More Belt Road projects move ahead in Africa
Doubts still remain over coal-fired plant in Kenya after African Development Bank says it will not fund coal projects
27 Nov 2019 | Michael Marray

The Belt & Road Initiative is gaining momentum in Africa with the latest batch of energy, port and rail projects. But Chinese plans to build coal-fired power stations on the continent have suffered a blow as the African Development Bank has announced that it will not lend to any more coal projects.

In Mozambique, President Filipe Nyusi spoke at the opening ceremony of the N6 Road in Inchope, located in the central province of Manica, on November 14.

Also known as Beira Corridor, it connects Machipanda on the western border with Beira port in the east, reducing driving time from seven hours to four. The renovated and upgraded road is a critical element of plans for economic development in the region. It will also provide an access route to the sea for Zimbabwe and Zambia.

China State Construction Overseas Development has been working on the rehabilitation and upgrading of the 287-kilometre road since 2015. The artery now has a new cloverleaf interchange, several toll stations, and a highway bridge across Pungwe River.

In Ethiopia, China Communications Construction Company (CCCC) announced on November 15 that it is speeding up the passenger terminal upgrade at Addis Ababa Bole International Airport.

Li Xiudong, deputy project manager at CCCC Ethiopia Office, told Xinhua that his firm is working to finish an expansion and renovation project at the old airport terminal.

In January, Ethiopian Prime Minister Abiy Ahmed inaugurated the US$225 million new terminal, built by CCCC with financing from Chinese banks. The new terminal will expand its annual capacity to 22 million passengers.

CCCC is now working on a second US$138 million contract to renovate the old terminal. The project is expected to be completed in one and a half years.

Ethiopian Airlines has been expanding rapidly, and has plans for Addis Ababa Bole International Airport to become a hub for travel between China and the rest of Africa. It will also serve the growing number of Chinese tourists, 50,000 of whom visited the country in 2018.

In South Sudan, the government commissioned a US$38 million upgraded power distribution system on November 21 financed by the African Development Bank to restore reliable electricity supply to Juba’s central business district, and boost suburban livelihoods.

The Juba Power Distribution System Rehabilitation and Expansion Project is the first in a series of major energy sector interventions by the AfDB.  

The power plant will supply 33MW of electricity in the first phase before completion of the entire 100MW project by 2021. The power plant is being built by Ezra Company Limited, with work carried out by Power Construction Corporation of China.

In Ghana, in mid-November, the African Development Bank, Credit Suisse AG, Industrial and Commercial Bank of China Limited and Ghana Cocoa Board (COCOBOD) signed a US$600 million syndicated receivables backed term loan to boost cocoa productivity in Ghana.

Ghana President Nana Addo Dankwa Akufo-Addo, the President of the African Development Bank Dr. Akinwumi A. Adesina, and senior officials from Credit Suisse and ICBC oversaw the signing of the facility at a ceremony held on the second day of the 2019 Africa Investment Forum, which is taking place in Johannesburg.

The Africa Investment Forum cited the signing as a demonstration of the forum’s ability to raise much-needed financing, including from international commercial banks, for projects in Africa. Prior to the agreement, COCOBOD did not have access to long-term debt capital.

The Africa Investment Forum is an initiative of the African Development Bank (AfDB), dedicated to raising capital, advancing projects to bankable stage, and accelerating the financial closure of deals. 

The AfDB was Initial Mandated Lead Arranger, partnering with Credit Suisse and ICBC as Original Commercial Lenders and Bookrunners. The dual-tranche facility comprises a US$250 million seven-year tranche from the AfDB and a US$350 million five-year commercial tranche.

In Kenya, the Ministry of Energy and China Aerospace Construction Group have launched the construction of a major power transmission project. Funding is being provided by China Exim Bank with Sinosure backing. 

Once completed, the 40-kilometre Kva Konza-Isinya Transmission Line Project will ensure a reliable power supply for Konza Technopolis, south of Nairobi.

"The construction of this new facility in Konza demonstrates our dedication to human life, and commitment to creating tailored solutions that make the greatest difference to our client, Kenya Electricity Transmission Company, as well as the power transmission system in Kenya," Li Naihong, deputy general manager, China Aerospace Construction Group, told Xinhua.

A reliable electricity supply is vital for the growth of manufacturing, and is part of the Big Four Agenda advanced by Kenyan President Uhuru Kenyatta as a priority development task.

Another China-built project, a port in Kenya's coastal island of Lamu, is expected to receive its first ship in December.

Daniel Manduku, managing director of Kenya Ports Authority (KPA), told local journalists in Mombasa that China Communications Construction Company has so far completed the first berth, and the second and third berths will be completed in 2020.

"The port will initially target transshipment cargo that is destined for smaller ports in the eastern African region," says Manduku. KPA hopes to attract cargo that is destined for Zanzibar, Dar es Salaam, Mauritius, and Somalia as well as the port of Beira in Mozambique.

However, another major project in Lamu is failing to make much progress, and some observers doubt that the planned 1050MW Lamu coal fired power plant will move forward.

Already in September, at the United Nations Climate Action Summit, African Development Bank President Akinwumi Adesina said that the bank was getting out of coal.

At the time he did not say whether it would proceed with existing projects. But last week Wale Shonibare, AfDB’s acting vice president for energy, confirmed that the bank had no plans to finance Lamu.

The AfDB had previously published an environmental and social impact assessment for the Lamu project.

It is located near a Unesco World Heritage Site, and ran into strong opposition from the local community and activists, such as campaign group deCOALonize. In June the National Environmental Tribunal ruled that authorities had failed to do a thorough environmental assessment, and revoked the project’s licence. That decision is being appealed.

The US$2 billion Lamu plant would be the first coal-fired power facility in Kenya. It is being developed under a Build, Operate and Transfer (BOT) structure by Amu Power Company (APCL), under a twenty-year fixed rate tariff agreement.

Amu Power Company Limited, a special-purpose entity, is 51% owned by Kenyan investment firm Centum Investments. The other shareholders are Gulf Energy from Oman, and three Chinese entities. These are China Huadian Corporation Power Operation Company, Sichuan No 3 Power Construction Company, and Sichuan Electric Power Design and Consulting. The latter two are subsidiaries of PowerChina Group.

In 2015, Industrial and Commercial Bank of China (ICBC) agreed on a loan to part finance the project.

Kenya is trying to develop its economy fast, and in addition to environmental concerns some observers view it as a prime example of the so-called debt trap, the narrative often cited by the US about the Belt & Road Initiative.

In a recent annual report, Moody's Investors Service said that Kenya's (B2 stable) credit profile is constrained by high and rising government debt as well as a weak institutional framework and low wealth levels.

The government debt-to-GDP ratio increased to 62% of GDP at the end of the 2019 fiscal year, from 49% in 2015, while interest payments rose to 22% of government revenue from 15% over the same period.

However, Moody’s said that Kenya's credit strengths include its diversified economy with multiple growth sources, favourable growth prospects and demonstrated resilience to shocks.

The country's deep capital market and mature financial sector relative to peers give the government greater capacity to borrow domestically in local currency and over a longer period.

"The stable outlook on Kenya's sovereign rating reflects our expectation of relatively strong economic growth, counterbalanced by large fiscal deficits and debt," comments David Rogovic, Moody's vice president and senior analyst.