The Power of Hope
We learn how a new power plantproject is providing hope for the Ghana’s future.
Cenpower was created with one purpose, to develop the thermal power plant which has now become known as the kpone independent power plant or “kipp”.
“it’s going to be a cost competitive, efficient and sustainable power plant for ghana,” explains company ceo theo sackey. “it was started by a ghanaian investor group comprising samuel nana brew-butler, jimmy heymann and kweku awotwi. They formed the founding shareholders of a company that would be a pioneer in our sector.”
The KIPP project is certainly a pioneer, as the first independentpower producer to receive a generation licence, the first green field project financed IPP in Ghana,the first IPP in the countrytaking fuel supply risk, the first project to provide a working capital facility through a fuel financing facility for the Electricity Companyof Ghana (ECG) and the largest IPP investment by Sumitomo Corporation of Japan in Africa. It’s also the largest IPP in subSaharan Africa in the last 10 years“Now getting that generation license did not necessarily mean the end of development of the projector even financial viability,” Sackey cautions us. “There was still a lot of work to do, but we were able to go the distance, create the right structure, and build a bankable project in the country.” The project itself is a 350 megawatt Combined Cycle Gas Turbine(CCGT) power plant with multiple fuel (light crude oil, distillate and natural gas) operating capability, a 161kV substation for power transmission and light crude oil fuel supply, delivery and treatment facilities, including two onsite 9,000m3 storage tanks, as well as offsite crude oil storage facilities with a capacity of about 70,000m3. Sackey reflects, “This project is unique in many ways, and not just because of its status but because it’s a unique partnership amongst local and international businesses with strong local ownership, something that’s rare in this industry. We stand out.” The project company is a Ghanaian company which is 21% owned by a local Ghanaian company (Cenpower Holdings). Another 47% of the company is also African owned (Africa Finance Corporation and Africa Infrastructure Investment Fund). The project is largely funded by African banks and being constructed by an African construction company.
“This is exceptional in the industry,” Sackey tells us, explaining that with about 68% of the equity for the project is held in African ownership, “This makes it a truly African project, and that’s quite unique. It doesn’t mean there are no international institutions involved. On the equity side, there is Sumitomo Corporation of
Japan, a very strong, world-class and reputable industry partner as well as FMO, one of the true international Development Finance Institutions with an innovative approach to supporting infrastructure development in Africa. On the debt side, there are non-African international development finance institutions such as OFID, DEG, EAIF and again FMO involved. The bulk of the debt at Financial Close, though was provided by African financing institutions, RMB, Nedbank, Standard Bank, DBSA and IDC all of South Africa. Also involved was the Export Credit Insurance Corporation (ECIC) of South Africa, in support of the South African EPC Contractor, Group Five Power International. What truly stands out is that this was a project conceived by Africans, led in development by Africans,funded by Africans and built by Africans.”
A CHALLENGING PROCESS
A project this ambitious is never going to have it easy, and KIPP has been no exception. “The challenges were many,” Sackey admits. “It’s a very complex and challenging process. The key challenge has been demonstrating the financial viability of the project in order to get the financing institutions to commit to funding. It took us over ten years to get there, but it’s been worth it. We’re the only green-field Ghanaian IPP that has been able to attract debt on a limited recourse basis using Project Finance. The first green-field IPP in Ghana was funded only with equity. For a project such as Cenpower, it is obvious that you can’t just fund it with equity only because it will increase costs and it’s not possible to persuade people to put that amount of money into a project without any leverage. In addition, our Off-taker was the major distribution company in the country, the Electricity Company of Ghana, which was itself facing significant challenges.” Cenpower worked extensively with the Off-taker, looking at different contractual structures, engaging with key relevant institutions and agencies such as the Public Utilities Regulatory Commission, the Energy Commission, the Ministry of Finance and Economic Planning, the Energy and Power Ministries, the Attorney General’s office, the Environmental Protection Agency, amongst others, to create a complex suite of contractual arrangements to enable financial institutions approve the funding for the project. “You’re dealing with a vast array of specialists from lawyers to social scientists,” Sackey remembers. “A key challenge was how to demonstrate and make sure that you could prove the financial value of the project. Not just to the players in that industry sector, but to the country itself. As we approached Financial Close, Ghana’s credit rating was downgraded twice, so getting people to believe in this project in the midst of the nation’s financial challenges was extremely
important.” To overcome these doubts Cenpower needed to offer rock solid figures and an airtight plan, but more than that, self belief was crucial. “The key point was believing in exactly what we were doing and working with the right partners and acquiring the right capabilities,” Sackey says. “Fundamentally the country needed the power so it was the right thing to do. With a population of approximately 25 million people and an installed capacity of less than 2,800MW, the country is suffering a severe shortage of electricity with a debilitating impact on economic development” Sackey also recalls the essential role the Africa Finance Corporation played in realising the project. He tells us, “Africa
“This plant is unique in manyways, and not just because ofits status but because it’s a unique partnership for local and international businesses with strong local ownership, something that’s rare in this industry.”
Finance Corporation was established to make a difference to infrastructure development in Africa. At the very beginning of any project, when the financial viability has not been demonstrated, it’s very difficult to attract the required financing to move the project along, so having AFC provide the financial backing and knowledge
support for developing bankable projects was extremely critical. As a Development Finance Institution with a difference, the support of AFC was crucial for the project. The Dutch development agency FMO also provided a lot of support at the early stage of the project. We also worked with people with local expertise, including
the Ghanaian founders of the project who had the vision and the commitment to make a difference in the power sector of Ghana.They were also supported initially by Infraco, an early stage project development entity before AFC took over the lead development role for the project. AFC believes that there is a viable and strong
business case to make for infrastructure as an asset class in Africa and is engaged in providing African people with the basic services that infrastructure can provide thus igniting hope for an economic transformation in Africa.”
A POWER TEAM
Even having the right financial backing wouldn’t be enough to make KIPP a reality without the right people on board to make it happen. “You need a lot of professionals during the development phase,” Sackey says. “You need people from environmentalists to lawyers, people with legal and technical and financial knowledge. We used
proper resourcing to acquire people who were really international and had the capabilities to deliver, working with extremely good and knowledgeable people. It was also fun!” Cenpower’s standards are high to ensure their team is up to the job, and Sackey explains, “In making sure we employ the best staff, we have a very rigorous selection process.” However, while the selection process is rigorous, once they’re in the company people get a surprisingly long leash. “Once they’re with us we empower them to provide that which they have,” Sackey says. “You’re selecting people who you know have established knowledge, who know what they’re doing. So you give
them the time and the space to do that in a productive and supportive atmosphere.” The KIPP project has been a huge one, but it’s one that Sackey believes is crucial to Ghana’s future. His optimism is infectious.
“One thing that’s important to mention is the issue of hope, because Africa is going through a lot of challenges financially and economically but it’s a continent that presents enormous hope and opportunity,” he tells us. “A reliable and affordable electricity supply is going to be an important part of that. We see the project as a
transformational one that will unlock Ghana’s potential and provide hope to the continent.”
Cenpower was created with one purpose, to develop the thermal power plant which has now become known as the kpone independent power plant or “kipp”. “it’s going to be a cost competitive, efficient and sustainable power plant for ghana,” explains company ceo theo sackey. “it was started by a ghanaian investor group comprising samuel nana brew-butler, jimmy heymann and kweku awotwi. They formed the founding shareholders of a company that would be a pioneer in our sector.”