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 independent
power producer to receive a generation licence, the first green
field project financed IPP in Ghana, the first IPP in the country
taking fuel supply risk, the first project to provide a working capital
facility through a fuel financing facility for the Electricity Company
of 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 many
ways, and not just because of
its 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.”a