That Japanese connection in Kinyerezi II power project

29Mar 2016
The Guardian Reporter
The Guardian
That Japanese connection in Kinyerezi II power project

NOT to be left out of the picture, Japanese investments have moved away from resource extraction towards exporting capital goods and construction services as companies have teamed up to carry out the Kinyerezi II power project.

Smart Money has been informed that the move is part of Japan’s strategy to export construction services under the Partnership for Quality Infrastructure initiative.

One of the companies, Sumitomo Corporation, said the Japanese government was supporting the initiative with funding, insurance and technology.

The programme has been adopted to promote quality infrastructure investment globally in collaboration with other countries and international organizations such as the World Bank and African Development Bank.

Kinyerezi II documents show that two Japanese banks will help to finance the 240MW gas-fired power station to the tune of US$367.2 million (about 807.8bn/-).

The Japan Bank for International Cooperation and the Sumitomo Mitsui Banking Corporation credit for the project accounts for 85 per cent of the total investment cost.

Apart from contractor Sumitomo Corporation and the two banks, there is also equipment supplier Mitsubishi Hitachi Power Systems and Toshiba Plant Systems and Services, which will do the installation. Nippon Export and Investment Insurance will cover the political and commercial risks of the loan.

“The credit from the two Japanese banks will account for 85 per cent of the project cost and the remaining 15 per cent has been provided by the government,” the managing director of power utility Tanesco, Felichesmi Mramba, told Smart Money on Friday.

The Kinyerezi II project represents a total investment of US$432 million, which is about 950.4bn/- at the current market exchange rate. The power plant is scheduled to go into partial operation at the beginning of 2018 and will be handed over to Tanesco in September 2018.

The initial plan was for the station to come online by December 2015 but the government had difficulties to raise its US$64.8 million part of the project capital.

It had expected to secure credit from the Development Bank of Southern Africa (DBSA) but backed off when the lenders posed rigorous conditionalities. Sources privy to the project said the new government has managed to raise the funding from its own source.

President John Magufuli laid the project’s foundation stone this month saying his government will invest in more power projects to generate electricity from the abundant gas resources in the country.

“The power plant will feature high-efficiency gas power generation that will help alleviate Tanzania’s power shortages,” Sumitomo commented on its website.
The company is main contractor and coordinates all commercial affairs. The Sumitomo group of companies has a turnover of about US$32 billion (about 70.4bn/), which about three quarters of Tanzania’s current GDP.

Mramba said Sumitomo has a turnkey contract with Tanesco involving an engineering, procurement and construction (EPC) agreement for the project design, purchases and all building activities.

According to him, the Kinyerezi II station will use six H-25 gas turbines and generators manufactured by the Mitsubishi-Hitachi Power consortium. He said Toshiba has been subcontracted to supply heat recovery boilers, steam turbines and other equipment.

Sumitomo Mitsui Banking Corporation (SMBC) is a Japanese multinational banking and financial services company headquartered in Yurakucho, Chiyoda, Tokyo, Japan. It is a wholly owned subsidiary of Sumitomo Mitsui Financial Group. SMBC is the second largest bank in Japan by asset.

This is the second gas-fired power plant in the Kinyerezi suburb, which is located 20-km southwest of Dar es Salaam. At full capacity, Kinyerezi I and II are expected to cover about 20 per cent of the country’s electricity demand.

Another two projects to produce 750MW are also earmarked in the area. The 150MW Kinyerezi I plant, which commenced operations last October, cost US$183 million to build. It was implemented by Jacobsen Electro Company from Norway and wholly financed by the government through Tanesco.

According its plant manager John Mageni, Tanesco plans to expand Kinyerezi I capacity from 150 MW to 335 MW with the support of the natural gas coming from Mnazi Bay. The station whose power generation has been lacklustre was initially supplied with gas from the Songo Songo gas field is currently working at 50 per cent of capacity.

Before the discovery of gas, Tanzania’s power mix was dominated by hydropower generation and suffered from chronic power shortages as electricity supply could not the soaring demand.

This forced the government to resort to leasing emergency power generators, which cost it dearly and plunged Tanesco into the woods.

Following the discovery of an additional 2.17 trillion cubic feet (tcf) of natural gas reserves at the onshore Ruvu Basin, Tanzania now boasts of 57.17 tcf of the hydrocarbons. Data from the US Geological Survey shows that the country has potential natural gas reserves of up to 441 tcf solely in the coastal region.

The tapping of gas reserves for power production is expected to save the country up to US$1 billion annually in oil imports for electricity generation. Tanzania also plans to build an LNG plant for gas exportation to the lucrative East Asian markets.

Together, these two ventures will greatly boost Tanzania’s balance of payments (BOP), which are the country’s international transactions. Last year, the overall BOP was a deficit of US$258.4 million compared to the 2014 level of US$251.8 million.

Top Stories