Tuesday, August 16, 2011

Bui dam cost overruns


Bui Project needs additional $168m funding
Special report from Masahudu Ankiilu Kunateh, Bui

The Government of Ghana is seeking an additional $168 million funding
from the EXIM Bank of China to complete Ghana�s third hydroelectric
power dam, the Bui Hydroelectric Dam in 2013.

The Deputy Minister of Energy, Mr. Inusah Fuseini disclosed this to
the Business Chronicle at the project site at Bui, in the Tain
District of the Brong-Ahafo Region.

According to him, �We are making significant effort to get additional
funding of $168 million from the EXIM Bank. We are already in talks
with the Chinese Government to persuade the bank for the additional
funds in April 2011�. He added that �the EXIM Bank has expressed
interest to support us�.

The ongoing 400 MW Bui Hydroelectric project is estimated to cost $622
million. With a concession loan of $263.5 million, a buyer�s credit of
$ 298.5 million from the People�s Republic of China and EXIM Bank
respectively, with the Government of Ghana contributing $60 million.

The Government of Ghana, as �Employer�, entered into an Engineering
Procurement and Construction (EPC)/Turnkey Project Contract for the
implementation of the project in 2007 with Sinohydro Corporation
Limited, with a major Chinese dam construction firm as the
�contractor�. The role of �Employer� was subsequently assigned to Bui
Power Authority to manage and supervise the project.

The project, when completed in 2013, will increase the country�s power
generation capacity, thereby, enhancing electricity supply in the
country, and the reliability and security of power supply to the
northern sector of Ghana.


Explaining to senior journalists at a press conference, after an
extensive tour of the dam site, the Chief Executive Officer (CEO) of
the Bui Power Authority (BPA), Mr. Jabesh Amissah-Arthur, flanked by
the Board Chairman of the Authority, Mr. Adjei Mensah, the Deputy
Ministers of Energy and Information, Mr. Inusah Fuseini and Mr.
Samuel Okudzeto Ablakwa, Municipal Executive for Wenchi, Mr. Yaw Osei
Agyei, the DCE for Tain, Jones Samuel Tawiah and officials of the
Authority, revealed that the Bui Hydroelectric project was
experiencing a shortfall in project funding arising primarily from the
unanticipated effects of the recent global upheavals as well as
unforeseen essential works.

These global events have resulted in the inadequacy of the budget
provided for some line items in the Engineering Procurement and
Construction (EPC) Contract. This led to the shortfall of $ 167
million. While, the reasons for the funding shortfall in respect to
these line items are: Price and Physical contingencies, and other items.

Touching on price contingency, Mr. Amissah-Arthur indicated that the
turnkey price for the project was agreed in 2007 based on cost
estimates ($622 million) submitted by the contractor, Sinohydro
Corporation Limited.

A formula for calculating escalation payment was included in the
contract, while a ceiling for price escalation payment was also
agreed, which limited the escalation index to a maximum of 17% for any
payment, he added.

Mr. Amissah-Arthur, who spoke articulately, said �As a result of the
global financial upheavals, the escalation index related to the first
payment application dated October 2008 was 17%�.

This escalation index has since increased with every submission to
41%, as at December 2010, hence the need to re-estimate the
obligations in respect to price escalation, to the maximum value of
$90.7 million, being 17% of the value of the main works.

The re-estimated obligation, when compared with the fact that the
provisional budget to meet price escalation payments was only $7
million, shows that the budget provision is grossly inadequate, and
needs to be increased to the re-estimated value of $90.7 million.

In addition, there is the need to provide for an initial working
capital, supplementary insurance and other incremental costs totaling
$15.9 million, while the total additional amount of price contingency
stands at $106.7 million, he revealed.

On physical contingency, the CEO observed that �Any complex
construction project, such as the Bui Hydroelectric project which
incorporates substantial levels of geological unknowns and other
physical risks, needs to recognize the associated uncertainties and,
therefore, make an appropriate budgetary provision for physical

Furthermore, Mr. Amissah-Arthur pointed out that a budgetary provision
of $7 million was made under line item 17.8 of the contract for
physical contingency, adding this amount has been found to be grossly
inadequate, as a number of unanticipated or unbudgeted items have come

The essential items which were not foreseen or unbudgeted include:
division of Banda-Bongase Road and 33kV powerline; reservoir clearing;
turbinette; water supply plants and development of fisheries in the
Bui Reservoir.

The Authority, therefore, proposed that the provision be revised to
$47.7million, representing 15% of the value of main works.

Other items not budgeted or foreseen are; employer�s engineering and
administration; employer�s permanent facilities, workshop and
equipment for maintenance of the facilities, and facilities for
resettlement. These cost $20.6 million.


A Civil Engineer at the Bui project, Mr. Kwaku Sarpong Akorsah
disclosed to the Business Chronicle that civil works at the dam site
were progressing steadily, saying �we have completed 66% of civil
works of the dam�.

He added that about 29% of civil works for the dam�s powerhouse
compressing units one, two, three and the erection bay have been
completed. The installation of three turbines and generators is yet to

Furthermore, work on the downstream Permanent Bridge is about 80%
completed, whilst foundation excavation and improvement is underway
for Saddle Dam Number One. Work on Saddle Dam Number two is yet to
commence, officials of Authority told the paper.

On Transmission Line, the Business Chronicle was told that physical
demarcation of the transmission line corridor, including related asset
valuation by the Land Valuation Board was on-going.

Work is complete on all 170 housing units in the Resettlement Part B
Township, where the three remaining communities, namely Bui, Bator-
Akanyakrom, and Dokokyina are to be resettled, Mr. Amissah-Arthur told
the Business Chronicle.

While, 29 households comprising 156 people, out of a total of 36
households (165 people) from Dokokyina have been resettled amicable.

He disclosed that �Livelihood enhancement programme to restore lost
economic activities and improving living standards in project affected
communities is underway�. Under the programme, the Authority gives GH
�100 to each person in a household. This will continue for a year.

In addition, the Authority will build fish ponds for the settlers.
They can also fish in the downstream of the dam.

Water supply systems (bore holes) are in place. The construction of a
6-unit classroom block for primary school has been completed. Works on
the community centre are 75% completed, while construction of internal
roads is underway.

All these facilities will be connected to electricity with help of the
Authority. To add up, construction of 24 replacement housing units to
replace the temporary houses provided earlier for four communities
such as Brewohodi, Lucene, Agbegikuro and Dam Site is underway.


The common knowledge among Ghanaians is that the Bui project
incorporates the development of a modern township called Bui City.
This impression was left with Ghanaians from the sod-cutting ceremony
of the project in 2007 by the then President John Agyekum Kufuor ,
that the project funding included the Bui City.

The general assumption of Ghanaians, therefore, was that the Bui City
was under development at the same time as the Dam construction was in
progress, but �This is far from the truth�, said the CEO of the

Mr. Amissah-Arthur explained that �The reality is that Bui City is
still a concept for which no financial provision has been made yet�.
However, the realization of the Bui City concept depends upon the
attraction of private investors to develop the different components of
the city as well as to establish the businesses in the area.


A part from power generation, the project when completed will be used
for irrigation purposes. For instance, the irrigable land of 30,000
hectares will serve as bedrock for massive mechanise farming.
Through the project the area will be powered for food and cash crops,
fisheries and animal husbandry.

The Deputy Minister of Information, Mr. Samuel Okudzeto Ablakwa added
that when the project is completed, it would improve the living
standards of the people. The project will provide jobs and support the
development of cottage industries. Mr. Okudzeto Ablakwa, therefore,
appealed to investors to partner government in the project.

The Business Chronicle learned that the ongoing 400 MW Bui Hydropower
project was considered to be the most technically and economically
attractive hydropower site in Ghana, after Akosombo and Kpong Hydro
Power plants.

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