Ketraco turns to private financing for transmission projects

From the newsletter

Kenya Electricity Transmission Company (Ketraco) plans to raise $852 million over the next 17 years from commercial banks and pension funds. The move is intended to reduce reliance on inconsistent government funding and help bridge the $5 billion gap in Kenya’s transmission masterplan, Ketraco CEO John Mativo told Business Daily.

• Some African countries, including Nigeria and South Africa, have used pension funds for power projects. Wider adoption could narrow the funding gap and cut the cost of renewable energy projects.

• In Kenya, pension funds have traditionally invested heavily in government securities but are now under pressure to diversify into infrastructure. The Energy Act (2019) and PPP Act (2021) have opened the door for such private sector participation.

More details

• Africa’s pension funds manage hundreds of billions of dollars, offering a vast pool of capital to bridge the continent’s $100 billion annual energy funding gap. South Africa dominates with over $180 billion in assets, while Nigeria and Kenya are also expanding rapidly. According to a projection by Morgan Stanley, African pension fund assets are expected to soar to over $7 trillion by 2050. Even mobilising a fraction of this domestic capital could significantly ease energy infrastructure funding.

• Several countries are already laying the groundwork through enabling regulation. In South Africa, regulation allows retirement funds to allocate up to 45% of assets to infrastructure, enabling the Public Investment Corporation (PIC) to back projects such as its $18 million investment in Rifuwo Energy Partners on behalf of the Government Employees Pension Fund.

• Ghana mandates that 5% of pension fund assets go into private equity and venture capital, including climate-smart technologies. In Kenya, the Kenya Pension Funds Investment Consortium (KEPFIC) has proven the concept by financing infrastructure through project bonds, showing how local capital can be mobilised for energy projects.

• Currently, Kenya’s pension funds hold assets under management worth Sh2.3 trillion ($17.94 billion), with 53% invested in government securities. This amount alone surpasses the annual funding required for Kenya’s transmission masterplan, which needs about $250 million per year for new projects, 20% of which is expected to come through public-private partnerships.

• Ketraco is already in talks with the Kenya Bankers Association and pension funds, which have shown interest in financing new substations. The profitability metrics are clear, and with the government planning to build six substations worth $196.56 million, this presents an investment opportunity.

• Unlike commercial banks that favour shorter loan tenures, pension funds provide long-term, stable, local-currency capital, reducing foreign exchange risks and lowering project costs. Research shows that mobilising domestic pension capital can cut the cost of capital by up to 31% and the levelised cost of electricity (LCOE) by nearly 29%. This makes renewable energy and transmission projects not only more affordable but also more attractive to investors.

Our take

• Kenya should create a clear regulatory framework to guide how pension funds can allocate capital to infrastructure. This will provide confidence to trustees and unlock long-term financing for transmission and renewable energy projects.

• Success will depend on quick proof points. If the first round of projects financed by pension funds shows strong returns, more capital will flow in. Early wins are crucial to shifting investor mindsets away from government securities and towards energy infrastructure.

• By tapping into ension funds, African governments can reduce dependence on dollar-denominated loans and shield projects from forex risks. This can cut financing costs, making tariffs more affordable.