Commercial banks have been invited to submit proposals to act as the letter of credit (L/C) issuing bank for Kenyan geothermal power plants as part of the developers' efforts to make progress in a much delayed project.

Challenges with licensing, financial closure and technical hitches have contributed to delays in the setting up of power plants by the Geothermal Development Company (GDC), Kenya's state-owned special purpose vehicle tasked with accelerating the development of the country's geothermal resources.

L/C proposals

Kenya Power and Lighting Company (KPLC), the national transmission and distribution company that is 50.1 per cent state owned and 49.9 per cent privately owned by shares traded on the Nairobi stock exchange, and GDC are inviting proposals from commercial banks to act as the L/C issuing bank in connection with the Menengai 105MW geothermal project in Nakuru County.

The transaction will involve the issuance of standby L/C cover in favour of three independent power producers (IPPs), QPEA GT Menengai, OrPower 22 and Sosian Menengai Geothermal Power.

Payment backstop

The IPPs have entered into a project implementation and steam supply agreement with GDC and a power purchase agreement with KPLC, to each develop a 35MW geothermal power generating plant located at the Menengai geothermal field.

The L/C cover will provide payment security to the IPPs, backstopping the payment obligations of both GDC and KPLC under both agreements.

Any amounts drawn under the L/C will be repaid by GDC or KPLC in accordance with the terms of a reimbursement and credit agreement to be entered into between GDC and KPLC and the selected L/C issuing bank.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.