The Kenya Power and Lighting Company (Kenya Power) has signed a Sh4.2 billion loan agreement with the International Finance Corporation (IFC) to help the national power distributor expand its network to reach over half a million new households by 2014.
The loan is the first part of a package worth over Sh16.7 billion that the IFC will be releasing in four tranches. Kenya Power CEO Joseph Njoroge said the company will put up 42 power projects with the aim of improving electricity supply quality.
"The IFC loan brings much needed financial support in efforts to extend the national grid, improve quality of power supply and stabilise voltages to cope with additional demand," he said.
"We estimate that implementation of projects to be funded under this financing arrangement will be completed by 2014, thereby bringing the much needed relief to customers such as reduction of outages and also lowering of technical losses for Kenya Power, which will translate to a great financial saving," he added.
The IFC is a member of the World Bank Group and also the largest global development institution focused exclusively on the private sector.
The repayment period of the loan is 12 years with the interest rates at less than five percent and IFC Director for East and Southern Africa Jean Prosper revealed that they have invested nine percent of their African investment budget in Kenya.
"In this fiscal year, we invested 360 million dollars in Kenya and this is out of roughly four billion dollars budgeted for Africa, which is nine percent investment in one country out of 52," he said.
"We have significantly ramped up our activity in Kenya because Kenya is an exciting economy that is an economic example for East Africa as a whole," he explained.
Only 25 percent of Kenyan households have electricity compared to countries like Ghana and Senegal who have 60 and 42 percent respectively and the government has set a goal of 40 percent electricity access in households by 2020.
Over the last three years, the company has been injecting capital to continue extending the power grid as it accelerates its connectivity rate.
In June, the company connected their two millionth customer, who was among the 307,001 new customers they added last year.
Kenya Power has added more than 200,000 customers to the grid every year since 2008.
"The company aims at further accelerating access to quality electricity to more than 50 percent of Kenyans in line with the country's Vision 2030 and we are aiming to reduce the gap between urban and rural areas," he stated.
The expansion will also benefit Kenya's climate change agenda, as the IFC will provide advisory services on how to reduce power losses in addition to their monetary investment.
"Even a one percent drop in power loss leads to massive energy savings by cutting Kenya's greenhouse gas emissions by 55,000 tons per year," Njoroge noted.
"IFC and Kenya Power are working together to develop measures that will enable the company to save energy through more efficient energy use," he emphasised.
Prosper pointed out that increasing access to power is at the heart of the IFC's strategy for infrastructure development in sub-Saharan Africa as they invested $1 billion (Sh83.9 billion) in infrastructure projects in Africa in 2012, up from $200 million (Sh16.7 billion) five years ago.
"The IFC loan builds on a long-term partnership between the World Bank and Kenya Power over the past ten years. IFC seeks to invest in companies such as Kenya Power, which will further develop the power sector in Kenya and the region, reduce damage to the environment and fuel economic growth and development of the East Africa power pool," he explained.
"More stable power supply will allow business growth and improve living standards in Kenya," he added.
Despite their 10 year working partnership with the World Bank, Njoroge noted that this was the first time that Kenya Power is contracting a loan directly from a World Bank institution.
"In the past, Kenya Power has only received on-lent funding from bilateral and multilateral agencies so their decision to approve this loan demonstrates the confidence that the World Bank and its sister institutions have in corporate administration at Kenya Power," he said.
"The funds will fill a financing gap as Kenya Power endeavours to transform the distribution network to improve quality, stability and reliability of power supply to a fast growing economy," he added.
Njoroge revealed that Kenya Power is implementing various projects around the country geared towards improvement of the electricity service.
They are building a Sh20 billion underground power network system for Nairobi, Mombasa and Kisumu as one of the key projects the company plans to implement as part of Vision 2030.
"The project involves conversion of the overhead power lines system to an underground cables system in the three cities," he said.
"To customers, the project will mean improved quality and reliability of supply owing to reduced transient faults and system disturbances occasioned by third party activities and environmental occurrences," he explained.
In 2011, Kenya Power embarked on a Sh600 million project to automate the power distribution network in Nairobi and Mombasa and Njoroge revealed that upon completion, the automation project will facilitate the efficient monitoring and quick resolution of disturbances in the power network in order to minimise interruption of electricity to customers.
"The project is a step towards building a smart grid system," he noted.