Thursday, September 8, 2011

African Energy’s New Friends in China

African Energy's New Friends in China
Business Week, September 8, 2011
By Randall Hackley and Lauren van der Westhuizen

From Ethiopia and Sudan to Ghana and South Africa, Chinese companies
are pushing big hydro and solar power projects

When completed in 2013, Gibe III on Ethiopia's Omo River will be
Africa's tallest dam, a $2.2 billion project that critics say will
deprive birds and hippos of vital habitat. Some 600 miles to the north,
Sudan is preparing to build the $705 million Kajbar dam on the Nile,
which would inundate historic towns and tombs of the Nubian people,
descendants of the pharaohs of ancient Egypt. The $729 million Bui
project on the Black Volta River, to be finished in 2013, will boost
Ghana's hydropower capacity by a third—and flood a quarter of Bui
National Park while displacing 2,600 people.

What these megaprojects have in common is Chinese money and know-how.
Companies such as Sinohydro and Dongfang Electric are key players in
their construction, and they're financed by Chinese banks with support
from the government in Beijing. The country's engineering and
manufacturing giants have recently completed or are participating in at
least $9.3 billion of hydropower projects in Zambia, Gabon, the
Democratic Republic of Congo, and elsewhere on the continent, according
to data compiled by Bloomberg and International Rivers, a Berkeley
(Calif.) environmental group.

A similar, if smaller, push is happening in newer renewable
technologies. Chinese enterprises are now the top investors in African
solar power, and China's government in June earmarked $100 million for
solar projects in40 African countries. Chinese photovoltaic panels
already power street lights in Sudan and sit atop schools and hospitals
elsewhere. "Renewable energy is merely the latest" facet of China's move
into Africa, says Martyn Davies, chief executive officer of Frontier
Advisory, a consultant in Johannesburg working with Chinese companies on
the continent. "The traditional actors—the Germans, the French, the
Spanish—won't be able to compete on price."

Overall Sino-African trade hit $127 billion in 2010, up from $10 billion
in 2000, Beijing's commerce ministry reports. In 2009, China unseated
the U.S. as Africa's biggest trading partner, accounting for 14 percent
of the continent's total trade, according to the African Development
Bank. The state-owned China Development Bank in 2007 established a $1
billion fund to finance Chinese enterprises in Africa and now plans to
increase that to $5 billion.

China's initiative in renewables will open up new markets for its
growing green energy sector. Only Chinese panels will be used in solar
projects the country backs, says Sun Guangbin, secretary-general of the
China Chamber of Commerce for Import & Export of Machinery and
Electronic Products. "China needs new emerging markets to consume solar
products," Sun says. China's Suntech Power Holdings (STP) is supplying
panels for a 50-megawatt solar plant at Droogfontein, South Africa.
China Longyuan Power Group last year said it would open wind farms in
South Africa, and Hua Lien International Holding has established ethanol
joint ventures in Benin, Sierra Leone, and Mozambique.

Sub-Saharan Africa, with some 800 million residents, generates about the
same amount of power as Spain (population 46 million), according to the
World Bank. The bank says that since 1995, Africa's power sector has
grown an average of 1 percent annually, or less than 1,000 megawatts a
year, even though capacity needs to expand more than 10 percent a year
to meet demand.

One attraction for African governments is that Chinese investment comes
with few strings attached. China doesn't tie its aid to human-rights
progress, environmental issues, or democratic governance, as the U.S.
and Europe do. "Many African countries find that very acceptable," says
John Mitchell, an associate fellow at Chatham House, a foreign affairs
research group in London. Due to human-rights concerns, Sudan had
trouble raising money for its $1.8 billion Merowe Dam until Chinese
banks came up with funding, International Rivers says. The project was
finished two years ago.

Chinese investment is helping Africa reach levels of dam-building not
seen in decades, bringing back memories of hydropower campaigns that
many deem a disaster. "The social, environmental, and economic track
record of large dam projects in Africa is very sobering," says
International Rivers Policy Director Peter Bosshard. While Chinese
companies have improved their environmental record in the past few
years, "there also continue to be big gaps," Bosshard says.

Advocates say hydropower can help make up Africa's chronic power
deficit. Gibe III, for instance, will double Ethiopia's power generation
capacity. That, says Prime Minister Meles Zenawi, will be instrumental
in fighting poverty in a country nicknamed "Africa's water tower" for
the rivers coursing out of its highlands. Dams can help Ethiopia
electrify remote villages, increase irrigation, and earn money from
electricity exports, Meles said at an Addis Ababa news conference in
March. "Hydropower," he said, "will have to be at the center of Africa's
energy future."

The bottom line: Chinese companies are involved in more than $9 billion
of hydro projects in Africa, where the no-strings-attached funding is
seen as a plus.

With Feifei Shen and Andrew Herndon

Hackley is an editor for Bloomberg News. Van der Westhuizen is a
reporter for Bloomberg News.

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