Public-Private Partnerships in Africa: Some Lessons from Kenya’s Lake Turkana Wind Power Project
In northern Kenya, the tall, white wind turbines of the Lake Turkana Wind Power (LTWP) project conspicuously stand out against the brown landscape. As Africa's largest wind energy power plant and the largest private investment in Kenya to date, the project is a milestone. Not only can LTWP generate up to 310MW and provide around 17 percent of the country's installed energy capacity, but it also marks another achievement toward Kenya's goal of green energy reliance. Kenya has already demonstrated itself as a global leader in renewable energy development, with approximately 70 percent of its installed capacity coming from renewable sources.
On July 19, 2019, President Kenyatta inaugurated the wind farm at a ceremony in Loiyangalani, Marsabit County. The inauguration of LTWP comes nearly 15 years after it was first conceptualized. As much as LTWP is a green energy success, it highlights another global trend of public-private partnerships (PPPs). LTWP demonstrates the potential of PPPs for development projects in Africa while also revealing some of the pain points and challenges facing these partnerships.
The prevalence of PPPs is increasing with many key donors pushing more private sector engagement in development. These PPPs can provide much-needed financing, supply technical expertise, and accelerate projects with the added longer-term benefits of boosting confidence between the private sector and governments. However, PPPs also face many challenges and have mixed track records of success globally.
The Turkana project encountered challenges from securing financing, to project implementation delays, and still faces dissatisfaction from some stakeholders over its interactions with affected communities. Nevertheless, Carlo van Wageningen, co-founder and board member of LTWP, called the project "a perfect example of a successful PPP." What, then, can LTWP tell us about PPPs in Africa?
"A perfect example of a successful PPP"
A decade after initial discussions began, LTWP reached financial close and broke ground in 2014. In an arrangement involving sixteen partners, the LTWP consortium led the development of the project, which cost USD $680 million. Six contractors provided technical expertise, project management, and construction and equipment services. LTWP financed the project through a complex mixture of private equity, commercial debt, development finance, and risk guarantees. The financing was comprised of 70 percent senior debt, 25 percent equity, and 5 percent mezzanine debt from private equity and a syndicate of banks led by the African Development Bank as the senior lender. Notably, the World Bank declined to participate due to its reservations over the project's power purchase agreement[i] with the Government of Kenya (GoK).
The time from inception to completion and complexity and number of partners in the project demonstrates a common component of PPPs — they are time and relationship intensive. The development and maintenance of trust and investment in social capital is a crucial factor in a PPP's success.
In addition to trust among partners, PPPs must involve the communities affected by the project. LTWP and its partners incorporated community engagement plans and conducted consultations, and both the consortium and GoK had to justly compensate local populations for whom the project would impact their land. However, for many communities in Northern Kenya, a combination of a pastoralist lifestyle and lack of formal land titling meant it was difficult to determine the legal ownership of the land. LTWP faced backlash from some of the communities over claims of land grabbing, lack of consultation, and failure to live up to their commitments for community development. A Kenyan court declined an application by residents to stop the project but did confine it to 87,500 acres of the initially acquired 150,000 acres. The GoK faced similar challenges when constructing the new power line to off-take energy from the wind farm. The project had drawn attention, and it was reported that manyattas (traditional huts) "sprout[ed] overnight from nowhere, slowing the contractors' access to the right of way." Efforts to settle the requests delayed the line construction.
In 2017, the wind farm project was completed and ready to begin transmission onto the grid, but there was a problem. Kenya Electricity Transmission Company (KETRACO) had committed to building the transmission lines necessary to evacuate the power to the national grid. This meant the construction of 272 miles of new line, and the government had run into challenges carrying significant political implications.
"This thing gave us sleepless nights"
The Kenya government received funding from the Italian Government for the transmission line construction and hired an Italian company to implement. Three years into construction, the company was a year behind schedule when they went bankrupt. Faced with an insolvent partner, GoK canceled the contract and took ownership of the half-complete line. Pressure mounted as LTWP finished the wind farm on schedule but had nowhere to send the generated power. The PPA committed KETRACO to pay for the electricity generated, regardless of the status of the line; LTWP had obligations to begin repaying its loans and needed the money.
With a USD $52.5 million fine payment due to LTWP, GoK negotiated an agreement that included monthly payments for the power in combination with an increase in future tariffs charged to the customer. Meanwhile, GoK rebid the contract and awarded it to a Chinese firm. As part of the new deal, they gave the firm eight months to finish what the Italian company had failed to do in three years. Should they fail, the firm would bear the cost of the payments due until completion.
Aside from the financial implications borne by the government to pay for the power that had yet to reach Kenyan homes, it carried a political cost. PPPs exist in a political environment, and political will and support are indispensable to their success. As monthly "payments for nothing" proceeded and the tariff to be paid by Kenyans increased, some politicians and the public decried the project as wasteful. Some cast blame both on LTWP as a predatory, foreign company, and the government for incompetence or corruption.
Finally, in March 2019 after a 15-month delay, the transmission line was completed, and LTWP came online, culminating in the July inauguration. Widely viewed as a success (Boston Consulting Group referred to LTWP as "a best practice example of large-scale investing in renewable energy, community engagement, and opening up an impoverished region through a single transaction.") However, in February 2019, the GoK announced that it would halt the signing of any new PPAs for the present. Mindful of the current capacity of the Kenyan grid, the need to protect the government from more commitments resulting in unpopular fiscal and political costs likely informed this move. The current Executive Director of LTWP cautioned against this move, given the length of time needed for projects to come on stream.
LTWP tells some of the story of PPPs in Africa and should prove useful to governments, development partners, and companies as they take stock of the cross-cutting challenges and opportunities of PPPs. As PPPs continue on their trajectory in Africa, case studies of successful and unsuccessful partnerships will aid in utilizing PPPs as one of the tools for African countries to achieve their development goals.
[i] A power purchase agreement (PPA) is the agreement between the power provider and the buyer. In this case, the PPA stipulated that the buyer (KETRACO) would pay for the power generated by the wind farm regardless of whether they could evacuate and sell the power or not.
Ms. Hannah Akuiyibo is a Program Associate with the Wilson Center Africa Program. She is currently pursuing an M.A. in Democracy and Governance at Georgetown University.
About the Author
The Africa Program works to address the most critical issues facing Africa and U.S.-Africa relations, build mutually beneficial U.S.-Africa relations, and enhance knowledge and understanding about Africa in the United States. The Program achieves its mission through in-depth research and analyses, public discussion, working groups, and briefings that bring together policymakers, practitioners, and subject matter experts to analyze and offer practical options for tackling key challenges in Africa and in U.S.-Africa relations. Read more