NAIROBI, Feb. 4 (Xinhua) -- Kenya and the Organization of the Petroleum Exporting Countries (OPEC) Fund for International Development (OFID) on Monday signed a 15 million U.S. dollar loan to boost Kenya's energy sector.
Minister of Finance Robinson Githae told journalists in Nairobi that the funds will be used to co-finance the electricity expansion program that is currently being supported by the World Bank.
"The main objective of the project is to provide rural populations with access to affordable and reliable electricity," Githae said. He added that project envisages to connect over 300, 000 rural households, small businesses and public institutions to the national grid in order to improve the beneficiaries' productivity and standard of living.
According to the ministry of finance, the concessional loan will attract an interest rate of 1.7 percent annually as well as a service charge of 1 percent.
"The agreement is similar to those signed by other multi- lateral financial institutions as it has a grace period of five years and a repayment period of 20 years," he said. He noted that the energy infrastructure will contribute to Kenya's quest to achieve goals outlined in the economic blueprint, Vision 2030.
"It will also spur high and inclusive growth that will ensure a majority of Kenyans benefit from economic development," the minister said.
Githae said the loan signifies confidence in Kenya governance structures as it comes barely a month before presidential elections.
"While some investors are waiting for the outcome of the general elections, OFID has decided to stand by Kenya's track record," the Treasury official said. "The country's development agenda will remain regardless of the election results," Githae said.
The minister of finance, however noted that a presidential re- run could pose a temporary dilemma to Kenya.
"While the new parliament will be sworn in and operate under the new constitution, the executive will still operate under the old constitution as the country waits for the conclusion of the presidential contest," he said.
The minister also assured the country that the Treasury has sufficient resources to fund a presidential re-run if no candidate emerges as the clear winner in round one.
"We will get funds either from contingency fund, containment of government expenditures or from the anticipated United Nations (UN) refund," he said. He added that Kenya has already received 22. 85 million dollars from the international body.
"We have already been assured that the 125 million dollars refund has been approved by the UN and is only being delayed by bureaucratic procedures," Githae said.
The finance minister revealed that the Kenya Revenue Authority (KRA) loses about 342 million dollars annually through tax leakages and loopholes. "We have given KRA 22.85 million dollars in order to strengthen its enforcement department so as to boost government revenues," he said.
Visiting OFID Director General Suleiman Al-Herbish said that the loan is provided under the OFID's Energy for the Poor Initiative. He added that the financial assistance also coincides with the 37th anniversary of OFID's collaboration with Kenya which began with support to the country's balance of payments.
OFID said that it will continue supporting Kenya's development efforts through its public and private sector lending windows.
"There are currently four projects in Kenya, out of which two are in the private sector," the director general said.
Al-Herbish noted that over 50 percent of his organization's financial aid is targeted at sub Saharan countries. "Following the loan agreement with Kenya, the total cumulative financial assistance received by OFID is approximately 182 million dollars," he said.
Ministry of Energy Permanent Secretary Patrick Nyoike said that funds have been earmarked to strengthen Kenya's electricity distribution system.
He noted that it will take Kenya at least two to three years before it will earn any revenue from its oil deposits.