454
J. M. Kariuki
Once the project achieves financial close, the ‘angel investor’ gets a
return in the form of a government contract to partially or wholly undertake the engineering, procurement and construction (EPC) portion of
the project. A sovereign guarantee is preferred to ensure the investor
(Chinese government) gets its guaranteed return. In the Kenyan case,
the operation and maintenance (O&M) costs will be paid entirely by
the Government of Kenya for the first six years, followed by a gradual
transfer to the farmers until year 11 when the principal and interest
payments should be almost completed. This model has been replicated
in numerous infrastructure projects in South Sudan, Zimbabwe, Democratic Republic of Congo and other African states. However, when this
doesn’t play out as expected, then just as in any business, a restructuring
scenario is undertaken to ensure project success. This increases the risk
profile and cost of the project.
The Kenyan government signed a commercial EPC contract with
CSCEC, which was to be executed via a commercial loan facility to
be negotiated between China and Kenya however because Kenya is
currently over-borrowed (Debt to GDP ratio) and as such can’t proceed
with the initial plan of commercial loan financing for this project, hence
its conversion into a Public–Private Partnership Project, with the Chinese
state-owned corporation, local government authority and/or local corporation having a call option on the EPC component of the project with
the new private entity to be awarded.
In addition, we see the host country has an unparalleled advantage of
taking funds from the angel investors (Chinese state-owned corporation,
local government authority and/or local corporation) in that there are
no monthly payments, such as the interests required by bank loans and
credit cards. They pay angels the share of their profits that equates with
their investment, and that is only after the project begins construction
and starts to generate activity.
In conclusion, this rare and symbiotic relationship has contributed
to the changing climate of project execution in Africa. The government of Kenya through the Kenya Electricity Generating Company
and the Chinese government through the firm Shandong Kerui Oilfield
Service Group are taking the drill/exploration risk of geothermal plants
in Sub-Saharan Africa. The State utility firm Ethiopian Electric Power
J. M. Kariuki
Once the project achieves financial close, the ‘angel investor’ gets a
return in the form of a government contract to partially or wholly undertake the engineering, procurement and construction (EPC) portion of
the project. A sovereign guarantee is preferred to ensure the investor
(Chinese government) gets its guaranteed return. In the Kenyan case,
the operation and maintenance (O&M) costs will be paid entirely by
the Government of Kenya for the first six years, followed by a gradual
transfer to the farmers until year 11 when the principal and interest
payments should be almost completed. This model has been replicated
in numerous infrastructure projects in South Sudan, Zimbabwe, Democratic Republic of Congo and other African states. However, when this
doesn’t play out as expected, then just as in any business, a restructuring
scenario is undertaken to ensure project success. This increases the risk
profile and cost of the project.
The Kenyan government signed a commercial EPC contract with
CSCEC, which was to be executed via a commercial loan facility to
be negotiated between China and Kenya however because Kenya is
currently over-borrowed (Debt to GDP ratio) and as such can’t proceed
with the initial plan of commercial loan financing for this project, hence
its conversion into a Public–Private Partnership Project, with the Chinese
state-owned corporation, local government authority and/or local corporation having a call option on the EPC component of the project with
the new private entity to be awarded.
In addition, we see the host country has an unparalleled advantage of
taking funds from the angel investors (Chinese state-owned corporation,
local government authority and/or local corporation) in that there are
no monthly payments, such as the interests required by bank loans and
credit cards. They pay angels the share of their profits that equates with
their investment, and that is only after the project begins construction
and starts to generate activity.
In conclusion, this rare and symbiotic relationship has contributed
to the changing climate of project execution in Africa. The government of Kenya through the Kenya Electricity Generating Company
and the Chinese government through the firm Shandong Kerui Oilfield
Service Group are taking the drill/exploration risk of geothermal plants
in Sub-Saharan Africa. The State utility firm Ethiopian Electric Power