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Albert Mugo

Senior Advisor

Virunga Power

May 25, 2021
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Ep 23: Albert Mugo - Senior Advisor, Virunga Power
00:00 / 01:04

Adam Zuckerman
Thank you for joining us today for this episode of the Energy Impact Podcast. We have a fantastic guest with us, Mr. Albert Mugo. He has over 40 years of experience in the energy sector in Kenya, including 10 years in operations and maintenance of power systems, and over 20 years in planning and development of generation and transmission of electricity supply. He held senior positions at Kenya Electricity Generating Company, the largest power producer in Kenya, serving as Managing Director and CEO. He also holds a BSc degree in electrical engineering and an MBA degree in strategic management. Albert Mugo, it is fantastic to have you today.

Albert Mugo
Thank you, Adam.

Adam Zuckerman
So let's helping Tell me a little bit about your background. I understand that you grew up in Embu County, which is northeast of Nairobi. You had no electricity where you grew up and you've finally found yourself leading the company that supplies about 80% of the country's electricity. It's a fantastic journey. Tell us how it started.

Albert Mugo
Okay, thank you for that question. It's always very interesting to talk about that because yes, you're right. I grew up in Embu County that is in the northeast of Nairobi, about 160 kilometers actually from our capital city. When I was growing up, the nearest or closest that I came to electricity was a torch or using dry cells, or a bicycle when a neighbor who has a bicycle would be riding the bicycle. The first time that I switched on a light using a light switch was when I went from home to a boarding school. But even then, in the boarding school, we only had electricity in the evenings, because we're using a diesel generator and obviously, the school could not afford to run the generator throughout the day. So, that generator would run only in the evenings when we are doing the prep or the studies for the evening to catch up with our homework. By 9:30, the generator would be off and we'd go to bed. I still remember when we were doing our examinations would then look for paraffin lamps to put on after 9:30 so that we could study a little. So, with that kind of background, it was not until I was about 20 years of age, when I joined the University of Nairobi, that for the very first time in my life, I could walk into my room at the university where we were boarding and I could switch on lights anytime, at the age of 20. So, that's very interesting. Of course, by coincidence, I was doing electrical engineering at the University, not so much by choice, but by the fact that when I was in high school, I loved math and physics, and also chemistry, and so, when you're asked what do you want to do in the university, to study in the university, people tell you, if you are math, physics, chemistry, the only good thing for you to do is engineering. I didn't really know what it was about, but it was sort of being led there by coincidence, so to speak. So, I studied electrical engineering at the University of Nairobi and when I left university, I joined the energy sector - in this case it was the Kenya Pipeline Company as a graduate engineer - but my heart really was in the power sector, because, in electrical, what we had studied a lot was electrical engineering. So, even though Kenya Pipeline was taking in as a graduate engineer, I was still looking at the big transmission lines and big transformers and that's where my heart was. After about one year and a half, I joined the power utility company, which then was called East African Power and Lighting Company. That later, in about 1984, changed its name to Kenya Power Lighting Company to reflect more of what it was doing, because, even though it was called East African Power and Lighting Company, its operations were really just in Kenya. So, the name was changed and I worked there. At that time, it was the only utility, so to speak, I did generation, transmission, distribution, everything. And, and so, at that early time, when I was in Kenya Power Lighting Company, I was working as a protection engineer, which means we would be working in power stations or in substations, transmission lines or distribution lines, to ensure that the equipment that is in the power system is protected from power surges and short circuits and all that. So, we have systems which would work on that to ensure that, if there is a false on the system, there's a switch that opens and the equipment is protected. That is what protection engineering was about and it was very exciting. I loved it and it was really very good. I did that for about 10 years. After 10 years, I then joined the planning department, where I worked the next, close to, 18 years. Now, as you as you can imagine, working in protection was interesting in the sense that I was able to understand the different parts of the power system, whether it was generation, whether it was transmission, whether it was distribution. And so, when I moved to planning, it was very interesting, because here, we will be looking at the demand forecasts for electricity. Then, in doing that, we then ask ourselves, how do you make this demand? So, we started looking at different sources of generation and the generation that would meet that demand. It was also very, very interesting, particularly having worked in the distribution element, the generation element, transmission, I then was able to understand where the demand is and how it comes about. I really enjoyed my work in planning. Of course, in planning also, sometimes we would also get involved in visibility studies for the various projects that would meet the demands of the power system, whether it was the transmission lines, or whether it was a generation project. Again, I found that very interesting, working with consultants, external, as well as the staff within Kenya Power Lighting Company. And I must confess that I found my job very enjoyable. As a matter of fact, some people would ask me, You really seem to enjoy your job, but I say, Of course I do. I enjoy it thoroughly, I look forward to get up every morning and go to the office. And even later in my life when we got cell phones and you can set your alarm for waking up, when the alarm rings in the morning, I just get up.

Adam Zuckerman
So, you're a morning person.

Albert Mugo
I'm a morning person. I actually love it, getting up early in the morning and going to the office. So, in 2008, I got an opportunity then to join the Kenya Electricity Generating Company, which is a company that was sort of came out of Kenya Power and Lighting Company in 1997 when the electricity sector was unbundled. So, at that time were reformed in the power sector and the Kenya Electricity Generating Company - which then was just a paper company that had assets, but no employees, it was managed by Kenya Power and Lighting Company - during unbundling, it became a completely separate generating company.

Adam Zuckerman
Who was driving that process of unbundling? Was this a political decision? Was this industry saying that we need to separate to have better access and a better deliverable? What was that process like?

Albert Mugo
Actually, their process was driven partly by the World Bank. I think at that time, in the mid 90s, the World Bank, where it was operating and helping build up the power sector, was involved - at least in Kenya, I'm aware - in what was called the structural adjustment programs, which was really sort of looking at countries and helping the government to structure the economy. Part of the agenda then that the Bank brought about was that, because the power sector was a sector where you could get in private people to come in, particularly in generation, then they introduce that aspect to government and said, Why don't you unbundle the power sector, so that you can have a public generating company, and give an opportunity for independent power producers also to come in, so that you don't have to develop everything using public finances, but the private companies can come in. Actually, at that time, we got the first IPP in Kenya in 1997. And then, of course, after that many more want to come in. So, in that respect, it was the World Bank, the government, and other development financial institutions, including the European ones, and also the Japanese and all that. They're the ones who are driving that.

Adam Zuckerman
Alright, so the system became unbundled, independent power producers began to enter the market. Where were you in your career at that point in time?

Albert Mugo
Okay. So, as I said, about 1991, I joined the planning department. So, actually, from '91, I was involved in developing the least cost power development plan for the country. That was the plan that would then be used to establish what kind of generation Kenya would develop. And actually, as part of the reforms that were happening, and when the World Bank was starting to - because for a while, they stopped financing the energy sector, and some sudden reforms were there - when they finally came back, about '97, '98, one of the conditions was that we must be having a revised least cost power development plan every year. And that should be the basis for picking the power plants that either KenGen can develop, or the IPP will be invited to come and develop. So, where it was at that time was actually developing that least cost power development plan. I was also involved in the development of tariffs, electricity tariffs, because it was falling under the planning department. At that time, I remember that one of the things that the Bank, World Bank, and the government agreed on was that the tariffs would meet the cost of supply, because this was going to be helpful to attract investors in the power sector. Before that the tariffs were highly subsidized. So, it was felt that it would be difficult to attract power developers, if the utility that was going to be buying electricity was not raising enough money from the users of electricity. So, I was in that space where we're developing the tariffs, we're developing the expansion plan, and those two were working together to ensure that.

Adam Zuckerman
Explain that a little bit. Normally, developing tariffs is not a private sector function. Isn't that typically provided by the government or regulatory commission, rather than the private sector? So, how were you doing both at the same time?

Albert Mugo
Okay, of course, as they say, the power sector was going through some reforms. Before that time, tariffs were determined more or less by government. Of course, the utility, the Kenya Power and Lighting Company, would show its financial requirements to government and tell the government, This is what we need as the tariff that we need to charge the customers. The government could look at it and say, Okay, we agree, but this is too high, we'll give you this much. But, as part of the reforms in 1990, in the mid 90s, one of the things that came up was a regulator. In fact, the regulator was called Electricity Regulatory Board. And one of the mandates for that regulator was to then be the one to look at both the retail tariffs, the tariffs that would be charged to the customers, the ones who use electricity, as well as the tariffs that Kenya Power and Lighting Company would negotiate with IPPs, the generators, or even KenGen, which was a public generating company. So, the point there was that, in planning, we would look at the revenue requirements for the off-taker, the utility, having bought the power from the different people, what was going to be the cost of transmitting that power and distributing it, and make a case using the financial projections to the Energy Regulatory Board, the regulator, and ask, Can you approve this for us? So, that is the aspect in which I was involved in tariff formulation.

Adam Zuckerman
Okay. All right. That's helpful. So, fast forward a little bit. You became the Managing Director and CEO of Kenya Electricity Generating Company. What were some of your duties and the challenges that you saw in the position?

Albert Mugo
Yeah, okay. Actually, before I became the CEO, the Managing Director and CEO of KenGen, I joined KenGen in 2008 as the Business Development and Strategy Director. In that position, I was now to help KenGen to develop its strategy in terms of expanding its capacity, as well as develop projects that we found were viable. So, when I joined, actually August 2008., the very first day, I went to the office and met the CEO. He told me we have a meeting today and this is a project that the ministry has indicated we need to develop, and it was a thermal project is going to be Mombasa, could you go and chair the meeting, so that you can-

Adam Zuckerman
On you first day?

Albert Mugo
The very first day. I remember, I still remember, how interesting it was and when I met the team. Fortunately, there were not too many strangers to me, because some of these guys, we'd worked together when the utility was together and they had gone to KenGen. So, I knew some of them. So, I went, we sat down, I was quite conversant with power plants from my planning and background and operations and maintenance. As a matter of fact, in my earlier years, I'd worked in a power station as a protection engineer. So, power generation was not a very strange element to me. Yeah. For the first- from 2008 to 2013, my work involved developing power projects.

Adam Zuckerman
That was the Kipevu III facility in Mombasa.

Albert Mugo
Kipevu III, exactly, Kipevu III. That is a project, on my first day, I had to chair a meeting to look at how to develop it. And then we had a wind project, the first wind project large scale connected to the grid that was also just touching, it was falling under my docket. A geothermal project that was going on, a hydro project that was going on. So, I got involved in a project that was already in the process of being implemented. In addition to that, there was a feasibility study for a new geothermal project. I got involved in that because it was my docket. And from their own, we developed actually a number of projects, including Olkaria IV geothermal project, 140 megawatts, Olkaria I additional unit, another 140 megawatts geothermal, and finished or Olkaria II additional unit of 35 megawatts. And so, by the time I became CEO in January 2014, there were those projects that were already going on and new projects that I was looking at, including Olkaria V geothermal project, which has already been commissioned since then. We're also doing drilling of geothermal wells, but that started just when I joined that department. That was again under my watch. It was very interesting, actually, because, when the utility was together, I was involved in carrying out the feasibility study for Olkaria II project. But of course, when the utility generating company was separated, KenGen implemented Olkaria II 170 megawatts project. So, when I joined KenGen, it was interesting that now, I got involved in that project yet again, to add a 35 megawatt unit to make that plant 105 megawatts. So, it was a really very interesting time being in KenGen, but when I became CEO, one of the things that I found interesting and exciting, was the fact that, at this project I was developing as a director in charge of strategy and business development, I was still overseeing those to get completed. But it was also clear that we were needing more money to realize the pipeline of the projects that we had. So, one of the things that we did was to say, Okay, fine, we need to borrow more money. But our balance sheet was getting a little squeezed. What do we do, and we decided to go for a cash call, which means we go to our shareholders and we tell them, we need a little more money. So, we need you as the shareholders to put more money into the company, so that we can raise, so that we can expand the balance sheet. Because that way, with a bigger shareholder money, then we can borrow more, it opens the balance sheet to absorb more debt. In 2016, I had a very busy time doing road shows, South Africa, UK, New York, Washington DC, to interest people in coming in to buy shares in KenGen. And I must confess that it was very good to be able to raise about 300 million US as shareholders money. The balance sheet is one of the things that I felt very happy about even as I was CEO in KenGen.

Adam Zuckerman
So, in your background, it's one of the most impressive things that you accomplished. You have a track record of partnering with multilateral agencies, funding 100 million plus projects. What was the secret to your success? Was it due diligence? Was it positioning the company for potential growth? Was it saying, Listen, we are the primary power generation company of Kenya. For the listeners around the world to give you a little bit of context of Kenya, the country itself has 224,000 square miles, which makes it the 48th largest country in the world, is the third largest economy in Sub Saharan Africa, behind Nigeria and South Africa, and it's in a region that, quite frankly, you have the ability to show great leadership. So, it's adjacent itself to South Sudan, Ethiopia, Somalia, Uganda, Tanzania, and you've got the Indian Ocean on the southeast. So, you're primed for success, but you need to execute and you executed very, very well. What was your secret?

Albert Mugo
I would say that, first of all, as I explained, during the mid 90s, when the sector was going through reforms, that was the first time I started getting involved with financials. Because in the planning department, as I mentioned, I mentioned about tariffs, that was to ensure that they the sector raises sufficient money, and because financials, generally, they also wanted to be sure that, even when we lend money to government for developing the sector, we'll be able to- the utilities will be able to pay the government so the government can pay the loans that they get from those developments. So, from the mid 90s, I started getting very involved with working with financials and studying to understand how they work, what they look for, and even on projects. What are these projects that look attractive to them and what is it they look at? And, to be honest, even when I was in KenGen, because of the success that we had in the projects that we're carrying out, for example, you mentioned the Kipevu III 120 megawatts diesel plant. We did not have money for that project. And we went out on a public board, a corporate board, which means borrowing money from the public so that we could carry out this project. And believe it or not, the company had created enough confidence in the public, so that, when we went for that infrastructure board, which the government had just introduced in 2009, we were able to, it was oversubscribed. We wanted about 200 million, we got 250 million US dollars. And we were able to implement a project within 14 months as planned, it didn't get late at all. So, I think the history of implementing projects in time and successfully, to me, was a very good thing, because, even as we're going for the road shows, and these investors would be asking questions about KenGen, how do we know that you put this money to good use? How do we know how the company will look like? We would show the history and say, Look at this project, we started this time, we were able to complete at record time, and also on budget, and all that. So I think-

Adam Zuckerman
14 months is a very quick time to develop a power generating asset. That's very good. Is that typical for Kenya, or are projects typically delayed? And was your success partially related to being a majority owned government entity? So, if you were an independent power producer, could you also have succeeded in 14 months? Or do you think it would have taken the same a longer amount of time?

Albert Mugo
No, I think the success really, in projects, depends on a couple of things. One is the project team you have and the leadership of it, because you have to plan, you have to have a timeline and then look at the steps that you need to take to get your project working and to deliver it on time. And that's critical. If you don't do that, then you're starting on a very bad note. The other issue that is critical is money, the financing for the project, because, if you get your contractors in place and you are unable to pay them on time after they execute the work, they bring the certificate, then you could create a delay to the project. The third and final one and very critical is that we were getting very good contractors to do our work. Because again, if you don't get the right contractors, then you have many problems with your project and it may not complete on time. So, it was not so much being a public company, because, as a matter of fact, the government was not involved in it at all, we're doing it as KenGen. So, even a private company, an IPP, with a good team, a project team, and with the financing that they need for the project, they should be able to deliver a diesel generating project within that period. But of course, we know some have taken even longer than that. So, I think the key success factors are those that I've mentioned.

Adam Zuckerman
That's a great point. Oftentimes people overlook the importance of human capacity and the technical capabilities of the contractors. Does Kenya have an experienced workforce? If you were to build a new power plant today, would it be primarily designed, developed, manufactured, constructed by Kenyans? Or is there a significant amount of external resources that need to come into play?

Albert Mugo
Okay, currently, because Kenya is not a manufacturing country, generally speaking, a lot of the contracts that are done, particularly for power generation, is on Engineer Procure and Construct. So, when you go to tender, you look for an EPC contractor, and all the projects we have done, whether it's geothermal, whether it's hydro, whether it's thermal, the EPC contractors have come from abroad. For example, the Kipevu, that was a European contractor. The hydro plants that I did with a European contractor, and another project was a Chinese contractor, and another was a Japanese contractor. In the geothermal space, the Japanese seem to be the ones who come in. So, Kenya does not as yet have the capacity for the EPC. But what we have seen of late is that, even the overseas contractors who come to do the work here, they are able to get some components, limited components, from in-country. But most of the materials and expertise come from abroad.

Adam Zuckerman
Well, where do you think the country's energy mix is heading? So, if the country becomes more capable in terms of manufacturing, potentially, if the expertise becomes more experienced in the country, do the drivers for energy and the planning shift in the country? Do they shift? Does access to electricity remain at the forefront? Is it climate implications? Where do you see the overall ecosystem in Kenya going?

Albert Mugo
Okay, first of all, let me say that, currently, 90% of the energy, electrical energy consumed in Kenya comes from renewable resources. That is hydro, which contributes about 32%, geothermal contributing about 47%, and wind 11%. So, the thermal is just about 10%. Now, that is something that has happened gradually, because, if you look at what we had regeneration mix in the 90s, or even in the early 2000, thermal was a fairly big component going into 30-40%. Then, hydro was dominant and that meant the times when we have drought and severe drought - and it's common in this part of the world - then the hydro could reduce drastically even half of the capacity that we have. And then we'd end up with power rationing. But today, the mix has gone in such a way that geothermal is baseload, wind, intermittent - but we have got quite a good amount of it - and then we have some hydro, and then the thermal. So, the generation mix that we have is very good. Now, looking forward, Kenya still has good, very good potential for geothermal. It has good potential for wind. It has good potential for solar and, as a matter of fact, we now have about 50 megawatts of grid size solar that's connected and it's been in operation now for more than a year. And we have more than four or five PPAs with grid size solar, 40 megawatts or so, being constructed. So, when you look at the landscape in Kenya, today, I can see that the renewables will continue to be developed, because they have got advantages of being natural resources and there is experience in harnessing that. Geothermal in particular, we have developed very good capacity, both at the scientific level and also drilling and all that. And Kenya also, the government has taken a very pragmatic step in ensuring that electrification is accelerated and, from the statistics that the government gives, about 70% of Kenyans now have got electricity compared to about 30% eight or so years ago. So, we can see that there'll be expansion, demand is expanding, and the government is also taking steps to create industrial parks, economic zones, where they can give incentives to investors, and this can only mean that there will be greater demand for power. And so, there is a very good excitement looking forward to what we can see in the energy sector.

Adam Zuckerman
So, the country is moving very rapidly to universal energy or electricity access for the population. The goal was to have it universal by the end of the next year. IPPs are clearly playing a role in that transition. How does that process work? Is there a single buyer that they have to sell to? Do they have to respond to tenders, or theoretically, if we wanted to create the Albert Mugo 50 megawatt solar facility in western Kenya, can you just finance it yourself, set up, and then find an off-taker? How does that work?

Albert Mugo
What has happened in the past has been that, first of all, the way it is today is a single off-taker model, a single buyer model, where every generator sells the Kenya Power and Lighting Company, because that has been the company that is licensed to distribute and sell power to electricity users. That was one model where, for example, the projects that the government has identified, they would put them to tender and private companies would come in as IPPs, give their bid for that project, and the most competitive would then be awarded the contract and sign a PPA, and the regulator would approve the PPA. The other thing that was there was, for some renewables, such as solar, wind, small hydros, and small geothermals, wind and solar up to a capacity of 40 or so megawatts, small hydros, five or so megawatts, and those ones, there was a feed-in tariff. So, the government did offered a little while earlier, it was 12 US cents per kilowatt-hour for wind, and solar, about eight to nine was more hydros and for geothermal, and a number of solar projects that have been developed, were developed using that model. So, a developer would identify where the resource is, bring the report to the Ministry of Energy, which at that committee has more team, and once they see the viability of that project, they would then approve. The developer would then go to Kenya Power and Lighting Company, they deem it off-taker, and negotiate a PPA, and off you go, and you develop it. Now, currently, and in the new law, the Electricity Act, the government has brought in the aspect of generators, being able to sell to customers directly. The regulator is developing a willing charge that is a tariff to enable the power that you generate as a generator to flow through the transmission and distribution system and supply a customer out there. Of course, that has not happened as yet. So, it is yet to be tested, but it's something that people are looking forward to, so that they can achieve what you asked. Can you put up a power plant and sell it to a customer without them, yeah.

Adam Zuckerman
So, using wheeling as a model - there's already a wheeling structure in South Africa, for example - when do you expect this to actually take place? Or is this theoretical that it could take years for implementation?

Albert Mugo
No, I do not think it's theoretical. As a matter of fact, the law has already been passed. I think it's called Energy Act 2019, because it was approved in 2019. And then last year, just before COVID started, the government had formed a team to prepare regulations that we then formulate or put into effect that act and part of the terms of reference for that team was to work with the energy regulator to develop the wheeling charges. So, it is not something that I see taking forever and I people are very optimistic that, in the next maybe one, maximum two years, the wheeling aspect will be clear and transparent, so that investors and developers can start making use of that model.

Adam Zuckerman
What about self-generation or embedded generation? So, if we have the Albert Mugo mining company, or the Albert Mugo pharmaceutical manufacturing company, because we're creating vaccines for COVID, and you needed a fair amount of energy on your own, can you create your own electricity? Or do you have to purchase under the current system as well?

Albert Mugo
Absolutely, you don't have to purchase from anybody. You can actually develop- in fact, there are many, many companies that have their own. And I will give you an example of a tea company out in western Kenya, in some highlands, one of the biggest tea companies called James Finlay. They have a small river that runs through the tea farms, so they have developed some hydro and created their own distribution system through their farms and all that and they use their own electricity.

Adam Zuckerman
What happens to the excess?

Albert Mugo
Yeah, many, many years ago, they said to Kenya Power, By the way, we have excess, can you take some of the excess? I was involved in negotiating a small PPA for taking the excess, and for some nine months, we were actually taking their excess power. But of course, as they expanded, they exhausted their excess. So, in short, you can develop your own generation. And there is already a policy that exists, which, the excess power that you have, you can then negotiate with Kenya Power and take it to the grid. Another example is this University, which currently powers all its operations from solar panels but it's installed enough for themselves and there is a bit of excess, which they entered into an agreement with Kenya Power, so that, in very good days when the sun is there and they have a lot of it, then they sell the excess to Kenya Power. So, nothing stops somebody developing an industry to put their own generation and use it. And if you have some excess, depending on the position of Kenya Power, whether they need that capacity, they can take it. .

Adam Zuckerman
Yes. Now, you're clearly one of the foremost experts in the world on Kenya's electricity ecosystem. What's the question that you wish people ask you that you don't get often? What should we talk about that, you go, you know what, this is the secret that people really need to understand.

Albert Mugo
Okay, I think I always feel that sometimes the sector is not always very understood. And I say to people, if you want to come and invest here, whether you want to invest as a manufacturing concern, or whether you want to invest as a power producer, just get some experts to work with. Don't make assumptions, because if you do, you can get hurt as you proceed because you don't really know where to go. But, if you get people that are very familiar with the sector, they are able to help you to understand the pitfalls where they are, and then you are properly prepared. Like I said earlier, just like when you're doing a project, the planning part and the preparation of it, and the team that you go in it is very key to their success. And that's the same for those who come in. Don't just come in and meet people, perhaps, who like to talk big and all that. You will hurt yourself. But if you get some experts in the field of electricity, for example, generation, if you want to be a generator, then you will actually succeed, because the country is quite open. But I've seen some people that have come in and they abused the wrong channel, and they've hurt themselves. And they said, No, that place is not good for one to invest. But those who have come in properly and gotten the right team have been successful.

Adam Zuckerman
I don't think that we can end this on a better note. Albert Mugo, thank you so much for your time. This is another episode of the Energy Impact Podcast.

Albert Mugo
Thank you very much.

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