Standby letters of credit (L/Cs) alone may be insufficient security for would be financiers of Kenya's largest green field wind power scheme.

Project financiers considering whether to back the massive Lake Turkana Wind Power project are now asking the Kenyan government to guarantee the risks in the private sector funded project.

Offtake concerns

The lenders are reportedly concerned that the purchaser of power from the wind farm -Kenya Power and Lighting Company (KPLC) - will not be able to meet its financial commitments.

Lake Turkana Wind Power has negotiated a 20-year power purchase agreement with KPLC, which is Kenya's monopoly state-owned electricity provider.

Guarantee

The current proposed power purchase agreement is denominated in euros and backed by standby L/Cs guaranteeing advance payments, which the project sponsors now want the government to guarantee.

However, it is unclear whether the government will agree to this demand. The Kenyan government nearly always rejects requests for sovereign guarantees on obligations entered into by state corporations.

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