News Analysis: Emerging markets - East Africa banks on public/private deals

Leading wind development and turbine suppliers, including South Korea's Good PM Group, Denmark's Vestas and France's Vergnet, are flocking to East Africa to take advantage of new or revised public/private partnership (PPP) investment policies being pursued by some countries in the region.

Governments are looking to PPPs to overcome the barriers of inadequate financing brought about by unmet tax collection targets and gaps in technical knowledge in their quest to harness renewable energy sources. Kenya, Ethiopia and Tanzania have embraced or shown commitment to PPPs at a high level despite a cumbersome legislative process that has constrained opportunities in renewable energy. All three have sought financial support from lending institutions including the World Bank, African Development Bank and development partners, resulting in financial deals worth more than $400 million. Private companies have invested in 570MW of wind in the three countries.

Kenya

Kenya, with a potential to generate 30GW from wind power, has developed a draft policy - the public-sector stakeholder partnership policy (PSSP) - that would guide how the government should engage with stakeholders in wind and other sectors.

"The PSSP will guide the development of policy frameworks in collaboration with stakeholders and in reviewing existing laws to enable partnerships," says a briefing from the prime minister's office, which is spearheading the PPP initiative.

In June, the Kenyan government promised to address the problem of the lengthy bureaucratic process that private investors are forced to undergo before they are licensed to set up a business in renewable energy. "The government will encourage through PPP the development of alternative energy sources, and the ministry of finance will commit itself to support the ministry of energy to ensure all procedural and licensing impediments are removed so that private investment in the energy sector can be fast-tracked," says finance minister Uhuru Kenyatta.

The Lake Turkana Wind Power consortium announced financial closure in July for the 300MW capacity $625 million wind farm project in the northern part of the country after the African Development Bank said it will provide 30% of the total project cost.

Majority shareholder Aldwych International offered 50% of the wind farm's total cost, with South Africa's state-owned Industrial Development Corporation and Dutch wind developer KP&P providing the balance.

Ethiopia

In Ethiopia, prime minister Meles Zenawi has promised that the country, where only 11.6% of the population has access to electricity, would remove barriers to increasing investments in renewable energy.

Zenawi has already told the country's parliament that it will adopt policy proposals by the Ethiopian Economic Association (EEA) on scaling up investments in renewable energy, including allowing private investors to inject cash into additional wind turbines.

"High upfront cost, lack of market infrastructure and after-sales maintenance, and absence of promotion strategy are the major barriers for dissemination of renewable energy technology in Ethiopia," says Mekonnen Kassa, an economist at the EEA.

"In addition, the government has to allow the private investor to be engaged actively in energy generation," says Mengistu Tefera, another EEA economist. "The current sole power supplier of the country, the Ethiopian Electric Power Corporation, needs to be as efficient as any other profit-making private company to serve its customers."

Germany corporate finance firm Deutsche Unternehmensfinanzierung has already promised to partner with Ethiopia to raise $120 million for the construction of the Aysha wind farm as part of a long-term strategy to increase the country's wind capacity to 720MW by 2013.

Ethiopia is building a $292 million, 120MW wind farm at Ashegoda in partnership with French turbine maker Vergnet.

Tanzania

Development firm Wind East Africa is teaming up with Tanzania's ministry of minerals and energy to develop a $113 million wind project in the country's central region. This will add 50MW to the national grid.

Another promising partnership is that of South Korea's Good PM Group, a developer, with Tanzania's Power Pool East Africa (PPEA). The two have signed a deal to put up a 210MW project in the Singida region at a cost of $400 million. The Koreans have already signed a memorandum of understanding with PPEA to acquire 500 hectares of land for the project.

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