Kenya and Ethiopia in Landmark 400mw Power Purchase Deal

Ethiopia is undergoing a dam construction boom

Details of the high-stakes negotiations before Kenya signed a 400MW electricity deal with Ethiopia two weeks ago are emerging, revealing that Nairobi managed to talk down the initial charges proposed by Addis Ababa as too high.

The deal, which analysts say presages a new era of power trading in the region, was arrived at after a great deal of haggling, with the Ethiopians pressing for a higher price on the grounds that Kenya is currently buying even more expensive power from thermal plants.The deal ushers in one of the biggest power pool projects in the region, and will serve as a model for future arrangements under the Eastern Africa Power Pool.

The deal is a take or pay contract, meaning that Kenya has to pay for the 400 MW supply even if it is not using it.

It will pay US cents 7 per kilowatt hour. The transmission line is expected to be completed by 2016 at a total cost of $1.2 billion.

The agreement for continuous supply of 400MW was concluded in Addis Ababa by Kenya Power and the Ethiopian Electric Power Corporation after two days of intense negotiations from January 6-8.

The power purchase agreement is the second in Kenya’s history as it seeks long term solutions to its perennial power problems. A decade ago, Kenya imported about 30MW from Uganda.

The conclusion of the agreement paves the way for Kenya and Ethiopia to mobilise funds for building a 1,045-kilometre high voltage electricity transmission line. Ethiopia, which is endowed with a huge hydropower potential of about 45,000 MW, is currently building three dams to generate power for domestic use and export to Kenya and other neighbouring countries.

Other projects under the Power Pool are under way, with the goal being to create a regional electricity network.

Tanzania will be connected to its neighbours through the planned Kenya-Tanzania interconnection and through the extension of the Tanzania grid to the northwestern Rusumo Falls Hydropower Project shared among Burundi, Rwanda and Tanzania. Meanwhile, Uganda and DR Congo are planning to extend the Ugandan electricity network to Beni and Bunia in DR Congo through a transmission line, Nkenda-Beni-Bunia.

According to the Kenya Electricity Transmission Company (Ketraco), Agence Française de Développement (AFD) of France, the African Development Bank and the World Bank have expressed a commitment to funding the Kenya-Ethiopia project.

Ketraco was a few years ago hived off from Kenya Power to exclusively build infrastructure for high voltage transmission. Kenya Power as a distributor is in charge of smaller voltage lines for connecting end-users.

Ethiopia is the only country in the region with surplus power, backed up by by a reserve margin of more than 30 per cent, double the recommended margin of 15 per cent. “Donors like the French are keen to support the transmission line project.

Kenya’s funding is about $666 million and Ethiopia’s $486 million,” said Ketraco managing director Joel Kiilu. He said selection of consultants to oversee building of the transmission line, designed with power transfer capacity of 2,000MW, will start soon and construction work begins in mid-2013 with a completion date of 2016.

The high voltage direct current (HVDC) line requires putting up of steel towers, transmission cables and inverter substations at Suswa in Kenya and Welayta Sodo in Ethiopia. The HVDC line will start from Welayta Sodo and run south along Lakes Abaya and Chamo, through Konso and cross the Kenyan border about 90 kilometres west of Moyale town.

From Moyale, the transmission line will run through Marsabit, Samburu, Laikipia, Nyandarua and Nakuru counties to terminate at Suswa. Kenya and Ethiopia have formed a joint project co-ordination unit (JPCU). Ketraco is finalising bid documents and tenders are to be floated in April.

The surplus electricity applicable at any time will be agreed on by the parties three months before commencement of supply, taking into account economies of scale and other relevant factors. Completion of the high voltage electricity line is expected to open avenues for big consumers such as cement manufacturers to enter into negations for supply of cheap power directly with Ethiopia.

Mr Kiilu said Ketraco is working on other interconnection facilities like the Lessos-Toro line with Uganda and Isinya-Arusha line with Tanzania to address power shortages and unreliability of supply in the region. The implementation of the Lessos-Tororo line is at an advanced stage as the project has attracted the required financing.