Plans by Uganda to start building the planned 700 MW Karuma hydropower project this year have been thrown into jeopardy, following disagreements with would-be financiers over the design and capacity of the plant.
Days after the East African nation abolished subsidies in the energy sector, prompting a huge rise in the cost of electricity, the potenial financiers, including the Germany Development Bank, the World Bank and the European Investment Bank, stated that it was not realistic that the water flow at Karuma would sustain the generation of 700 MW.
They argued that it did not make economic sense for Uganda to invest heavily in the project when it was clear the plant would only achieve full capacity during specific periods. The project has a $1.3-billion price tag.
They also contended that the feasibility study, commissioned by the Uganda government, did not "comprehensively capture the project's complex technical, financial and environmental issues". The feasibility study was undertaken by Energy Infratech, of India.
Instead of proceeding with the project, the would-be financiers want the plant scaled down to between 400 MW and 450 MW. They have also offered to finance another feasibility study into the project.
But Uganda, which has identified the planned power plant as one of the high-priority projects in its National Development Plan and as the ultimate solution to Uganda 's persistent energy problems, has vowed to proceed with construction, even if the lenders withdraw their support.
The Uganda government has already committed $521-million to the project in the 2011/12 Budget. An additional $300-million has been mobilised through the Energy Investment Fund, set up at the central bank in the 2006/7 financial year.
Although Uganda is confident it can raise the $1.3-billion required for the project, even if the current would-be financiers refuse to participate, projections show the cost of the project could surge to $2.2-billion by the time it is completed, an eventuality that might see the project stall midway.
"We are determined to proceed with the project because, if we listen to them, it will never get off the ground," says Uganda Minister of State for Energy Simon Dujanga.
He added that Uganda is comfortable constructing the project based on its current design of high installed capacity even with the generation capacity fluctuating, depending on weather patterns.
Uganda initially intended starting construction of the plant in May this year.
The project will entail the construction of a 600 MW to 700 MW hydropower facility located about 3 km upstream of the Karuma bridge and 80 km downstream of Lake Kyoga, on the Nile river.