Access to power is one of the key constraints for agriculture in Africa.
KTDA, Kenya’s leading agency for small scale tea farmers, is taking on power shortages by developing its own captive and renewable power supply. FMO, together with other international development banks, provided the funding for the construction of seven small hydropower projects across tea growing regions.
Kenya Tea Development Agency Ltd. is the leading management agency for small scale tea farmers in Kenya, Africa. The company was privatized in 2000 and is indirectly owned by 570,000 tea farmers, through 66 tea factories. KTDA field staff train farmers to improve the productivity and quality of tea yields through techniques such as planting, pruning, weeding, and fine-plucking. KTDA also trains farmers in sustainable agriculture practices and helps them meet the requirements for Rainforest Alliance certification.
In 2015, KTDA signed a Kshs 5.5 billion loan agreement with the International Finance Corporation (IFC), in partnership with the Global Agriculture and Food Security Program (GAFSP), Proparco, and The Netherlands Development Finance Company (FMO) to fund the construction of seven small hydropower projects (SHPs) across tea growing regions. The SHPs are intended to reduce tea factories’ cost of energy, which forms the single biggest cost component for the factories.
KTDA’s entities deduct their cost (e.g. of processing) and a fee from the final tea sales price, while the rest of the tea sales price is paid out to farmers. KTDA is consistently looking at the entire tea value-chain to see where it can cut cost and provide ancillary services. Energy is one of the major costs in the processing of tea. Several tea factories have joined hands to save equity to invest in a hydro project.
KTDA Power will design, construct, operate and maintain seven run-of-the river small-hydropower plants (SHPs) with a total installed capacity of 16MW at various locations in Kenya. The SHPs will provide captive power generation for several KTDA tea factories, and will sell any excess to the majority state-owned utility company, Kenya Power and Lighting Company (KPLC). Each SHP will be owned by newly created asset holding companies, Regional Power Companies (RPCs).
KTDA Power will have a 12.5 percent share in each RPC while the remaining shares are held by several tea factories in the region. KTDA Power will on-lend the money to the different RPC’s and in turn to different SHPs. There are four RPC’s owning seven hydro projects. By retaining factory profit, the tea factories have saved equity over several years. Total Project cost is USD 85.6 million, financed for 65 percent by debt and 35 percent by equity.
Total debt package of USD 55 million is arranged by IFC. IFC took USD 25 million (50 percent GAFSP) and FMO and Proparco both USD 15 million. FMO participates in a B-loan financed by IDF. KTDA Holdings and its largest subsidiaries will provide a first demand corporate guarantee and unlimited deficiency support throughout the full lifetime of the loan.
The funding is in line with KTDA's long-term strategy to ensure that tea factories have access to alternative renewable forms of energy that will reduce operational costs in factories. The excess power generated will be sold to the national grid, thus providing farmers with an additional revenue stream. Construction of each hydro power project will take two to three years to complete and fully be operational. The seven hydro’s combined will create approximately 2100 jobs during construction and 60 jobs after commissioning.
Construction of one of the hydro's