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dam-l WBank to help Kenya in energy crisis/LS



Regional \
Monday, June 12, 2000

                 Energy Crisis: World Bank to Help Kenya
 A JOINT REPORT  THE EASTAFRICAN
 A WORLD Bank team arrives in Kenya this week to assess the technical and
financial suitability of proposals to alleviate the crisis in the energy
sector.

 The team, led by the Bank's energy desk specialist, Mr Joel Maweni, is
expected to hold talks with government officials during the week. The
Minister for Finance, Mr Chris Okemo, will on Tuesday chair a an
inter-ministerial meeting to lay the groundwork for the World Bank mission.


 Duty on mobile generator units is expected to be reduced in the national
budget, to be read on Thursday by Finance Minister Mr Chris Okemo.

 The meetings will evaluate the costs and benefits of leasing mobile diesel
generators to produce 180 megawatts of electricity. The additional capacity
is essential to minimise the damage, estimated at $660 million over six
months, arising from intensive power rationing, following a supply deficit
of 400 megawatts.

 Donors say the power rationing, blamed on prolonged drought and planning
lapses, will have a domino effect on the economy and undermine investment
in the power sector. The importation of 50 megawatts, which could rise to
80 megawatts from next month, has brought some respite during offpeak
hours, now subject to a 130 megawatt shortfall.

 Key issues to be discussed include how fast the 180 generators, to be
leased at a cost of $10 million per month, can be acquired and fed into the
national grid. There are also doubts as to whether suppliers would be keen
on a leasing arrangement as well as how the diesel plants would be
distributed and who would be responsible for operating them.

 They are also deemed expensive in terms of operating costs - which, at
over $20 million per month, will increase production overheads en masse and
make Kenyan goods less competitive internationally.

 Running costs are also expected to rise substantially following a
continued surge in crude oil prices and the slide of the Kenya shilling
against the dollar. The Abu Dhabi Oil Corporation (Adnoc) quoted a barrel
at $27.30 in May, up from $23.65 in April; while the shilling has
depreciated from Ksh75 to Ksh78 to the dollar during that period.

 European suppliers told The EastAfrican that the lead time required to
have the generators running would not be less than eight weeks. This would
complicate any contractual arrangements, since offers are usually valid for
only two weeks, after which quotations are evaluated in response to market
parameters.

 Mr Maweni's visit was arranged during the recent week-long meeting between
Finance Minister Mr Chris Okemo and head of the civil service and secretary
to the cabinet Dr Richard Leakey and officials from the World Bank and the
International Monetary Fund.

 The Kenyan officials were in the US to persuade the Bretton Woods
institutions that various fiscal targets set during negotiations with the
two institutions for the resumption of aid to Kenya would not be feasible
in the face of intensified power rationing and widespread famine.

 Their mission was to persuade the banks to allow a revision of the
targets, particularly on expenditure, which is understood to have been
slashed by up to 40 per cent in some departments. Kenya's budget is to be
read on Thursday, the same day as that of Uganda and Tanzania, under a
regional finance initiative.

 Officials in Washington said the meeting does not signal any lessening in
the likelihood of the IMF board approving resumption of the $220 million in
new lending to Kenya under the Poverty Reduction and Growth Facility. They
added that the IMF staff would determine, in consultation with other
donors, what form of relief assistance would be most useful.

 President Moi last week launched a passionate appeal for Ksh12 billion
($153.8 million) in food aid.

 The IMF has various instruments available to help countries experiencing
natural disasters, such as droughts. "We need to have an international
determination of the magnitude of the food problems," one official said,
adding that "issues related to the drought have been factored into our
decisions all along."

 This suggested that the IMF staff recommendation to resume lending to
Kenya is based partly on the view that the food crisis makes resumption of
aid all the more urgent. Analysts see the bringing forward by three weeks
to early July of an IMF meeting expected to authorise the release of
programme support to Kenya as evidence that Mr Okemo's trip and President
Moi's appeal have made a difference in donor circles.

 The official said that a decision to supply emergency relief to Kenya will
probably not have to await the IMF's approval of the aid package, although
some donors may want to have an IMF programme underway before supplying any
additional aid to Kenya. It is, however, unlikely that most donors would
await approval of the programme in an emergency.

 Although Dr Leakey and Mr Okemo did not specifically ask for additional
aid, sources said the World Bank was willing to provide additional
assistance on top of the $150 million to Kenya now under consideration.

 A spokeswoman for the US Agency for International Development added that
USAid would consider additional aid to Kenya, on top of the $30 million
worth of food and $2.5 million in drought-related non-food aid it has
already committed to the country, but no formal request for such aid has
been made.

 *Reported by Kevin J. Kelley in Washington and Peter Munaita in Nairobi.

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      Lori Pottinger, Director, Southern Africa Program,
        and Editor, World Rivers Review
           International Rivers Network
              1847 Berkeley Way, Berkeley, California 94703, USA
                  Tel. (510) 848 1155   Fax (510) 848 1008
                        http://www.irn.org
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