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Kenya

Thika Power Limited

$EUR40 million
Power
ESRS
Proposed
Thika

Project Facts

Project Facts

Project Facts

Kenya
Guarantee Holder
Azura Power Holdings Limited and/or any of its subsidiaries
Investor Country
Mauritius
Environmental Category
A
Date SPG Disclosed
October 12, 2018
Projected Board Date
December 01, 2018
Project Type
Non-SIP

This Environmental and Social Review Summary (ESRS) is prepared by MIGA staff and disclosed prior to the date on which MIGA’s Board of Directors considers the proposed issuance of a Contract of Guarantee. Its purpose is to enhance the transparency of MIGA’s activities. This document should not be construed as presuming the outcome of the decision by MIGA’s Board of Directors. Board dates are estimates only.

Any documentation that is attached to this ESRS has been prepared by the project sponsor, and authorization has been given for public release. MIGA has reviewed the attached documentation as provided by the applicant, and considers it of adequate quality to be released to the public, but does not endorse the content.

Country:  Kenya

Sector:  Energy

Project Enterprise:  Thika Power Plant

Environmental Category:  A

Date ESRS Disclosed:  October 12, 2018

Status:  Due Diligence

Actis Energy and Amaya Capital, through Azura Power Holding Limited ("Azura Power" or "the Guarantee Holder") plan to acquire three existing power assets, specifically: Tobene and Kounoune Power Plants in Senegal; and Thika Power Plant in Kenya. All three assets are currently owned by Melec Powergen Inc ("MPG"), which was established in 2005 as a power generation platform in sub-Sahara Africa. The "Project" or "Power Plant" considered in this ESRS comprises Azura Power’s acquisition of Thika Power Plant. The Project is an operating heavy fuel oil (HFO) plant with a total capacity of 87MW, located along the Nairobi-Thika highway, 5km from Thika town and approximately 38 km north-east of Nairobi. The Project is currently in the fifth year of full commercial operation and was the first Independent Power Producer (IPP) to be implemented under an initiative to help Kenya move away from its reliance on hydropower.

Construction of the Project commenced in 2011. Interim commercial operations started in August 2013 and full commercial operations was reached in March 2014. The Power Plant is comprised of: a tank farm for various fuel and waste oil storage; an engine room containing five engines (of 16.7 MW capacity each) and one 6.8 MW steam turbine; and various auxiliary and supporting components. MAN Diesel & Turbo provides maintenance and advisory services, as well as spare parts for the Project. Operations and support is provided by local staff contracted by MPG.

The Project has a 20-year power purchase agreement (PPA) signed in 2012 with Kenya Power and Lighting Company (Kenya Power), the national electric utility company. A Kenya Power substation is located adjacent to the plant, to the south.

The Project leases 4 hectares (ha) from Kenya Power and is surrounded by mainly farmland. The nearest community is that of Witeithie Estate to the southeast and is on the other side of the Nairobi- Thika highway. The nearest residences are located about 100 meters (m) from the site boundary to the southeast.

The Project was developed and financed by MPG with 25% equity and 75% long term loans arranged through the International Finance Corporation (IFC). The loan was approved by the IFC Board in 2011. The Project is also one component of a larger International Bank for Reconstruction and Development (IBRD) lending program that supported the creation of three IPP thermal power projects in Kenya, namely Triumph, Gulf and Thika Power Plants. Other Development Finance Institutions (DFIs) involved in the Project include the African Development Bank (AfDB) and Barclays Africa Group ("ABSA") Capital of South Africa. The Project also benefits from an International Development Association (IDA) liquidity guarantee and MIGA termination coverage on the ABSA debt, which combined with IFC long-term financing, optimized the use of the World Bank Group (WBG) instruments.

Azura Power is an experienced developer, financier, acquirer and operator of IPPs that focuses on base-load power plants across Africa, and as well as renewable power projects in Nigeria.

This has been an active MIGA Project since 2012 and as such this ESRS is an update of the initial one prepared for this Project and disclosed on September 30th, 2011 (http://www.miga.org/node/2221). The current performance of this Project in this ESRS has been reviewed under the requirements of the Performance Standards (PSs) dated Oct. 2013 versus the PSs dated 2007 applied for the initial project. The Project will therefore maintain the same categorization, i.e., Category A under MIGA’s Policy on Environmental and Social Sustainability (2013). The most significant potential E&S risks identified in the operations phase are related to: (i) emergency preparedness and response; and (ii) air emissions licensing.

While all Performance Standards (PSs) are applicable to this Project, based on our current information indicates that the Project will have impacts which must be managed in a manner consistent with the following Performance Standards:

  •  PS1: Assessment and Management of Environmental and Social Risks and Impacts
  •  PS2: Labor and Working Conditions
  •  PS3: Resource Efficiency and Pollution Prevention
  •  PS4: Community Health, Safety and Security

The site for the development of the Project was acquired by Kenya Power on a willing-buyer, willing-seller basis from a private agricultural enterprise in 2010 and the Power Plant leases the land from Kenya Power. The entire site was used as a coffee farm prior to the development of the Project and did not result in economic or physical displacement, thus PS5 Land Acquisition and Involuntary Resettlement nor PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources are applicable. There is no indication or evidence of indigenous people residing in or having cultural ties to the Project area, thus PS7 Indigenous Peoples do not apply. The Environmental and Social Impact Assessment (ESIA) Studies and associated stakeholder engagement processes conducted for this Project did not identify any impacts on cultural heritage, therefore PS8 Cultural Heritage does not apply.

In addition to the PSs, the World Bank Group (WBG) Environmental, Health and Safety (EHS) General Guidelines and Guidelines for Thermal Power Plants apply to this Project.

The following documents were reviewed by MIGA:

MIGA’s review also included a visit to the Project site in February 2018, as well as meetings with the Operations and Maintenance Contractor and IFC.

The Project has been submitting Annual Monitoring Reports (AMRs) to IFC and MIGA since 2014 and was recently visited by MIGA in February 2018 as part of routine monitoring. MIGA monitoring indicates that the Project is largely in compliance with MIGA’s PSs as: (i) it is committed to implementing its E&S Management System; (ii) the AMRs indicate that it has been in continual compliance with the PS, WBG EHS Guidelines and the applicable national E&S legislation; (ii) the Occupational Health and Safety Performance is considered satisfactory, with no incidents, accidents or lost time injuries recorded from 2014 – 2017.

MIGA’s due diligence review considered the environmental and social management planning process and documentation for the Project, and identified gaps, if any, between these and MIGA’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period, are summarized in the paragraphs that follow and in the Environmental and Social Action Plan (ESAP) attached to this ESRS. Through the implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.

PS1: Assessment and Management of Environmental and Social Risks and Impacts

Environmental and Social Assessment:

An Environmental and Social Impact Assessment (ESIA) for the Project was developed in May 2011 in compliance with Kenyan legislation and for the purpose of seeking an EIA license from the Kenyan National Environment Management Authority (NEMA). The Project was issued with an EIA license by NEMA in July 2011. The original NEMA license authorized the construction of an 80MW Power Plant and as such a Variation Certificate was issued by NEMA in March 2012 to amend the authorization to 87MW. In August 2011, an additional ESIA was carried out by an international consultant to ensure compliance with the lenders environmental and social requirements, specifically the IFC PSs (2006), AfDB Policies and Equator Principles (2006). The additional ESIA was undertaken in parallel with the local ESIA, where possible, to limit the potential for confusion amongst stakeholders and local communities.

The ESIA, dated August 2011, included an Environmental and Social Management Plan (ESMP) that was to be applied by the Company during the construction and operational phases. Specific plans included in the ESMP related to: (i) construction management; (ii) traffic control; (iii) construction spoil and waste management; (iv) emergency response; (v) occupational health and safety; (vi) worker management; (vii) stakeholder engagement; (viii) social investment and; (ix) monitoring.

More recently, an Environmental and Social Due Diligence (ESDD) was carried out in June 2018 by an independent consultant as part of the Investor Group’s appraisal of the Project (The Investor Group is comprised of Azura Power, IFC, Africa50 Project Finance and their associated partners.). The scope of the ESDD also included the implications of the potential conversion of the Power Plant from HFO to gas. The ESDD Report evaluated the Project’s risks and impacts against the 2012 IFC PSs, identified gaps and recommended corrective actions to address the gaps. MIGA also reviewed progress against the Investor Group’s ESDD and Project Environmental and Social Management Plan (ESMP) as part of the due diligence.

The ESIA, Investor Group’s ESDD and corrective actions provide a comprehensive review of the potential risks and impacts of the Project (construction, operation and decommissioning phases), and appropriate mitigation measures are recommended in line with MIGA’s requirements.

Management Program and Monitoring

The Project ESMP was completed in 2011 and implemented during construction. The ESMP was thereafter revised and developed into an Environmental and Social Management System (ESMS) for the operational phase. The ESMS was developed and implemented in line with PS1 requirements and structured as per the requirements of International Organization for Standardization (ISO) 14001:2004. Site observations in February 2018, as well as a review of the Project’s AMRs submitted to MIGA between show that management of E&S issues are consistent with the procedures set out in the ESMS. However, as there is no specific policy statement with regard to E&S issues, the Project will develop a Policy Statement that address E&S objectives and principles in line with PS1, and as part of its ESMS (ESAP action item # 1).

Organizational Capacity and Training

At the corporate level, Azura Power has appointed a Head of Environmental and Social Governance (ESG) who’s main responsibilities include: (i) the development, implementation and monitoring of ESG related strategies, policies, procedures and budgets; (ii) leading on the ESG due diligence work-streams of potential projects being reviewed by Azura Power to ensure consideration of appropriate risks and opportunities and compliance international best practices as required; (iii) setting up and leading ESG committees and making recommendation on all key ESG issues to the Board; (iv) timely and accurate reporting on ESG matters to relevant stakeholders; (v) ensuring that processes are in place to maintain high business integrity standards across all ESG related functions, for example, grievance mechanisms and community liaison for all projects.

In 2012, the Project appointed a suitably qualified Environmental, Health and Safety (EHS) Officer, who handles EHS issues as well as community liaison. The Officer reports directly to the Plant Manager and the Officer’s responsibilities with regard to E&S issues (including training) are clearly set out in the ESMS documentation.

Emergency Preparedness and Response

The Project implements an Emergency Response and Recovery Plan (ERRP) to ensure the safety and security of its personnel, contractors and visitors. The ERRP defines the actions to be taken, procedures to be followed and the roles and responsibilities of Project staff during and after accidents and emergencies (fires, major spills or equipment failure, explosions, terrorist attacks and civil unrest). A supplementary procedure for emergency communications both internally and externally, including emergency services contact details, is included in the ESMS. The Project has a firefighting system comprising a fire water and foam injection system and a fire station is located within 5 km from the Project.

The Project holds fire drills every three months and every third fire drill is unannounced. The Project will however develop a procedure to notify to local communities should an emergency incident at the plant put them at risk in line, as well as update the procedure to account for process/equipment changes, or changes in personnel within the Power Plant (ESAP action #2).

Reporting

The Project also compiles and submits: (i) annual Environmental Audit Reports to NEMA line with the national legislation; and (ii) AMRs to MIGA/IFC. The Project will continue to provide MIGA with copies of the monitoring reports and AMR.

Stakeholder Engagement

Stakeholder engagement was initially undertaken as part of the Project’s ESIA process and the Project has a Stakeholder Engagement Plan (SEP) that was developed as part of the ESIA. The SEP was updated in 2012 to address stakeholder engagement after completion of the ESIA. The Project also engages with the host community and stakeholders if they wish to carry out an undertaking that might affect them and maintains a good relationship with nearby communities. The Project will include stakeholder records in the AMR, such as records of engagement.

External Communications and Grievance Mechanism

The Project SEP includes a comprehensive grievance mechanism and the ESMS includes procedures for: (i) Outreach to Stakeholders, which sets out general rules for communication with stakeholders; and (ii) Management of Inquiries from Stakeholders that assigns responsibility and sets out record keeping requirements with regard to stakeholder inquiries.

The Project has a website (www.thikapower.co.ke) where copies of the ESIA reports can be downloaded and contacts of the Power Plant’s representatives are made available, but it is currently not operational. The Project will ensure that the website is operational (ESAP action item # 3). Contact persons in the local community have the EHS Officer’s contacts to ease communication in case of queries, comments, suggestions or grievances. Grievance boxes are also situated at the main entrance of the Project, as well as the local Chief’s Office. The Project addresses grievances as soon as they are received. Both AMRs covering operations in 2016 and 2017 indicate that no grievances were received during the reporting periods; however, the Project continues to engage with the community and stakeholders.

PS2: Labor and Working Conditions

Thika has a permanent workforce of 40 direct employees in administration, operation and maintenance. There are an additional 23 sub-contracted staff (mainly canteen and security service providers). There is no worker accommodation on site.

Human Resource Policy and Procedures:

The Project has developed and implements Human Resources (HR) Policies and Procedures, which are found in the Employee Handbook. The Policy and Procedures are in line with the National Labor Code as well as the requirements of PS2. The Handbook is provided to new employees during induction. The Project, through its Code of Conduct, commits to providing equal opportunities to all staff.

Employee Grievance Mechanism

The Project’s Code of Conduct sets out grievance and disciplinary procedures, in line with PS2. A grievance committee has also been established and meets on a quarterly basis to discuss any potential grievances. No workplace grievances were recorded in 2016 and 2017.

Occupational Health and Safety (OHS)

The project has developed a Health and Safety (H&S) Policy Statement in compliance with national legislation and in line with PS2. The Policy includes contractors and third-party employees in its scope and refers to safe work procedures for various potentially hazardous situations. A Health and Safety (H&S) Committee comprising of representatives from all departments and contractors are in place, as required by national legislation. Management of OHS issues on site falls under the responsibilities of the EHS Officer.

The AMRs for the operations from 2014-2017 indicate that annual training was carried out on occupational health and safety (OHS), first aid, firefighting, spills management and emergency response to minimize impacts of any eventuality that might arise. Records indicate that only four minor injury incidents (minor cuts and bruises) have occurred at the Project since 2013.

Workers’ Organizations

While there appears to be no impediment to workers joining a union should they wish to do so, none of the workers are unionized and the Project is not party to any collective bargaining agreements. Workers are however represented on the Health and Safety (H&S) Committee.

Supply Chain

While the Project will not employ workers under 18 years of age, the potential for child and forced labor in the supply chain will also be monitored and contracts with sub-contractors and suppliers will include Environmental Health and Safety (EHS) requirements and provisions consistent with PS2 to address labor issues including child and forced labor (ESAP action item #4).

PS3: Resource Efficiency and Pollution Prevention

Greenhouse Gases

As per PS3 requirements, the Project has been quantifying the direct and indirect emissions and thereafter reporting on CO₂ emissions annually in the AMR. The Project’s AMR for operations in 2017 reported an average thermal efficiency of 45.3% (Net, LHV), which is higher than the PPA target of 44.23%. CO2 emissions were calculated based on the IPCC Guidelines (1996) and the CO2 emissions performance during the reporting period is 0.596 t CO2/MWh (gross) and 0.608 t CO2/MWh (net). This is slightly above the limits in the WBG EHS guidelines which provides typical CO2 emission value for thermal plants operating at an efficiency between 40 – 45 % Net, LHV as 449 – 505 g CO2/ kWh. The Project will continue to quantify and report on CO2eq emissions annually in the AMRs, in line with the requirements of PS3.

Water Resource Use

The Project’s water supply is sourced from a borehole located on-site and has a permit for the extraction of the water from the Water Resources Management Authority (WRMA). The water is treated in an on-site demineralization reverse osmosis plant before use. Abstraction monitoring data for indicates an average daily abstraction well below the amount allowed for in the permit from WRMA. The neighboring communities have access to piped water and do not rely on groundwater resources, therefore the Project’s water use does not compete with the local communities.

Air Emissions

Annual stack emissions testing of various parameters is undertaken on behalf of Thika by an external contractor. Average stack emission data reported in the AMRs for operations from 2014 to 2016 show that emissions of nitrogen oxides (NOx) exceeded the Kenyan emission standard, which is the same as the WBG EHS Guideline for Thermal Power Plants. The annual stack emission testing was then carried out in 2017 and measurements were within the limits set in the WBG EHS guidelines.

Ambient air monitoring is meant to be carried out every month at 4 receptors around the Power Plant. NOx & Sulphur oxides (SOx) were monitored using passive diffusion tubes in the previous reporting period. Particulate matter (PM10) is monitored using an automatic active sampler. Data on continuous ambient air monitoring is not available in the AMR for operations in 2017. The AMR indicates that the Project requested for approval to discontinue the monthly monitoring of ambient air quality and instead only carry out monitoring once in every 3 months if the results are less than 75%. However, due to the Project not operating for long period of time, the ambient air quality monitoring was not carried out since any results recorded would not be indicative of the Project’s impact.

The Project, together with the other Kenyan Thermal IPPs are currently in negotiations as a sector with NEMA to waive the continuous (monthly) air emissions reporting requirement in national legislation. The National Air Quality Regulations (2014) were enforced in 2016 and the Thermal Power IPPs met NEMA in July 2017 to discuss the Regulations to find a common ground towards compliance. During the meeting, it was agreed that the IPPs would come up with a Proposed Emission Control System for review by NEMA, which would form the basis for the licensing of thermal power plants in terms of the Regulations. A memorandum in this regard was developed accordingly and submitted to NEMA in August 2017 and NEMA’s response is awaited. NEMA is in the process of issuing provisional emission licenses and the Project conducts stack emissions and ambient air quality monitoring and evaluates the measurements against the standards set out in the Regulations.

Wastewater and Effluent

Treated effluent is tested quarterly by NEMA, as per the conditions of the Project’s effluent discharge license. Based on effluent quality monitoring data, no exceedances of the Kenyan liquid effluent standards or the WBG General EHS Guideline have been recorded to date, with the exception of oil and grease measurements. Oil and grease values have consistently exceeded the stringent Kenyan standard of "nil" in the last few years (the Kenyan effluent quality standards are generally more stringent than that of the WBG EHS Guidelines). The Project reports that this was discussed with the NEMA, who agreed that the standard of "nil" is not feasible and that the WBG standard is considered more applicable. The WBG standard was met in 2015 and 2016, and both local and WBG standards were met in 2017.

Noise

Ambient noise levels are monitored at sensitive noise receptors in the area surrounding the Project and evaluates the measurements against national legislation. While exceedances of the ambient noise standards are recorded, baseline levels at these locations are already in excess of the standards, due to traffic along the Nairobi-Thika highway. In 2014/2015, measures were implemented at the Project to minimize noise impacts and these included silencers fitted on the steam vents and blow off lines to reduce noise levels during steam turbine start-up resulting from steam blow out. Grievance records show no complaints from surrounding communities related to noise levels to date

Waste

The Project’s ESMS includes procedures for the segregation, handling and ultimate disposal of hazardous and non-hazardous waste. As per national legislation, waste is removed and disposed of by contractors licensed by NEMA. The Project will track and report on waste amounts (ESAP action item #5). The ESMS also includes various management plans and operating procedures addressing the handling of hazardous materials (in addition to the Hazardous Waste Management procedure). Training procedures also include requirements for training of staff on safe general practices for the handling of hazardous substances. Site observations revealed adequate bunding and monitoring provisions in place at fuel storage areas.

PS4: Community Health, Safety and Security

As mentioned previously, the Project is surrounded by mostly farmland, with the nearest community (Witeithie) more than 300m away on the opposite side of the Nairobi- Thika highway, although the nearest dwellings are approximately 100m from the site boundary. Based on the results of environmental monitoring undertaken by the Project, no significant risks to community health and safety due to air emissions, noise or water consumption and effluent quality have been identified.

Both HFO and diesel fuel is delivered to the Project by truck via the Nairobi-Thika highway by the supplier. Current traffic levels related to the Project are relatively low, due to operation at low dispatched hours. The ESMS includes a Traffic Control Management Plan (TCMP), based largely on the provisional, construction phase TCMP compiled as part of the ESIA process. The TCMP assigns responsibility for traffic management measures to the Plant Manager, Operations Manager and EHS officer, and includes requirements with regard to driver training and awareness, as well as vehicle standards and maintenance. No incident/accidents involving transport/vehicles have been reported to date

Security Personnel

The Project has armed security personnel during the night but has not had any security incidents. A Security Plan in line with PS4 will be developed to ensure that security will be provided in a manner that does not jeopardize the community’s safety or the Security Provider(s) relationship with the community and that is consistent with national requirements. The Security Provider(s) will ensure that security personnel have not been involved in past abuses and are adequately trained (ESAP action item #7).

 

The Project was issued with an EIA license by NEMA in July 2011. While the Project has obtained all permits and compliance certificates required to operate, it will continue to liaise with NEMA on an ongoing basis with regards to the air emissions license and, in liaison with the other IPPs, the proposed Emission Control System for thermal power plants (ESAP action item #6). Communities were engaged throughout the ESIA process. Since the ESIA, the Project continues to actively engage with the local community on an ongoing basis, including the provision of grievance books at the main entrance and the local Chief’s office. The Project will continue to improve on the stakeholder engagement process.


MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring them to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities.

In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.

Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.

Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:

Compliance Advisor/Ombudsman International Finance Corporation 2121 Pennsylvania Avenue NW Room F11K-232 Washington, DC 20433 USA Tel: 1 202 458 1973 Fax: 1 202 522 7400 E-mail: cao-compliance@ifc.org