China Eximbank provides $367.7 million preferential buyer’s credit for Drilling Services And Material for 80 Geothermal Wells at Olkaria Geothermal Project (Linked to Record ID#31023)

Project narrative

On November 16, 2009, the Chinese Government and the Government of Kenya signed a preferential loan framework agreement for the Olkaria Geothermal Field Project. On May 23, 2012, China Eximbank signed a preferential buyer’s credit (PBC) agreement with the Government of Kenya worth $382,499,999.98 for the drilling services and materials for 80 geothermal wells for the Olkaria Geothermal Field Project. The face value of the PBC was subsequently revised to $367,788,461.54. The PBC carried the following borrowing terms: a 2% interest rate, a 20 year maturity (final maturity date: July 21, 2032), and a 7 year grace period. Then, on August 21, 2012, the Government of Kenya signed a subsidiary loan agreement with Kenya Electricity Generating Company (KenGen) -- the largest power producing company in Kenya (responsible for about 69% of the electricity consumed in the country). Through this subsidiary loan agreement, the Government of Kenya on-lent the proceeds of the China Eximbank loan to KenGen. The subsidiary loan had a 2.5% interest rate, 7 year grace period, and a 20 year maturity. The ultimate borrower (KenGen) was expected to use the proceeds of the loan to finance 85% of the cost of a $450 million commercial contract with Great Wall Drilling Company (中国石油长城钻探工程有限公司). The borrower made principal repayments worth $14,711,538.46 between July 1, 2020 and June 30, 2021 (Fiscal Year 2020-2021) and $29,423,076.92 between July 1, 2021 and June 30, 2022 (Fiscal Year 2021-2022). The loan’s amount outstanding was $367,788,461.54 as of June 30, 2020, $338,365,384.62 as of June 30, 2021, and $308,942,307.69 as of June 30, 2022. The purpose of the project was to provide drilling services and materials for 80 geothermal wells at the Olkaria geothermal field. The project was jointly implemented by Great Wall Drilling Company, Kenya's state-owned Geothermal Development Company (GDC), and KenGen. A formal groundbreaking ceremony took place on July 23, 2012. Drilling began in September 2012 and the last well was completed in June 2016. However, this project has become a source of local scrutiny and controversy. There are some indications that the China Eximbank loan for the Drilling Services And Material for 80 Geothermal Wells at Olkaria Geothermal Project has financially underperformed vis-a-vis the original expectations of the lender. According to a report from Kenya’s Auditor General for the Year Ended June 30, 2021, “[t]he wells were drilled between the year 2011 and 2015 and have never been connected to any plant for generation of power. [Kenya Electricity Generating Company PLC, which is also known as KenGen] has in the meantime continued to pay the principal sum and interest [of the loan] while no corresponding revenue has been realized to date. Further, [KenGen] Management has not given the details of when the wells will likely be utilized in the generation of power. As a result, there is no value for money obtained on the investment [...].'