCo. This will allow for a separation of the sources of financing used for the development of the country’s generation capacity (funded by KenGen and IPPs), distribution infrastructure (funded KPLC and the Rural Electrification Authority (REA)) and transmission (funded by GoK). This separation of funding sources will allow for a more responsive, efficient and timely development of the country’s power infrastructure. As such, the creation of KETCo will act as a catalyst for the development of generation and distribution infrastructure in order to help achieve the connection targets set by GoK. These new institutional arrangements therefore strongly support GoK’s commitment to this and other transmission projects. 4.4.2 The Mombasa-Nairobi Transmission Line Project is central to the country’s plan to increase the number of connections by 120,000 annually. Indeed, the country is currently experiencing shortfalls in generation capacity and has had to resort to using an expensive emergency generation plant located in Nairobi (100 MW). The national generation expansion plan envisages that all future thermal generation will be installed in the Mombasa area near the port facilities to avoid the high transportation cost of fuel oil and other thermal fuels as well as the environmental and road usage/congestion externalities associated with road transport. The first plant (90MW) is scheduled to come on line by 2010 and in order to meet forecast demand by 2012, it will be necessary to fast track the other two committed plants (120MW and 80MW). However, the existing transmission capacity between Nairobi and Mombasa, comprising 1x132 kV and 1x220 KV lines, is estimated at 100 MW, of which 54 MW was used in 2008. The new transmission line is therefore needed to evacuate power from
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new plants to be located around Mombasa. Besides, relative to other sources of power, thermal plants are the fastest to implement and therefore allow for a responsive expansion of national generation capacity; even more so as a result of the strong participation of Independent Power Producers in thermal plant projects. MoE therefore considers this to be a priority project for the country. 4.4.3 The Operating and Maintenance (O&M) costs for the line will be relatively small, estimated at 2% of total project cost. KPLC will be responsible for covering these costs. As such, all recurrent project costs will be covered under the contractual arrangements in place between KETCo and KPLC. 4.4.4 Lastly, the results of the financial and economic analyses support the sustainable nature of the project both in terms of financial returns as well as in terms of economic benefits relative to the opportunity cost of the funds necessary to implement the project. Tariffs 4.4.5 In 2005, the Regulator drafted a Retail Electricity Tariff Review Policy which incorporates the key tariff policies of the Energy Act (drafted in 2004) and the National Energy Policy of 2004: cost recovery of tariff, social considerations and energy efficiency. Tariffs are to be cost-reflective, allow the utilities a reasonable return and are subject to review every three years. 4.4.6 The Energy Regulatory Commission (ERC) is responsible for setting tariffs in the power sector. Retail base tariffs were increased in July 2008 after remaining unchanged since 2000. The tariff schedule comprises a fixed monthly base charge, an energy charge, and for commercial and industrial customers a demand charge. The domestic tariff category is divided into four consumption blocks with increasing energy charges. The first block of up to 50 kWh per month is called the Lifeline Tariff, which is cross-subsidised by other tariff categories in order to ensure affordability to the poorer users. 4.4.7 Tariffs are adjusted automatically for monthly changes in fuel costs and exchange rates. Fuel costs and exchange rate losses or gains are thus a pass-through for the utilities. In future, any above-average costs arising from the recently approved feed-in tariffs for renewable energy will also be passed through to customers. VAT and levies for the Energy Regulatory Commission of 3 USD cents per kWh, as well as for the Rural Electrification Program (REP) of 5% are added to the electricity bill. As such, REP customers are subject to the same tariffs as KPLC customers. KPLC collects the revenues from the REP customers, and balances these with the REP costs recoverable from the Government. As at the end of 2008, the average tariff stood at KSh 7.9 per kWh (USD 10 cents). 4.4.8 The key motivation underlying the creation of KETCo was to allow the development of the country’s transmission infrastructure without passing on the investment costs to consumers through increased tariffs. As such, tariffs are expected to remain at affordable levels to encourage new connections in the future.
Private sector participation 4.4.9 The legislative and institutional reforms over the past decade have greatly contributed to the creation of an environment conducive to the mobilisation of private capital to finance
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power projects and to the participation of Independent Power Producers (IPPs) in order to contribute to the growth of the energy sector. To date the following key reforms have been implemented:
• The vertically integrated government-owned utility was unbundled into two entities in the late 90s: KenGen (generation assets) and KPLC (transmission and distribution assets)
• Creation of a single regulatory agency responsible for tariff setting, licensing and approval of power purchase and network service contracts. All government subsidies for power purchase have been discontinued (besides for emergency generation)
• The tariffs set by the regulator should be cost-reflective and allow the utilities a reasonable return
• The Government reduced its shareholding in KPLC and KenGen. Both are now listed on the Nairobi Stock Exchange with private investors owning 52% and 30% of the shares in KPLC and KenGen respectively
• The Rural Electrification Agency was established in 2007 to focus on rural electrification
• In December 2008, GoK created KETCo to finance and own new transmission assets 4.4.10 The above measures have contributed to the growing involvement of Independent Power Producers (IPPs) in the sector. There are currently 5 IPPs (4 thermal and 1 geothermal with effective capacity of 143MW2), providing 20% of the grid-based electricity (the balance coming from KenGen). IPPs are expected to play a more important role in the future as the demand for additional generation capacity increases. The presence of IPPs in the generation sub-sector encourages competition among market participants and as such, contributes to the availability of more reliable and cheaper power to the Kenyan economy. 4.4.11 The construction of this new transmission line and the financing of all new transmission infrastructure by the government (through KETCo) will help increase demand for electricity as a result of the following factors: (i) Lower tariffs: investment costs for new transmission infrastructure will not be passed on to customers (ii) Growth in the number of connections: KPLC will now be able to dedicate its financial resources to develop the country’s distribution infrastructure. Additionally, rural electrification programs are being implemented by the Rural Electrification Authority (iii) Improved system reliability and performance: The Mombasa-Nairobi line will contribute to alleviating problems associated generation shortfalls. As a result of this induced increase in demand for electricity, and given that the majority of IPPs operate thermal plants, the transmission line will act as a catalyst for the involvement of IPPs in the generation sub-sector. 4.4.12 In their response to surveys undertaken periodically by the Kenyan Association of Manufacturers, Kenyan firms list erratic electricity supply as one of the most important impediments to their competitiveness. This project and the financing of all new transmission projects by GoK (through KETCo) will provide the backbone for the development of the country’s generation capacity by KenGen and IPPs around Mombasa and provide more reliable and affordable electricity to the country’s economic actors, thereby contributing to the competitiveness of the Kenyan private sector and economy as a whole.
2 Compared to 970MW for KenGen: 719 MW hydro, 135 MW thermal, 230 MW geothermal, 0.4 MW wind
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4.5. Risk management 4.5.1 Key project risks and associated mitigation measures are as follows:
(i) Construction delays. These risks will be mitigated by KPLC’s experience in
overseeing similar projects (over 3,400 km of high-voltage transmission lines constructed to date), the hiring of experienced contractors and engineering consultants, comprehensive project planning and the local presence of ADB, EIB and AFD in Nairobi. AFD, which is currently financing a project implemented by KPLC, has reported that it is being implemented in a timely manner. The financing partners for the Mombasa-Nairobi transmission line will ensure that the PIT is adequately staffed, both in terms of staff numbers and competences. Additionally, the separation of the construction of the line into two components handled by two contractors should help in minimising construction delays.
(ii) Cost escalation. Adequate contingencies have been included in the cost estimates. Cost escalations above that catered for by these contingencies would be covered for by GoK.
(iii) Delays in the construction of generation capacity in Mombasa area. The existing transmission infrastructure between Mombasa and Nairobi will be operated at full capacity once the Rabai plant (90MW) comes on line. The plant is currently under construction and is expected to be completed in 2010. Two other plants have been committed (200MW in total) and are due to come on line by 2012.
(iv) Project Safeguards. Adequate resources for implementation and monitoring of environmental and social issues will be made available in the project. Funds required for the compensation and resettlement of all affected persons will be provided for by GoK ahead of the commencement of construction; this is a condition to first disbursement.
(v) Counterpart funding. The Ministry of Energy considers this to be a priority project for the country. As such, both MoE and the Ministry of Finance provided assurances to the Mission fielded in December of GoK’s strong support to this project and of its commitment to making the necessary funds available. Assurances that these costs will be included in GoK’s Budget were reiterated in March 2009.
(vi) Institutional arrangement pertaining to the creation of KETCo. KETCo is a new entity established to own the new transmission assets. However the operation and maintenance of these assets will be undertaken under a management contract by KPLC, which has developed all of the country’s transmission infrastructure to date. KPLC has vested interest in insuring that the new transmission line is properly maintained as it is the ultimate user of the infrastructure to provide electricity services to its customers. In addition, MoE and KETCo’s Board of Director will ensure that KPLC honours its duties as stipulated in the management contract to be entered into between KETCo and KPLC.
4.6. Knowledge building 4.6.1 The contract to be entered into by the contractors and consultant responsible for the construction of the transmission line will include specific provisions to ensure the training of KPLC engineers. This is a standard feature of contracts entered into by KPLC. This technology transfer component is particularly important for this project as it will be the first time that a 400kV double circuit transmission line will be constructed in Kenya. Similar technologies are likely to be used for other projects in the near future, such as for the
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interconnections with Ethiopia and Tanzania. Moreover, there will be a knowledge transfer towards KPLC engineers through training by the contractors and consultant for supervision and control. 4.6.2 The design of institutional arrangements between MoE, KETCo and KPLC will build on arrangements put in place at the time of the unbundling of the generation assets from KPLC. The design of these arrangements and associated contracts is being reviewed by the Bank. The Bank is, as necessary, providing recommendations on these matters.
V – LEGAL INSTRUMENTS AND AUTHORITY
5.1. Legal instrument: The legal instrument for the project used is a loan which will be given to the Kenyan Government.
5.2. Conditions associated with Bank’s intervention 5.2.1 Conditions Precedent to Entry into Force: The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 5.01 of the General Conditions Applicable to Loans and Guarantee Agreements of the ADB, and the signature and entry into force of the Loan Agreement entered into or to be entered into between the ADF and the Government of Kenya. 5.2.2 Undertaking An undertaking by GoK to implement the Environmental and Social Management Plan (ESMP) as approved by the Bank. 5.2.3 Conditions Precedent to First Disbursement of the Loan: In addition to the entry into force of the loan, the first disbursement of the loan shall be subject to the following conditions:
(i) Confirmation from a Financial Institution acceptable to ADF of the deposit into
an escrow account of the amounts for the resettlement and compensation, as set out in the Environment and Social Management Plan (ESMP) of the Project;
(ii) The signing of a management contract between KETCo and KPLC; (iii) Establishment of a Project Implementation Team that is satisfactory to the Bank;
and (iv) Provision of evidence that adequate funding for the Project has been secured
5.2.4 Other Conditions Progress reports on the implementation of the Environmental and Social Management Plan (ESMP) shall be included in the Quarterly Progress Reports to be submitted to the Bank. 5.3. Compliance with Bank Policies This project complies with all applicable Bank policies.
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VI – RECOMMENDATION 6.1 Management recommends that the Board of Directors approve the proposed loan of UA 50.00 million to the Government of Kenya for the purposes and subject to the conditions stipulated in this report and the Loan Agreement.
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Appendix I
Year Kenya Africa Develo-
ping Countries
Develo- ped
Countries
Basic Indicators Area ( '000 Km²) 580 30 307 80 976 54 658 Total Population (millions) 2007 37.5 963.7 5 448.2 1 223.0 Urban Population (% of Total) 2007 21.4 39.8 43.5 74.2 Population Density (per Km²) 2007 63.3 31.8 65.7 23.0 GNI per Capita (US $) 2006 580 1 071 2 000 36 487 Labor Force Participation - Total (%) 2005 50.7 42.3 45.6 54.6 Labor Force Participation - Female (%) 2005 47.1 41.1 39.7 44.9 Gender -Related Development Index Value 2005 0.521 0.486 0.694 0.911 Human Develop. Index (Rank among 174 countries) 2005 148 n.a. n.a. n.a. Popul. Living Below $ 1 a Day (% of Population) 2005 45.9 34.3 … … Demographic Indicators Population Growth Rate - Total (%) 2007 2.7 2.3 1.4 0.3 Population Growth Rate - Urban (%) 2007 5.1 3.5 2.6 0.5 Population < 15 years (%) 2007 42.7 41.0 30.2 16.7 Population >= 65 years (%) 2007 2.6 3.5 5.6 16.4 Dependency Ratio (%) 2007 83.2 80.1 56.0 47.7 Sex Ratio (per 100 female) 2007 99.4 99.3 103.2 94.3 Female Population 15-49 years (% of total population) 2007 24.4 24.2 24.5 31.4 Life Expectancy at Birth - Total (years) 2007 54.1 54.2 65.4 76.5 Life Expectancy at Birth - Female (years) 2007 55.2 55.3 67.2 80.2 Crude Birth Rate (per 1,000) 2007 39.2 36.1 22.4 11.1 Crude Death Rate (per 1,000) 2007 11.8 13.2 8.3 10.4 Infant Mortality Rate (per 1,000) 2007 64.4 85.3 57.3 7.4 Child Mortality Rate (per 1,000) 2007 104.1 130.2 80.8 8.9 Total Fertility Rate (per woman) 2007 5.0 4.7 2.8 1.6 Maternal Mortality Rate (per 100,000) 2005 560 724 450 8 Women Using Contraception (%) 2003-06 39.3 29.9 61.0 75.0 Health & Nutrition Indicators Physicians (per 100,000 people) 2007 27.6 39.6 78.0 287.0 Nurses (per 100,000 people) 2007 121.9 120.4 98.0 782.0 Births attended by Trained Health Personnel (%) 2003-05 41.6 50.4 59.0 99.0 Access to Safe Water (% of Population) 2006 57.0 62.3 80.0 100.0 Access to Health Services (% of Population) 2004 77.0 61.7 80.0 100.0 Access to Sanitation (% of Population) 2004 43.0 45.8 50.0 100.0 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 6.1 4.7 1.3 0.3 Incidence of Tuberculosis (per 100,000) 2005 641.0 300.7 275.0 18.0 Child Immunization Against Tuberculosis (%) 2006 92.0 83.7 85.0 93.0 Child Immunization Against Measles (%) 2006 77.0 75.4 78.0 93.2 Underweight Children (% of children under 5 years) 2003-05 19.9 28.6 27.0 0.1 Daily Calorie Supply per Capita 2004 2 149 2 436 2 675 3 285 Public Expenditure on Health (as % of GDP) 2006 2.5 2.4 1.8 6.3 Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2006 107.4 96.4 91.0 102.3 Primary School - Female 2006 113.4 92.1 105.0 102.0 Secondary School - Total 2006 32.4 44.5 88.0 99.5 Secondary School - Female 2005 47.0 41.8 45.8 100.8 Primary School Female Teaching Staff (% of Total) 2005 44.8 47.5 51.0 82.0 Adult Illiteracy Rate - Total (%) 2007 11.8 33.3 26.6 1.2 Adult Illiteracy Rate - Male (%) 2007 7.6 25.6 19.0 0.8 Adult Illiteracy Rate - Female (%) 2007 16.1 40.8 34.2 1.6 Percentage of GDP Spent on Education 2006 8.1 4.5 3.9 5.9 Environmental Indicators Land Use (Arable Land as % of Total Land Area) 2005-07 7.0 6.0 9.9 11.6 Annual Rate of Deforestation (%) 2000-07 0.5 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 2000-07 1.0 10.9 … … Per Capita CO2 Emissions (metric tons) 2005-07 0.3 1.0 1.9 12.3 Sources : ADB Statistics Department Databases; World Bank: World Development Indicators last update :July 2008
UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports Note : n.a. : Not Applicable ; … : Data Not Available;
12. Kenya Institutional Support to Good Governance (G) Institutional
reforms 5.520 26-Jul-06 08-Dec-06 30-Sep-09 14.20% 13. Community Empowerment & Institutional Support (L) Social 17.000 17-Dec-07 - 31-Dec-11 0.00% 14. Kisumu District Primary Schools Water and Sanitation Project AWF 0.198 19-Dec-06 29-Jan-07 - 67.36% 15. Mombasa-Nairobi-Addis Ababa Road Corridor Project (L) Transport 33.600 13-Dec-04 07-Apr-05 31-Dec-10 18.50%
« Loan « 1.200 13-Dec-04 07-Apr-05 31-Dec-10 29.01% 16. Arusha-Namanga-Athi River Road Development Project (L) Transport 49.241 13-Dec-06 - 31-Dec-12 8.01% 17. Creation of Sustainable Tsetse Eradication Program (L) Agriculture 6.550 08-Dec-04 07-Apr-05 31-Dec-11 48.50%
18. African Virtual University Support Project Social 5.000 13-Dec-04 07-Mar-05 30-Sep-09 38.56%
Total 481.771 12.94% Last Update: February 28th, 2009
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Appendix III
KEY RELATED PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT PARTNERS IN KENYA
Name of Project Location Sub- sector Financiers Amount
USD (million)
Status by November 2008)
Rural Electrification in Six Provinces
All provinces in Kenya except North Eastern and Nairobi
Distribution AFD 38.70 Under implementation
Energy Sector Recovery Project - Component D Nairobi / Coast Distribution AFD 32.25 Under
implementation Mumias Sugar co-generation Kisumu Distribution 25 MW AFD/PROPARCO 35.00 Under
implementation
Rabai Thermal Plant Mombasa Distribution 90 MW AFD/PROPARCO 29.67 Under implementation
Generation Kipevu Combined Cycle National Environmental
programme AFD 51.60 Signed -implementation postponed
Transmission Line Nairobi - Mombasa National Transmission AFD 77.40 To be signed
Olkaria II-3rd Unit Naivasha Distribution 35 MW AFD 25.80 To be signed Transmission Line Kenya-Ethiopia Regional Transmission AFD 77.40 Under preparation
Olkaria III Naivasha Distribution 35 MW Proparco 15.00 Under preparation Equatorial Nile Countries Power Interconnection Project
Multinational/ Kenya component Transmission AfDB 22.48 Approved
Olkaria II Extension Generation EIB 40.80 Under implementation
KPLC Grid Development Distribution EIB 55.47 Under implementation
Promoting use of Sustainable Energy in Wajir District
Generation European Commission 0.44 Under
implementation
Community based mini hydropower development in upper tama river basin for poverty alleviation
Generation European Commission 2.92 preparation
Up scaling the smaller biogas Plants for agricultural producers and processors
Generation European Commission 1.68 Under
implementation
Developing energy enterprises project East Africa
Generation European Commission 2.48 Under
implementation
Removal of barriers to energy conservation and energy efficiency in small and medium scale enterprises.
Distribution GEF (UNEP) 8.32 Under implementation
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Market transformations for efficient biomass stoves for institutions and small and medium enterprises
Distribution GEF (UNEP) 1.00 Under implementation
"Decentralized Re-system for electrification and Empowerment"
National Distribution Government of Finland 0.00 Under planning
Rural Electrification Master Plan National Study Government of
Finland 1.94 Under implementation
Rural Electrification Programme Phase III
All Kenya except North Eastern Distribution Government of
Spain 15.48 Under implementation
Energy Sector Recovery Project National Distribution IDA /WB 80.00 Under
implementation Energy Sector Recovery Project Additional financing
National Distribution IDA/WB 80.00 Under preparation
Energy Access Expansion National Generation, Transmission, Distribution
IDA/WB 250.00 Identification
Lighting Africa Distribution IDA/IFC/GEF Under implementation
Community Development Carbon Fund - Emission reductions purchase agreement
