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Infrastructure Investment in Emerging Markets the Case of Lake Turkana Wind Power in Kenya

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Infrastructure Investment in Emerging Markets the Case of Lake Turkana Wind Power in Kenya Infrastructure Investment in Emerging Markets The Case of Lake Turkana Wind Power in Kenya Master Thesis M.Sc. in International Business Hand-in date: May 15th 2018 Supervisor: Michael Wendelboe Hansen Kasper Hedegaard Pedersen Niklas Kløve Ryelund Student no.: 45522 Student no.: 80941 Copenhagen Business School Number of pages: 113 Number of characters (including spaces): 256,362 Acknowledgements The journey of writing this master thesis has been challenging and inspiring. The process has brought us from Copenhagen Business School to meeting with various infrastructure investors and industry experts around Copenhagen, as well as all the way to Nairobi, Kenya in search for further knowledge and information about this research topic. Throughout the process of this thesis we have received overwhelming support and encouragement, for which we are truly grateful. We would like to thank all of the interviewees of this paper and give special thanks to the following people: Henrik Frøsig for providing us with valuable information about Lake Turkana Wind Power at different times during the process. Henrik Petersen for a great interview as well as setting up an interview with Kenya Investment Authority in Nairobi. Jens Thomassen for a great interview and supporting words. Additionally, thank you to our supervisor Michael W. Hansen for excellent guidance and insights. Last and most importantly, we would like to thank our families for the love and support throughout this process. Photo from Nairobi Abstract In light of the lack of public funding to close the infrastructure gap in emerging markets, the purpose of this paper is to find strategies for foreign private investors to deal with the institutional challenges in these markets. The paper is motivated by the limited literature on the dynamics between institutions and infrastructure investment strategies; therefore a case study of Lake Turkana Wind Power in Kenya was applied as a force of example. Based on existing literature, five propositions were derived and evaluated on the case on the foundation of in- depth interviews with stakeholders and industry experts. The results indicate that the unique institutional context require several tailored strategies that are demanding for the investors. The right team of partners is required to support navigation through the institutional context and increase bargaining power over the state. In particular, the investors need to safeguard against the informal institutions and contracts with the state. In regards to the existing literature, the propositions were confirmed to a moderate extent. The findings of the paper can be generalized in an analytical nature to derisk future infrastructure projects in emerging markets and offer a new line of thoughts on the dynamics between institutions and strategies. Keywords: Infrastructure investments, institutions, Lake Turkana Wind Power, emerging markets List of Abbreviations AfDB - African Development Bank CSR - Corporate Social Responsibility DFI - Development Financing Institution EAfDB - East African Development Bank EIB - European Investment Bank EU-AITF - EU-Africa Infrastructure Trust Fund FDI - Foreign Direct Investment GIH - Global Infrastructure Hub GoK - Government of Kenya IECI - International Energy and Climate Initiative IPP - Independent Power Producer IRENA - International Renewable Energy Agency KEPSA - Kenya Private Sector Alliance KETRACO - Kenya Electricity Transmission Company KPLC - Kenya Power & Lighting Co. LCIA - London Court of International Arbitration LTWP - Lake Turkana Wind Power MNC - Multinational Corporation MOU - Memorandum of Understanding PPA - Power Purchase Agreement PPP - Public-Private Partnership PRG - Partial Risk Guarantee SPV - Special Purpose Vehicle WEF - World Economic Forum Table of Contents Introduction .........................................................................................................................................4 Problem Area ..................................................................................................................................4 Research Purpose and Approach ....................................................................................................6 Research Question ..........................................................................................................................7 Structure of the Paper......................................................................................................................8 Methodology .....................................................................................................................................10 Research Philosophy .....................................................................................................................10 Research Approach and Strategy ..................................................................................................11 Case Study ................................................................................................................................13 Data Collection .............................................................................................................................14 Primary Data: In-depth Interviews ............................................................................................14 Secondary Data .........................................................................................................................22 Data Analysis and Implications ....................................................................................................23 Validity .........................................................................................................................................23 Delimitations .................................................................................................................................26 Theory and Analytical Framework ...................................................................................................27 Institutional Perspective ................................................................................................................28 Infrastructure Investments ............................................................................................................40 Analytical Framework ..................................................................................................................46 Propositions...................................................................................................................................47 Kenya ................................................................................................................................................52 Lake Turkana Wind Power ...............................................................................................................60 Analysis.............................................................................................................................................68 Proposition 1 .................................................................................................................................68 Proposition 2 .................................................................................................................................75 1 Proposition 3 .................................................................................................................................79 Proposition 4 .................................................................................................................................86 Proposition 5 .................................................................................................................................90 Analysis Discussion ......................................................................................................................94 Implications.......................................................................................................................................98 Implications for the Industry .........................................................................................................98 Implications for the Literature ....................................................................................................102 Conclusion ......................................................................................................................................104 Bibliography ...................................................................................................................................106 Appendices ......................................................................................................................................118 Appendix 1 - Interview Guide ....................................................................................................118 Appendix 2 - Interview with Henrik Frøsig, IFU .......................................................................118 Appendix 3 - Interview with Phylip Leferink, LTWP ................................................................123 Appendix 4 - Interview with Lars Tejlgaard, Frontier Energy ...................................................129 Appendix 5 - Interview with Jens Thomassen, A.P. Møller Capital ..........................................137 Appendix 6 - Interview with Tina Kollerup Hansen, Danida Business Finance ........................145 Appendix 7 - Interview with Henrik Petersen, The Danish Trade Council
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