Monday, January 23, 2012

Uganda: Donors Locked Out of Karuma Power Project

Uganda: Donors Locked Out of Karuma Power Project
Esther Nakkazi

22 January 2012

The battle between Uganda and Western donors over the 660MW Karuma
power station has escalated with a key lender now accusing the
Ministry of Energy of locking it out of the project as well as
refusing to accept free advisory services.

"Various development partners have made offers to support the
implementation of the Karuma Project, for instance through technical
advisers or financing for an international panel of experts for dam

Thus far, these offers have not been taken up," said Dr Jan Martin
Witte, senior project manager at KfW Entwicklungs bank.

KfW had offered to get an international firm to evaluate the tender
process but the government of Uganda refused.

Arguing that they want to avoid the kind of "environmental and
financial noise" that frustrated the first attempt at developing the
250MW Bujagali power station, which is coming on-stream 16 years late,
senior Ministry of Energy officials were unapologetic about their
stance, despite the risk that locking out alternative views could
result in grave design errors or a faulty procurement process.

The World Bank and Norway also wanted to support the project, but
government officials accuse them of failing Karuma One, the project
first proposed by Norwegian developer Norpak Power Ltd.

Norpak wanted to develop the site first but was allegedly frustrated
by the World Bank, which insisted that the project would only be
financed after Bujagali was complete. Norpak eventually abandoned the
project in 2008.

"Having learnt a lesson from Bujagali, we are not prepared to go
through that again," said Bukenya Matovu, head of communications at
the Ministry of Energy and Mineral Development.

"They will not listen to anything that in their view will delay the
project. We have not been asked for any support. Everybody at the
ministry is keeping the information close to their chest, and I
understand this is due to the Bujagali experience. Nevertheless, we
would like to be engaged in the procurement process for the EPC
contractors," Dr Witte said.

Nine international firms, including four Chinese contractors, will put
in their bids at the end of this month for construction of the Karuma
hydropower dam.

KfW says it anticipates problems because Uganda has difficulties in
attracting private sector investors for large-scale durable investments.

The proposed site for Karuma, which is downstream of Lake Kyoga, is
the only remaining spot on which Uganda can build a dam along the Nile.

The Ministry of Finance has been putting aside $70 million annually
since 2007 and now has some $350 million to finance the initial phases
of the project.

The cost of the dam is not definite at this point, though, and could
rise past the initial estimate of $2.2 billion, depending on what the
geology throws up.

According to Henry Bidasala, assistant commissioner at the Ministry of
Energy, Uganda has contracted the India-based firm Energy Infratech as
project consultants to conduct feasibility studies and act as project
supervisors. The government is also recruiting a project manager. The
position has already been advertised.

Chinese equipment worry

The donors also caution that the four Chinese contractors bidding for
the construction contract may not be up to the job.

While acknowledging that there are many experienced and qualified
Chinese contractors who have successfully delivered projects in
Africa, they say there are exceptions: Electrical and electro-
mechanical equipment from China tends to be of lower quality than
equipment manufactured in Europe or the United States.

"The electrical and electro-mechanical equipment has a big impact on
the efficiency, durability and operation and maintenance costs of
hydropower plants," said Dr Witte.

However, Mr Bukenya said this was not an issue. "We are not even sure
that the Chinese will win the bid, but if they do I am sure they will
do their best to demonstrate their competencies.

Relevant Links
� East Africa
� Uganda
� Energy
There is a cut-throat competition between the East and West with
campaigns to capture resources," he said.

The government of Uganda continues subsidising electricity to make it
affordable to the end users. Since 2005, the subsidies provided have
cost the government $200 million a year.

The National Planning Authority recommends that Uganda increase its
power generation capacity to 3,500 MW by 2015 to meet growing.
However, key projects are still far down the pipeline with Karuma
expected to have a procurement to delivery cycle as long as 10 years,
according to independent estimates.

Uganda has an installed capacity of 630MW but almost half of it is off
the national grid due to various factors including; non-payment of
power generators, and the reduced water level of Lake Victoria.

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