VZCZCXYZ0001
RR RUEHWEB

DE RUEHNR #0324/01 0410750
ZNR UUUUU ZZH
R 100749Z FEB 10
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 0788
INFO RWANDA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS NAIROBI 000324 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ENRG ECON EINV ETRD PINR KCOR PREL KE
SUBJECT: KENYA: FEBRUARY ECONOMIC HIGHLIGHTS 
 
REF: 09 NAIROBI 2007 
 
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TABLE OF CONTENTS 
 
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¶1.  (SBU) John Githongo on the State of Play in Kenya 
 
¶2.  (U) A Glimpse at Kenya's Energy Future 
 
¶3.  (U) Irregular Financial Flows Stabilize the Shilling 
 
 
 
¶1.  (SBU) John Githongo on the State of Play in Kenya 
 
 
 
Former Corruption Czar John Githongo recently shared with us his 
views on the state of the Kenyan union.  Githongo said a large 
devolution of power had occurred during the 2008 election violence. 
In his opinion, Kenyan citizens no longer had any trust at all in 
their government because of endemic corruption, the lack of 
economic opportunity and absence of political reform.  Githongo 
described a "re-traditionalization" in Kenya, noting the 
establishment of councils of elders for various tribal groups as 
well as the creation of numerous neighborhood protection groups, 
some of which were well run to benefit the local population while 
others were little more than criminal gangs.  Drawing from a study 
of youth attitudes he recently prepared for USAID, Githongo 
characterized the country's large youth population as "ready to 
rumble" and increasingly belligerent about the lack of jobs. 
 
 
 
On current political issues, Githongo indicated that Kenya's 
political elites would not support the ratification of a new 
constitution unless they felt it served their self-interests.  He 
said PLO Lumumba would become the next director of the Kenyan 
Anti-Corruption Commission (KACC) but would fail to reform KACC 
because of the vested interests there.  On the Anglo Leasing 
scandal, Githongo stated that Finance Minister Uhuru Kenyatta 
condones the continued budgeting of corrupt payments to Anglo 
Leasing companies. 
 
 
 
Note:  The Ambassador continues to publicly and privately press the 
GOK to freeze payments to Anglo Leasing companies, and to release 
both the Cockar Commission report on the irregular sale of the 
Grand Regency Hotel and the maize scandal audit.  End Note. 
 
 
 
¶2.  (U) A Glimpse at Kenya's Energy Future 
 
 
 
KenGen Director of Business Development and Strategy Albert Mugo 
recently told EconOff that he expected electricity prices to remain 
at a premium over the short run.  Electricity prices increased in 
January despite an ample "short rains" season and rising reservoir 
levels.  (Note: Kenya relies extensively on hydro power for 
inexpensive electricity.  The drought has forced the extensive use 
of expensive thermal power.  End Note) Mugo did not expect that 
electricity prices would decline until the "long rains" arrived in 
April/May 2010. 
 
 
 
Mugo said KenGen is developing a number of new energy projects 
which should come online over the next few years.  Many of these 
energy projects involve renewables.  In 2010, KenGen plans to bring 
online a 20 megawatt (MW) upgraded hydro plant, a 35MW geothermal 
addition at Olkaria, a 120MW diesel plant, and potentially a 10MW 
wind facility.  In 2011, KenGen will develop a new 21MW hydro 
plant.  In 2012, KenGen has plans to add and upgrade another 28MW 
of hydro power, a 2.5MW geothermal plant at Eburru, and a large 
expansion of the geothermal facility at Olkaria with a 140MW 
project, Olkaria IV, and another 140 MW project, Olkaria I Units 4 
and 5, coming by June 2013.  Mugo also said KenGen is currently 
pursuing a joint venture partner for a 300 MW coal plant to be 
 
developed by 2013 near Mombasa.  Mugo mentioned that by 2020 KenGen 
aims to have half of its power derived from geothermal, up from 15% 
currently. 
 
 
 
Kenya Power and Lighting Company (KPLC) is also working on several 
Independent Power Producer (IPP) agreements with private companies. 
The Lake Turkana wind project (reftel), which will provide up to 
300 MW, recently took a major step forward with the signing of a 
tariff agreement with KPLC.  The last major hurdle for the project 
involves KPLC finding financing for the large transmission line 
needed to bring the power to Nairobi.  The wind project is expected 
to begin power production by mid-year 2011 and to be completed by 
mid-year 2012.  In addition, Geothermal Development Associates, an 
American firm based in Reno, may be developing a 2.5 MW geothermal 
plant at Eburru in the Rift Valley which is scheduled to come 
online by January 2011. 
 
 
 
¶3.  (SBU) Irregular Financial Flows Stabilize the Shilling 
 
 
 
Despite a rising current account deficit, the Kenyan shilling 
remained stable against the dollar throughout 2009.  IMF and WB 
contacts attribute exchange rate stability to robust financial 
inflows.  However, the vast majority of outside money appears to be 
emerging from irregular sources.  According to the Central Bank of 
Kenya, by November 2009, total financial inflows had reached $2.6 
billion of which $2.3 billion were "error and omissions."  Sources 
of funds could include pirate and arms money from Somalia, 
unrecorded exports to southern Sudan/Sudanese shopping in Kenya, 
illicit proceeds from narcotics, and unrecorded remittances.  The 
Kenya National Bureaus of Statistics continues to postpone a 
planned comprehensive investment survey to get a handle on the 
flows. 
RANNEBERGER