Wednesday, November 6, 2013

Financial Times: "DRC dam: key for reviving the nation"

(A lot of "ifs" in this scenario.)

DRC dam: key for reviving the nation

South Africa's new energy treaty with the Democratic Republic of Congo (DRC) has prompted talk about the mother of all infrastructure projects: the Inga dams.

An ensemble of hydropower installations on the Congo river, Inga is projected to cost around $80bn – making it the biggest such project in the world.

If it ever actually gets built, that is.

People have talked about tapping the Congo river for nearly a century. Two existing dams – Inga I and II – have been running for 40 and 30 years respectively, and have underperformed due to lack of upkeep. After four decades of talk, the Inga project seems to onlookers to be all potential and no progress. A conference in London a decade ago made the same excited predictions we're hearing now, but there was little follow-on.

But the momentum behind Inga III, a critical new piece of the puzzle, is now gathering pace. The South Africa treaty gives it a credible off-taker in Eskom (the DRC mining industry is another). Feasibility studies have been carried out and a bidding process, which started in 2010 with the prequalification of six consortiums, has whittled the number of bidders down to three (Sinohydro and Three Gorges Corporation, Actividades de Construcion y Servicios, Eurofinsa and AEE from Spain, and Daewoo-Posco from South Korea).

Inga III, along with renovation work on Inga I and II and the construction of a further four to six dams and related infrastructures, will culminate in a 40,000 MW hydro system whose output will be double that of China's Three Gorges Dam. The energy would be cheap by any standards, let alone green ones (less than $0.02-0.03/kWh, compared to $0.40–1.00/kWh for solar and $0.10–0.15/kWh for wind) and would save 100m tons of fossil fuel burning every year.

If successful, it would also help the World Bank show it is serious about getting out of fossil fuel lending. The institution wants to leave dirty fuels behind. It recently agreed to restrict financing of coal-fired power to countries with no feasible alternatives. But greening is hard to do. In 2010, $6bn of the $10bn lent by the World Bank to energy still went to fossil fuel projects. Hydro provides a good way of getting out of coal while still pushing the kind of game-changing energy projects that Africa needs. In addition to Inga, the bank is getting behind the Batoka Gorge and Mphanda Nkuwa dams on the Zambezi.

But hydro mega projects in a place like DRC are hard to cost and plan. Financing of Inga I and II was revised up 80 per cent, from $226.7m to $460.2m. Some wonder at the wisdom of shoehorning $80bn into a highly centralised project in a country whose government ranks 160 out of 176 in Transparency International's corruption perceptions index.

Critics say large hydro projects are strategically flawed in a sparsely populated region like southern Africa; they would rather see the money spent on smaller, off-grid solutions that get energy straight to the poorest, instead of feeding Eskom and the mining industry.

But the World Bank is staying put. Eskom and the DRC mining sector are crucial participants if private money is to be crowded in. Aid, in the form of concessional debt, can only contribute around 10-25 percent of the cost.

"This project will not happen without private sector financing," says Meike van Ginneken, the World Bank's sector manager for energy in west and central Africa. "Even all the donors combined would never be able to finance it, let alone the government of the DRC. So you will have to make it a bankable project and in order to do that, one of the key factors is to have credible off-takers."

The viability of Inga took a hit when BHP Billiton last year shelved plans to build a smelter in the region. Van Ginneken adds that revenues from the Inga project will support the government budget and therefore public spending, although governance is clearly a work in progress.

The strength of commercial interest in Inga suggests it is not the kind of white elephant project that public sector actors tend to get seduced by. It would certainly be a game-changer for the region in terms of development. Inga III is "definitely of interest in the long term [for South Africa]," says Anton Eberhard, an energy expert from the University of Cape Town. "Its price is likely to be competitive compared to other non-coal options such as nuclear, gas or other imports".

The DRC mining industry remains, for all its faults, the only real engine of growth for a country with little other revenue sources at present. A burst of cheap power could help the country extract its cobalt, tantalum, diamond and copper reserves.

Little wonder the DRC government wants to get going. It says building will start by 2015. Just don't set your watch by it.

Adam Green is senior reporter at This is Africa, an FT publication, where a version of this post was published on Monday.


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