Language: English Original: English AFRICAN DEVELOPMENT FUND PROJECT: ETHIOPIA-KENYA ELECTRICITY HIGHWAY COUNTRY: REGIONAL (ETHIOPIA AND KENYA) PROJECT APPRAISAL REPORT September 2012 Appraisal Team Team Leader T. BAH, Senior Power Engineer ONEC.2 3184 Team Members S. ASFAW, Principal Power Engineer ONEC.2 1538 F. KANONDA, Chief Energy Investment Officer ONEC.2 6948 D. LEKOETJE, Public Utilities Economist ONEC.2 2651 N. KULEMEKA, Chief Socioeconomist ONEC.3 2336 K. NTOAMPE, Principal Environmentalist ONEC.3 2707 D. MUTUKU, Principal Fin. Management Officer ORPF.2 6252 F. MVULA, Regional Procurement Coordinator ORPF.1 6249 B. ALUOCH, Principal Legal Counsel GECL.1 2404 S. ONEN, Principal Legal Counsel EARC 8239 Sector Manager E. NEGASH ONEC.2 3931 Sector Director H. CHEIKHROUHOU ONEC 2140 Regional Directors G. NEGATU K. MLAMBO EARC OREB 8232 2706 Peer Reviewers A. ALI, Principal Transport Engineer OITC.2 2625 M. KINANE, Senior Environmentalist ONEC.3 2933 N. PEDERSEN, Senior Energy and Trade Specialist ONRI.1 3882 N. NDOUNDO, Senior Power Engineer ONEC.1 2725 O. FALL, Senior Investment Officer OPSM.2 3820
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Language: English Original: English
AFRICAN DEVELOPMENT FUND
PROJECT: ETHIOPIA-KENYA ELECTRICITY HIGHWAY
COUNTRY: REGIONAL (ETHIOPIA AND KENYA)
PROJECT APPRAISAL REPORT
September 2012
Appraisal
Team
Team Leader T. BAH, Senior Power Engineer ONEC.2 3184
Team Members
S. ASFAW, Principal Power Engineer ONEC.2 1538
F. KANONDA, Chief Energy Investment Officer ONEC.2 6948
D. LEKOETJE, Public Utilities Economist ONEC.2 2651
N. KULEMEKA, Chief Socioeconomist ONEC.3 2336
K. NTOAMPE, Principal Environmentalist ONEC.3 2707
D. MUTUKU, Principal Fin. Management Officer ORPF.2 6252
F. MVULA, Regional Procurement Coordinator ORPF.1 6249
B. ALUOCH, Principal Legal Counsel GECL.1 2404
S. ONEN, Principal Legal Counsel EARC 8239
Sector Manager E. NEGASH ONEC.2 3931
Sector Director H. CHEIKHROUHOU ONEC 2140
Regional
Directors
G. NEGATU
K. MLAMBO
EARC
OREB
8232
2706
Peer
Reviewers
A. ALI, Principal Transport Engineer OITC.2 2625
M. KINANE, Senior Environmentalist ONEC.3 2933
N. PEDERSEN, Senior Energy and Trade Specialist ONRI.1 3882
Appendix II: ADB Portfolio in Kenya ................................................................................. III
Appendix III: Similar Projects in Kenya ............................................................................. V
Appendix IV : Map of Project Area .................................................................................. VIII
i
CURRENCY EQUIVALENTS
UA 1 USD 1.5
UA 1 EUR 1.2
Fiscal Year
1 January–31 December (Kenya)
8 July–7 July (Ethiopia)
Weights and Measures
m metre KOE kilogram of oil equivalent
cm centimetre = 0.01 metre kV kilovolt = 1,000 volts
mm millimetre = 0.001 metre KVa kilovolt ampere (1,000 Va)
km kilometre = 1,000 metres KW kilowatt = 1,000 Watts
m² square meter GW gigawatt (1,000,000 kW or 1,000 MW)
cm² square centimetre MW megawatt (1,000,000 W or 1,000 kW
km² square kilometre = 1,000,000 m² KWh kilowatt hour (1,000 Wh)
ha hectare = 10,000 m² MWh megawatt hour (1,000 KWh)
t (t) metric tonne (1,000 kg) GWh gigawatt hour (1,000,000 KWh)
Acronyms and Abbreviations
AC : Alternating current
AC : Alternating current
ADB : African Development Bank
ADF : African Development Fund
AFD : Agence Française de Développement
BD : Bidding documents
CDM : Clean Development Mechanism
CSP : Country Strategy Paper
DAG : Development Assistance Group
DC : Direct current
E&S : Environmental and social
EAPP : East African Power Pool
EIB : European Investment Bank
EHS : Environment, health, and safety
EEPCO : Ethiopia Electricity Power Corporation
EPC : Engineering, procurement, and construction
ESIA : Environmental and Social Impact Assessment
ESMP : Environmental and Social Management Plan
GDP : Gross domestic product
GoE : Government of Ethiopia
GoK : Government of Kenya
GTP : Growth and Transformation Plan
HVDC : High voltage direct current
IPP : Independent power producer
IRR : Internal rate of return
JPC : Joint Project Coordinator
JPCU : Joint Project Coordination Unit
JSC : Joint Steering Committee
KETRACO : Kenya Transmission Company
KFS : Kenya Forestry Services
ii
KPLC : Kenya Power Lighting Company
KWS : Kenya Wildlife Services
LCPDP : Least Cost Power Development Plan
MTP : Medium-Term Plan
NBI : Nile Basin Initiative
NEMA : National Environment Management Company
NGO : Nongovernmental organisation
NPV : Net present value
O&M : Operation and maintenance
OPGW : Optical ground wire
PAP : Project-affected people
PIM : Project Implementation Manual
PMT : Project Management Teams
PPA : Power Purchase Agreement
PPE : Personal Protective equipment
PPP : Public-private partnership
PRSP : Poverty Reduction Strategy Paper
RFP : Request for proposal
RAP : Resettlement Action Plan
SREP : Scale-up Renewable Energy Program
iii
PROJECT INFORMATION SHEET
Client Information
Borrower Federal Democratic Republic of Ethiopia
Republic of Kenya
Executing Agencies Ethiopia Electric Power Corporation (EEPCO)
Ministry of Energy in Kenya
Implementing Agencies Ethiopia Electric Power Corporation (EEPCO)
Kenya Electricity Transmission Company Limited
(KETRACO)
FINANCING PLAN
Sources Amount
(UA million) Instrument
African Development Fund 225 Loan
World Bank 456 Loan
Agence Française de Développement (AFD) 79 Loan
Government of Ethiopia 21 Equity
Government of Kenya 59 Equity
Total Financing 840
KEY ADB FINANCIAL INFORMATION
ADF Loan to Ethiopia ADF Loan to Kenya
Loan Currency Unit of Account (UA) Unit of Account (UA)
Interest Type N/A N/A
Interest Rate Margin N/A N/A
Service Charge 0.75% yearly on the disbursed and
outstanding.
0.75% yearly on the disbursed and
outstanding.
Commitment Fee
0.50% yearly on the undisbursed
portion of the loan starting 120 days
after the signing of the Loan
Agreements.
0.50% yearly on the undisbursed
portion of the loan starting 120
days after the signing of the Loan
Agreements.
Tenor 50 years 50 years
Grace Period 10 years 10 years
KEY FINANCIAL & ECONOMIC OUTCOMES
IRR NPV
EEPCo (Ethiopia)—Financial 21.9% USD 555 million
KETRACO—Financial 10.0% Break even
Kenya—Financial N/A USD 133 million
Economic (Regional) 23.3% USD 942 million
TIMEFRAME – MAIN MILESTONES
Concept Note Approval 05 October 2011
Project Approval 19 September 2012
Effectiveness March 2013
Completion November 2017
Last Disbursement June 2018
Last Repayment June 2068
iv
PROJECT SUMMARY
Project Overview: The project involves the construction of an electricity highway between
Ethiopia and Kenya, consisting of about 1,068 km of high voltage direct current (HVDC) 500
kV transmission line and associated AC/DC converter stations at Wolayta-Sodo (Ethiopia)
and Suswa (Kenya) substations, with a power transfer capacity of up to 2,000 MW. The
project is expected to cost UA 840 million and to be commissioned in November 2017. The
project will ultimately promote power trade and regional integration, contribute to the Eastern
Africa Power Pool (EAPP) countries’ social and economic development, and reduce poverty
in those countries.
Needs Assessment: The demand for electricity in the East African region has steadily risen
relative to supply, leading to occasional severe power shortages. To alleviate this situation,
East African countries must resort to exorbitantly expensive power from emergency
generators. However, the region is blessed with a great variety of natural resources, in
particular hydropower, mainly concentrated in Ethiopia. The integration of the power systems
of the EAPP will enable the development of Ethiopia’s large hydropower resources to enable
export and address power shortages throughout the region. The project will position Ethiopia
as the main powerhouse and Kenya as the main hub for power trade in the East African
region. It will promote power and economic trading as well as regional integration, and will
complement some ongoing Bank-financed projects, such as the regional Interconnection of
Electric Grids of the Nile Equatorial Lakes Countries, which aims to connect five East
African countries: Kenya, Uganda, Rwanda, Burundi, and the Democratic Republic of
Congo.
The electricity highway will also contribute to the EAPP countries’ social and economic
development and poverty reduction efforts. In Kenya alone, the additional power injected into
the national grid will enable the supply of electricity to an additional 870,000 households by
2018, and a cumulative total of 1,400,000 additional households by 2022 (of which 18% will
be located in rural areas). Businesses and industries will also benefit, with around 3,100 GWh
of additional energy by 2018, increasing to around 5,100 GWh by 2022.
Bank’s Added Value: The Bank has been playing a leading role in the preparation of the
project, financing some of the feasibility studies required to appraise the project and make it
bankable, which has positioned the Bank as a strategic partner of the East African countries
in the power sector. The Bank’s involvement has mobilized funds from other development
partners in a timely and efficient manner. The project is also perfectly aligned with the
climate change mitigation and adaptation strategy of the Bank, as it has the potential to
replace some fossil-fuelled thermal generation in the East African region.
Knowledge Management: The project will include a capacity-building component to ensure
knowledge transfer, especially in management of similar technologies which are likely to be
used for other projects in the near future, such as for the interconnections between Kenya and
Tanzania, Ethiopia, and Sudan.
v
RESULTS-BASED LOGICAL FRAMEWORK
Country and project name: Ethiopia-Kenya Electricity Highway Project
Purpose of the project: The project will improve the supply of electricity in Kenya and other Eastern African Power Pool (EAPP) countries in the long run.
RESULTS CHAIN
PERFORMANCE INDICATORS
MEANS OF VERIFICATION RISKS/MITIGATION MEASURES Indicator (including Core Sector
Indicator) Baseline Target
IMP
AC
T
Contribute to sustainable
economic growth and
poverty reduction
- Gross domestic product (GDP) growth
- Revenues for supplier (EEPCO — Ethiopia)
- Savings for offtaker (KETRACO — Kenya)
- 2010 figures: 11% in Ethiopia and 5.6% in Kenya
- n/a
- n/a
- GDP growth to accelerate to 7% by 2015 in Kenya and remain above 10% in Ethiopia
- USD 400 million by 2020
- USD 500 million by 2020
- Human Development Report
- National economic and sector statistics
- Ministry of Finance and Economic Development reports
- Central bank annual report - EEPCO and KETRACO annual
operation report
Risk arising from political fallout in one of the two governments and the ongoing instability / conflict in Somalia, which may negatively affect government operations and/or result in disputes between the two countries, will be mitigated by: - The commitment of Ethiopia and Kenya to
the implementation of their respective development plans and to regional integration
- Effective dialogue at the bilateral level as well as within EAPP
- The economic and financial benefits for both countries and sustained diplomatic relations between them will mitigate the risk of disputes
- The involvement of the multilateral and bilateral institutions in the project will provide reassurance that the two utilities will meet their contractual obligations without political interference.
vi
1 United Nations Statistics Division: http://unstats.un.org/unsd/environment/air_co2_emissions.htm
2 CO2 emission savings are calculated assuming a grid emission factor of approximately 0.6 tons of CO2/MWh
OU
TC
OM
ES
New electricity connections
in Kenya
Number of households and
small businesses
n/a In 2018:
About 870,000 households and
550,000 small businesses
In 2022:
About 1,400,000 households
and 920,000 small businesses
(cumulative)
- National statistics - Project post-evaluation report - Public utility companies
statements and records
Risk arising from the power supplier’s (EEPCO) and offtaker’s (KPLC) willingness and ability to meet their contractual obligations is mitigated by: - Sound contractual arrangements in place
in the recently executed power purchase agreement
- Sound and timely power generation expansion planning in Ethiopia
- Track record of KPLC in terms of meeting its contractual obligations (no payment issues with Kenyan IPPs to date)
Increased energy supply to
businesses and industries in
Kenya
Amount of energy for businesses and industries in GWh
n/a In 2018:
About 3,100 GWh of additional power to businesses and industries annually
In 2022:
About 5,100 GWh (cumulative)
of additional power to
businesses and industries
annually
High reliability of the line Availability of the line (in %) n/a 99%
Reduced cost of electricity
in Kenya due to the
project’s utilization of a
cheaper power source
Least cost levelized cost of power (in USD cents / KWh)
USD 9.2 cents (geothermal)
USD 6.5 cents
Reduced CO₂ emissions in
Kenya due to the project’s
utilization of a cleaner
source of power
Tonnes of CO2 emissions 11.24 million
tonnes in 20101
In 2018:
3.59 million tonnes reduction2
Improved rural access to ICT Number of rural towns having access to ICT through OPGW
n/a In 2018:
At least eight towns in Ethiopia
and six in Kenya
vii
OU
TP
UT
S
HVDC transmission line
interconnecting Ethiopia
and Kenya
- Length (in km) of HVDC transmission line constructed
- Number and capacity of AC/DC converter stations
n/a In 2018:
1,068 km of transmission line
constructed (437 km in
Ethiopia and 631 km in Kenya)
In 2018:
Four converter stations with a
total capacity of 2,000 MW
installed
- Progress reports from the implementing agency and from the supervision and management consultant
- Supervision mission reports from the Bank
- Disbursement and financial reports from the implementing agency
- Project completion report
Risk of escalation in project cost and/or implementation delay will be mitigated by: - Adequate design as well as contingency
funding for the project - Engineering, procurement, and
construction (EPC) contract should ensure minimum variance in cost
- Effective project management and supervision should ensure timely implementation
Risks related to the project operation and maintenance will be mitigated by:
- Sound operation and maintenance agreement will create an incentive for EEPCO and KETRACO to properly operate and maintain the project
- Capacity building support to be provided under the project
Improved capacity of the
implementing agencies and
EAPP
- Number of staff trained - Number of implementation,
operating and maintenance procedures and agreements negotiated and finalized
n/a - 50 each from EEPCO and KETRACO staff trained by end of 2016
- PPA, construction, operation and maintenance arrangements finalized by March 2012
- Operating procedures and manual finalized by March 2012
Increased employment
opportunities
- Number of jobs created during implementation and operation.
n/a - At least 1,600 temporary jobs created in Ethiopia and 2,400 in Kenya; 55 permanent jobs created in Ethiopia and 70 in Kenya, 33% of permanent jobs will be reserved for women
COMPONENTS INPUTS
KE
Y A
CT
IVIT
IES
A. Construction of 1,068 km of 500 KV HVDC bipolar transmission lines and AC/DC converter stations at Wolayta-Sodo (Ethiopia) and Suswa (Kenya) substations
B. Reinforcement of the Kenyan power system C. Capacity building and institutional support D. Project management and supervision E. Environmental and social management
A. UA 718 million
B. UA 67 million
C. UA 7 million
D. UA 28 million
E. UA 20 million
Total = UA 840 million
viii
PROJECT IMPLEMENTATION SCHEDULE
1
REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS
ON A PROPOSED LOAN TO ETHIOPIA AND KENYA
FOR THE ETHIOPIA-KENYA ELECTRICITY HIGHWAY PROJECT
Management submits the following Report and Recommendations on a proposed ADF loan of UA
150 million to Ethiopia and UA 75 million to Kenya for the Ethiopia-Kenya Electricity Highway
Project.
1 STRATEGIC THRUST AND RATIONALE
1.1 Project Linkages with Country Strategy and Objectives
1.1.1 The Bank’s Country Strategy Paper (CSP) for Kenya (2008–2013) seeks to support two
strategic pillars: infrastructure development for enhanced growth and the creation of employment
opportunities to reduce poverty. Under the first pillar, the country will aim to address problems related
to its erratic supply of electricity, inadequate road network, and insufficient water and sewerage
services. The CSP is in line with the country’s long-term development strategy, Vision 2030, and its
five-year Medium-Term Plan (2008–2013), in which the expansion of electricity infrastructure is a top
priority. Kenya is also committed to regional operations: the on-going Interconnection of Electric
Grids of the Nile Equatorial Lakes Countries, a Bank-financed regional project, will help improve the
power supply in the Eastern African Power Pool (EAPP).
1.1.2 A new five-year development plan, the Growth and Transformation Plan (GTP), 2011–2015,
was launched by the Government of Ethiopia at the beginning of 2011 as the key means to achieving
the country’s vision of extricating itself from poverty and becoming a middle income country by
2025. One of the pillars the GTP hinges on is the enhancement and expansion of quality infrastructure
development, in particular power generation. In fact, the plan aims at expanding the power generation
infrastructure and developing renewable energy sources by installing 8,700 MW of additional power
generation capacity by the end of 2016. Ethiopia’s hydropower potential is believed to be about
45,000 MW, and only about 2,000 MW of that is currently being tapped. Therefore, Ethiopia has the
potential to become the powerhouse of the EAPP. Given the relatively high energy generation cost of
other EAPP member countries, Ethiopia could realize the benefit of its hydropower potential if it
strategically implements its GTP. The Bank has recently developed a new CSP for Ethiopia covering
the period 2011–2015, which coincides with that of the GTP to which it is aligned. The CSP seeks to
support two strategic pillars: enhanced access to infrastructure and enhanced accountability and
quality of basic services delivery. Under the first pillar, the country will aim to expand its existing
infrastructure network and improve the quality of infrastructure services, including for electricity
generation and distribution.
1.1.3 The project is also consistent with the goal of regional infrastructure and capacity building,
which is the main pillar of the Bank’s Regional Integration Strategy Paper (RISP) for Eastern Africa,
covering 2011–2015. The project is included in the Eastern Africa RISP.
1.2 Rationale for Bank Involvement
1.2.1 The demand for electricity in Africa has steadily risen relative to supply, thus leading to severe
power shortages. This situation has been exacerbated by insufficient reforms in the policy, legal, and
regulatory environments in the energy sector; underinvestment; and climate change and its effects on
hydro-based energy resources, such as the drought ravaging the East African region3 in particular.
3 For the purpose of this project, the East African region is defined as the group of countries that comprises Kenya,
Tanzania, Uganda, Rwanda, and Burundi, all members of the East African Community (EAC), as well as Ethiopia and
Sudan. With the exception of Uganda, these countries are members of the EAPP.
2
Countries such as Kenya, Tanzania, and Uganda do not have regular electricity supplies and have
scheduled load-shedding programmes that in some countries stretch over four hours per day. Shorter-
term measures to alleviate the situation include recourse to exorbitantly expensive supplies from
emergency power generators, which can cost up to USD 20 cents per kWh (or USD 600 million per
year for 300 MW of emergency generation capacity). This is jeopardizing the finances of the power
sector in East African countries.
1.2.2 On the other hand, the East African region is blessed with a great variety of natural resources
concentrated in a few countries. In particular, more than 60% of sub-Saharan Africa’s hydropower
potential is concentrated in Ethiopia (believed to be about 45,000 MW) and the DRC. The integration
of the power systems of the EAPP will facilitate large-scale development of the region’s cost-effective
and clean energy sources, in particular Ethiopia’s large hydropower resources, as a means to address
power shortages. Ethiopia currently has an installed capacity of 2,179 MW, which is expected to grow
to approximately 11,000 MW by the end of 2016. The development of Ethiopia’s hydropower
potential and the interconnection of the Ethiopian and Kenyan power systems are key investments for
the development of a vibrant power pool in the East African region.
1.2.3 In light of the above, the Bank received an official request from the governments of Kenya and
Ethiopia to consider financing this important regional project. The rationale for the Bank’s
involvement is fourfold: (i) the Bank has been playing a leading role during the preparation of the
project, with the financing of feasibility studies required to make the project bankable, and would
therefore position itself as a strategic partner of the East African countries in the power sector; (ii) the
Bank’s involvement in the financing has mobilized funds from other development partners in a timely
and efficient manner; (iii) the project will complement the ongoing Interconnection of Electric Grids
of the Nile Equatorial Lakes Countries, a Bank-funded regional project that aims at connecting Kenya,
Uganda, Rwanda, Burundi and DRC; and (iv) the project is perfectly aligned with the climate change
mitigation and adaptation strategy of the Bank, as it will eventually replace fossil-fueled thermal
generation and improve the climate resilience of countries adversely affected by weather changes.
1.3 Aid Coordination
1.3.1 In Kenya, the Bank collaborates with other development partners through the Development
Partners Group (DPG), the Harmonization, Alignment and Coordination Group (HAC), and sector
donor groups. The most active development partners in the energy sector in Kenya are the AfDB,
World Bank, European Investment Bank (EIB), Agence Française de Développement (AFD), Japan
International Cooperation Agency (JICA), and Germany’s Kreditanstalt für Wiederaufbau (KfW). To
mobilize and coordinate the enormous resources required for the energy sector, the Kenyan Ministry
of Energy has established an energy sector working group. This group, which is currently chaired by
the AFD and includes all the donors active in the energy sector, aims to increase the programmatic
flow of donor funds for the energy sector, consistent with the 2005 Paris Declaration on Aid
Effectiveness.
1.3.2 In Ethiopia, the Ministry of Finance and Economic Development (MoFED) is responsible for
coordinating donor financing within the energy sector. This is done through regular consultations
between the government of Ethiopia and the donors through the Development Assistance Group
(DAG). The DAG also serves as a forum for donors to harmonize their strategies for intervention in
all sectors and share their respective experience. The Bank’s field office in Ethiopia (ETFO) is playing
a leading role in the DAG and is a member of the DAG Executive Committee. The most active
development partners in the energy sector in Ethiopia include the AfDB, World Bank, EIB, AFD,
Arab Bank for African Economic Development (BADEA), and Kuwait Fund.
.
3
2 PROJECT DESCRIPTION
The project’s development objective is to promote power trade and regional integration, contribute to
the East African countries’ social and economic development, and reduce poverty in those countries.
The project aims at improving the supply of electricity in Kenya and other EAPP countries in the long
run by exporting power from Ethiopia. This will result in improved supply of electricity in Kenya and
other East African countries in the long run.
2.1 Project Components
2.1.1 The project involves the construction of an electricity highway between Ethiopia and Kenya
consisting of about 1,068 km of transmission line (about 437 km will be in Ethiopia and about 631 km
in Kenya) and associated AC/DC converter stations at Wolayta-Sodo (Ethiopia) and Suswa (Kenya)
substations with a transfer capacity of up to 2,000 MW in either direction. The project components
and associated cost estimates are listed in Table 2.1.
Table 2.1
Project Cost Estimates by Components (Amounts in UA million equivalent)
N° Component Name Estimated
Cost Component Description
A) HVDC interconnector 718 Construction of 1,068 km of 500 KV HVDC bipolar transmission line
and AC/DC converter stations
B) Kenya system reinforcement 67 Reinforcement of the Kenyan power system
C) Capacity building and
institutional support 7
Training for Joint Project Coordination Unit and Project Management
Teams
D) Project management and
supervision 28 Consultancy services for project management and supervision
E) Environmental and social
management 20
Implementation of environmental management plan and resettlement and
compensation of project-affected persons
Total Project Cost 840
2.2 Technical Solutions Adopted and Alternatives Considered
2.2.1 The solution retained is the construction of a 500 kV HVDC transmission line with a capacity
of 2,000 MW along a route starting at Wolayta/Sodo substation, passing through Arba Minch, Konso,
Brindar, Yabello, Mega, crossing the border straight south and passing through west of Marsabit,
Samburu, Isolo, Laikipia, Nyandarua, Nakuru, west of Seradupi, Wamba, Rumurutuli, Gilgil, east of
Naivasha and ending at Suswa substation.
2.2.2 The option of not interconnecting the two countries (the “no project” alternative) and instead
relying on independent national generation and transmission development was considered and
rejected. Independent national development would have jeopardized the opportunity to exploit
synergies between the two systems, which will generate revenues for Ethiopia through the sale of
excess cheap hydropower and yield cost savings and reduced tariff for Kenya. Furthermore, without
the interconnector, Kenya would continue using fossil fuels to generate energy, contributing
negatively to climate change. One of the effects of climate change in Kenya is the recent extreme
droughts in the region, which means that the country can no longer rely on its hydropower generation
capacity. The best alternative sources for base load generation in Kenya are geothermal and coal.
Geothermal is relatively risky and requires significant financial resources because of the high upfront
investments involved. Coal, on the other hand, has significant negative environmental and social
impacts.
4
2.2.3 Other alternative designs were considered and rejected for the reasons summarized in Table
2.2.
Table 2.2
Project Alternative Designs and Reasons for Rejection
Alternative Description Reasons for Rejection
HVAC technology Series-compensated 400 kV
HVAC double circuit line from
Wolayta/Sodo to Suswa.
High cost due to the requirement of having four fully
expanded 400 kV substations, series compensation
located at a minimum of two intermediate locations,
and dynamic voltage control at both ends.
Less environment-friendly than HVDC due to larger
rights of way.
High losses and stability problems.
Hybrid HVDC-
HVAC technology
HVDC link from Wolayta/Sodo
to Marsabit and HVAC link
from Marsabit to Suswa.
No full use of the cost-competitiveness of the HVDC
technology over long distances.
Alternative route
(direct route)
Route line starts at
Wolayta/Sodo and passes
through Arba Minch, Konso,
Brindar, Teltelle and crosses the
border straight south, then
passing through Kalacha, South
Horr, Kisima, Rumuruti to
Suswa.
Requires construction of additional access roads for
transportation of materials and operation and
maintenance.
Reduction in cost due to shorter line (around 5%
shorter) would be offset by the cost of access road
construction.
Prolonged flooding during rainy season in the Chalbi
Desert portion of the line, east of Lake Turkana in
Kenya, which will make construction, operation, and
maintenance very difficult during that period.
Does not traverse many towns and/or villages that
could benefit from telecommunication services
through optical ground wire (OPGW) installed on the
line.
Phasing approach First phase for 1,000 MW
transfer capacity in 2016 and
second phase for an additional
1,000 MW in 2020.
Studies have showed that the phasing approach is not
required and that the 2,000 MW capacities would be
utilized between 60% and 80% on average during the
lifetime of the project, depending on different transfer
scenarios.
Phasing could result in additional delays and costs
(procurement of consultants and contractors,
de/mobilization of contractors, etc.).
2.3 Project Type
2.3.1 The project is a co-financed operation and will be financed through loans from the ADF, the
World Bank, and the Agence Française de Développement (AFD).
2.4 Project Cost and Financing Arrangements
2.4.1 The total project cost, including a physical contingency of 5% and price contingency of 10%,
but excluding customs taxes and duties, is estimated at USD 1,260 million (approximately equivalent
to UA 840 million). Tables 2.3 and 2.4 present the detailed project cost for both countries.
5
Table 2.3 - Project Cost by Component for Ethiopia and Kenya
Table 2.4 – Project Cost by Category of Expenditure in Foreign and Local Currency
2.4.2 The cost estimate is based on a 2009 feasibility study and a 2012 inception report for the
detailed design of the project, both prepared by an independent consultant.
2.4.3 The project will be financed by the ADF, World Bank, AFD, and the governments of Ethiopia
and Kenya. Ethiopia’s country contribution is 6.3% which is less than the required 10% of the project
cost threshold according to the Policy on Eligible Expenditures. A justification of the low counterpart
funding for Ethiopia is provided in Annex C. The sources of financing of the project are illustrated in
Table 2.5. Table 2.5 - Sources of Financing
Financier Financing in million USD Equivalent in million UA
Ethiopia Kenya Total Ethiopia Kenya Total %
Amount Amount
African Development Fund 225 113 338 150 75 225 27%
World Bank 243 441 684 162 294 456 54%
French Development Agency - 118 118 - 79 79 9%
Government of Ethiopia 32 - 32 21 - 21 3%
Government of Kenya - 88 88 - 59 59 7%
Total Financing 500 760 1,260 333 507 840 100%
Component USD million UA million
Ethiopia Kenya Total Ethiopia Kenya Total
A. HVDC interconnector
A.1 Transmission line 145 209 354 97 139 236
A.2 Converter substations 321 402 723 214 268 482
A. Subtotal HVDC interconnector 466 611 1,077 311 407 718
B. Kenya system reinforcement - 100 100 - 67 67
C. Capacity building and institutional support 3 7 10 2 5 7
D. Project management and supervision
D.1 Management and supervision of HVDC interconnector 15 23 38 10 15 25
D.2 Management and supervision of Kenya reinforcement - 5 5 - 3 3
D. Subtotal project management and supervision 15 28 43 10 18 28
E. Environmental and social management 16 14 30 11 9 20