Kenya Electricity Transmission Company Limited (KETRACO) has laid out the key terms of its agreement with Adani Energy Solutions Limited (AESL).
One of the notable aspects as per the publication in the dailies on Wednesday is the success fee.
It has been revealed that AESL will pay the Government of Kenya a success fee of one per cent of the total project cost, amounting to Sh1.04 billion (USD8 million).
To ensure project performance, AESL will provide various forms of performance securities.
First, a financial close bank guarantee of one per cent of the Engineering, Procurement, and Construction (EPC) cost will be provided, ensuring that AESL meets its financial obligations.
Additionally, during the construction period, a four per cent bank guarantee will be issued to further secure project execution.
At the end of the 30-year concession period, AESL will also offer a handback bank guarantee to cover the condition of assets during transfer to KETRACO, ensuring that the infrastructure is in good working order.
In case the project fails to achieve financial close, the agreement allows KETRACO and GoK to terminate the project without liability, except for the limited costs related to wayleaves, licenses, and permits.
This limitation of liability protects KETRACO from unforeseen financial burdens if the project does not proceed as planned.
The government’s support for the project is also clearly defined. The government of Kenya will issue a Letter of Support, a customary step in public-private partnerships (PPP).
According to the agreement, AESL must complete the project within 24 months from the effective date.
If AESL fails to meet this scheduled completion date, KETRACO has the right to enforce performance securities or terminate the agreement.
This provides KETRACO with safeguards against delays, ensuring the project stays on track.
The total project cost is estimated at Sh95.68 billion (USD 736 million), covering not only engineering and construction but also costs related to wayleave acquisition, project management, insurance, and legal fees.
AESL will fund the project using a funding structure of 70 per cent debt and 30 per cent equity.
The cost of debt is estimated at 11.5%, while the cost of equity is higher at 16%.
These financing terms are expected to result in a weighted average cost of capital (WACC) of around 10.4 per cent or lower.
AESL is also encouraged to identify cost-saving opportunities before financial close by conducting competitive tendering for the construction contractor.
Further savings could be achieved through concessional lending options, allowing the project to be delivered at a lower overall cost.
To ensure proper oversight, KETRACO and AESL will jointly appoint an Independent Expert (IE) to monitor the project throughout its implementation.
KETRACO will also set up a project implementation team that will work closely with the IE and other state actors to ensure smooth progress.
The project has a concession period of 30 years from the date of signature.
At the end of the concession period, AESL will hand back all project assets to KETRACO in good condition and free of encumbrances, at no cost to KETRACO or the Government of Kenya.
In the event of any refinancing gain due to improved market conditions, AESL and KETRACO will share the gains equally on 50:50 basis.
Regarding payment terms, KETRACO will pay AESL based on an availability-based tariff (ABT), which is pegged to certain performance thresholds.
Should AESL fail to meet these availability thresholds, penalties will be imposed. AESL will invoice KETRACO bi-monthly, and KETRACO will have 30 days to settle the payment.
AESL is required to maintain insurance coverage throughout the project term, which includes cover for project assets, third-party liability, worker compensation, and force majeure events, providing protection for unforeseen circumstances.
The agreement specifies that AESL must comply with local content requirements under applicable Kenyan laws, such as the PPP Act and the *Energy Act.
This ensures that the project contributes to local development and adheres to the legal frameworks governing such ventures in Kenya.
The signing of this agreement between KETRACO and Adani Energy Solutions Limited took place on October 11, 2024, following four months of negotiations.
The project is expected to significantly enhance Kenya's electricity transmission network.
Energy Cabinet Secretary Opiyo Wandayi highlighted that the project would ensure reliable and widespread access to power, supporting Kenya’s growing economy and development goals.
According to CS Wandayi, this project is critical for improving Kenya’s infrastructure while providing value for money.
Importantly, the government will not incur any financial expenditure, and Kenya will benefit from world-class energy infrastructure by the end of the 30-year concession period when Adani hands back the assets to KETRACO.
The long-term focus on sustainable infrastructure development is expected to make a substantial contribution to the country's industrial and economic growth.