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Summary of proposed guarantee

Summaries of proposed guarantees are provided prior to Board consideration and before final contract signing, and they are therefore subject to change. Project briefs are disclosed after Board consideration and contract signing and reflect the terms of the project at the time of contract signature. Environmental and Social Review Summaries are provided for projects assigned an Environmental Assessment Category of A or B.

 

Project name
Thika Power Ltd.
Project ID
9722
Fiscal year
2012
Status
Active
Guarantee holder
Melec PowerGen Inc
ABSA Capital
Investor country
United Kingdom
South Africa
Host country
Kenya
Environmental category
A
Sector
Power
Date SPG disclosed
November 08, 2011
Project Board date
January 12, 2012
Gross exposure
 $73.4 million
Project type
Non-SIP
Strategic priority area
IDA
South-South
Complex Project
ESRS
Environmental and Social Review Summary for Thika Power

This summary covers investments by ABSA Capital of South Africa and Melec PowerGen Inc. (MPG) organized in the British Virgin Islands, a territory of the United Kingdom. The sponsors have applied for MIGA guarantees totaling €51.8 million ($73.4 million) covering ABSA Capital’s non-shareholder loan to, and Melec PowerGen Inc.’s equity investment in, Thika Power Ltd. The guarantees will have a term of up to 15 years, providing coverage against the risks of transfer restriction and breach of contract.

The project consists of the construction (on a build, own, and operate basis) of an 87 megawatt heavy fuel oil plant located at Thika, approximately 35 kilometers from Nairobi. MPG was awarded the contract following a competitive bidding process for the development of the Thika plant. The total project cost is estimated at €112.3 million ($151 million). Thika will enter a 20-year power purchase agreement with Kenya Power and Lightning Co. The project will be supported by a standby letter of credit from a commercial bank and further guaranteed by an International Development Association (IDA) partial risk guarantee to cover short-term liquidity.

Environmental Categorization

The project is a category A under MIGA’s Policy on Social and Environmental Sustainability. Click here to view the Environmental and Social Review Summary prepared by the International Finance Corporation for their investment in the project. MIGA intends to present the project to the Board concurrently with the IFC.

Development Impact

Kenya is facing ongoing energy shortages driven in part by the economy’s rapid growth. A recent World Bank study found that unreliable electricity supply lowers the annual sale revenues of Kenyan firms by about 7 percent and reduces Kenyan annual GDP growth by about 1.5 percent. The additional 87 megawatts generated by the plant will directly contribute to economic growth by reducing the energy shortfall that threatens economic growth, and providing base load power supply consistent with the country’s Least Cost Power Development Plan. Moreover, the project should reduce the country’s excessive dependence on hydropower that has exposed the country to concentration risk in the past, most recently during the extreme droughts of 2007-09. Finally, the project is consistent with the World Bank Group’s priority of unleashing Kenya’s growth potential by expanding electricity infrastructure based on the participation of the private sector.

The proposed project is also aligned with MIGA’s priorities of encouraging investments in countries eligible for assistance from IDA, promoting "South-South" investments, and facilitating investments in infrastructure.

 
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