Kenya to lease 31 coal blocks, as it eyes cheaper energy

Saturday February 2 2013

Peter Kithungía, a resident of the Mui Basin in Kitui County, points at the area covered by the Basin where Fenxi Mining Industry Company intends to start mining coal. Photo/SALATON NJAU

Peter Kithungía, a resident of the Mui Basin in Kitui County, points at the area covered by the Basin where Fenxi Mining Industry Company intends to start mining coal. Photo/SALATON NJAU Nation Media Group

By Kennedy Senelwa Special Correspondent

Kenya is set to create 31 new coal exploration blocks this month to be leased to prospective investors through competitive bidding as the country pushes for diversification of energy sources to meet growing demand for power.

The acreage will be gazetted this month by the Ministry of Energy and the Ministry of Environment and Mineral Resources.

Two of the blocks — C and D, which are already mapped and leased out — are thought to have more than 400 million tonnes of coal reserves valued at Ksh3.4 trillion ($40 billion), according to estimates from the Ministry of Energy. The 31 new blocks are expected to have much more than this.

Coal is considered a cheap source of energy and the Ministry of Energy said if found to be commercially viable, some of the coal will be used in the cement and steel industries, which are estimated to be spending at least Ksh4 billion ($47 million) annually in coal imports.

Kenya spends at least Ksh14 billion ($160.9 million) annually on importation of 150 metric tonnes of coal.

Coal as a substitute

The government also hopes to use coal as a substitute for power from the national grid as one way of reducing the country’s reliance on electricity, which currently does not match demand.

Over-reliance on hydropower dams has in the past led to rationing during times of drought and the growing demand has stretched the infrastructure of state utility firms.

According to the National Energy Policy (Third Draft) released in May 2012, hydro generation contributes 48 per cent of Kenya’s total energy mix, geothermal 12.4 per cent; wind, 0.3 per cent; co-generation 2.4 per cent and thermal energy 37 per cent. Solar power is negligible.

The past three years have seen increased interest in exploration work from local and international firms after Kenya created blocks A, B, C, and D in the expansive Mui basin in Kitui county, east of Nairobi.

Nine foreign firms — Zhongmei Engineering Group; China National Electric Engineering Co Ltd; Avic International Holding Corporation jointly with CPI Power Engineering Co Ltd; Tata Power Company Ltd; JSW Energy Ltd; Madhucon Projects; Harbin Electrical International Co Ltd of China jointly with Coal Technology & Engineering Group Corp; Jindal Steel & Power Ltd; HTG Development Group Co Ltd with venture partners SEPCO Electric Power Construction Corporation and Shandong Province Bureau of Coal Geology — have already been shortlisted by the Ministry of Energy for rights to explore blocks A and B.

Exploration is likely to start before the end of this year once the awarding is ratified by parliament in line with the Constitution.

Industry players said the creation of new coal blocks is likely to lead to the discovery of commercial deposits in Kenya spurring manufacturing of fertilisers and chemicals such as sulphuric acid.

Compliance

Energy Permanent Secretary Patrick Nyoike said the firms complied with requirements of having audited balance sheets for the past three years; having a capital base of $100 million and an annual turnover of over $100 million.

“Blocks A and B will be leased to applicants with the ability to raise over $200 million for investment and who give Kenya the best revenue sharing deal,” he said.

The bidders are also required to have a good track record of environmental conservation and agree to pay concession fees to be negotiated prior to the awarding of exploration rights.  

Mr Nyoike said the 31 new exploration blocks will help in the setting up of a robust coal industry to diversify the country’s energy sources.

“New coal blocks will be set up in the Coast province, Meru, Embu and Isiolo counties and the Rift Valley province, as well as other parts of Kitui county not covered by the existing acreage A, B, C, and D,” he said.

The winning firms will have to comply with the requirement of having 35 per cent local shareholding to be licensed by the Ministry of Environment and Resources.

Mr Nyoike said Kenya received overwhelming response as 18 firms submitted expressions of interest by July 16, 2012 to explore coal for generation of power, for use by steel plants and cement manufacturers.

The applicants were also required to provide evidence of technical capability of undertaking projects with a daily output of at least 3,000 tonnes of coal and setting up of coal-fired electricity generating plants.  

Chief geologist John Omenge said out of 15 wells drilled by the Ministry of Energy in blocks A and B, 10 had coal at a depth of 11m and 150m with fossil fuel thickness varying from 0.2 metres to seven metres.

“The coal deposits in Kitui are the best alternative source for cheap energy. In South Africa, where coal mining is a major activity, electricity is much cheaper than in Kenya,” said Mr Omenge.