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By Erskine Mdone

Private participation in large hydropower projects in Africa is increasingly being encouraged through Public Private Partnerships (PPPs). This has been illustrated by the Bujagali Falls Dam, which was commissioned in 2012 in Uganda. Together with the planned Ruzizi III Dam, the project is set to become the continent’s first regional PPP hydropower project.  

Large hydropower projects impose enormous financial burdens on African governments; PPPs are seen as a way to ease that burden and distribute risk. International financial institutions (IFIs) such as the World Bank and others consider private participation in hydropower projects to be in line developing new methods of financing. In this regard, the World Bank’s IFC notes that its role in encouraging private participation in energy projects is that of “acting as financial intermediary, providing targeted financial support, convening multiple parties, and accessing a range of financial instruments and models.”

The recent outcome, however, of Africa’s first large hydropower PPP project, the Bujagali Falls Dam, illustrates that private participation does not necessarily reduce the financial, economic, social and environmental costs of large hydropower. In fact, the outcomes seem to be similar to those of purely publicly funded large hydro projects.

A Public Private Partnership Gone Wrong
The Bujagali Falls Dam is located across the White Nile, one of the main tributaries of the Nile River in Uganda, about 9.7 kilometers north of the culturally significant (and now submerged) Bujagali Falls. After 18 years of delay, the dam was commissioned in 2012. Almost every component of the project proved to be problematic. Problems have been found in both Bujugali’s Build Own Operate Transfer (BOOT) contract and the signed Power Purchasing Agreement (PPA). A number of resettlement, compensation and socio-cultural impacts of the dam remain unresolved. Whether the dam has reduced average kilowatt-hour costs of electricity – a key promised economic benefit – remains to be seen.
 
In 2005, the Ugandan government resurrected the Bujagali Dam project after the World Bank and AES Nile Power had pulled out due to corruption allegations and civil society pressure. (AES Nile Power was the initial private sector partner.) The Ugandan government and Bujagali Energy Limited (BEL), the new private concessionaire, entered into BOOT and PPA agreements for a 30-year period. 

A subsequent study of the BOOT and PPA by the Ugandan National Association of Professional Environmentalists, using Prayas Energy Group A Study of Techno-Economic Aspects of the Power Purchase Agreement of the Bujagali Hydroelectric Project in Uganda, came to three major conclusions with significant implications for the future of PPP hydropower projects in Africa.

First, the capital costs of the project were substantially overpriced. The cost of the dam dramatically increased from the initial US$800 million to US$1.3 billion. The PPA, in addition, was found to contained irregular provisions that were not in the best interest of Ugandans. Capacity payments could have been decreased by US$40 million in the first year and an average of US$20 million over the next 29 years, but they weren’t. The study furthermore noted that the World Bank had poorly advised the Ugandan government in negotiating the PPP. Optimum consultation would have led to a net savings of US$200 million.

The shortcomings of Bujagali Dam are also apparent in the mitigation of the project’s socio-environmental impacts. In its previous involvement in Bujagali, AES Nile Power had commissioned a Social and Environmental Impact Assessment (SEIA), together with resettlement and compensation plans. These were approved by both the Ugandan government and the World Bank. AES resettled 35 households, while an additional number of affected households chose to receive monetary compensation instead. These initiatives were nevertheless derailed when AES left the project in 2002.

The new project participant BEL commissioned another SEIA, while its resettlement and compensation action plans were approved by both the Ugandan government and project lenders. But the plans have been criticized as being short-sighted, focusing on the short-term impacts of the hydropower project and ignoring long-term impacts. These perceptions were confirmed when a 2008 compliance review report by the African Development Bank found that project borrowers had not complied with compensation and resettlement policies of the bank and related lenders.

Involuntarily resettled communities now have less access to cash crops and revenue generation activities than before their resettlement. Compensation issues related to individuals injured while working on the hydropower project, as well as those affected by the construction of transmission lines, also await resolution. And the Ugandan government and BEL bizarrely attempted to circumvent the socio-cultural components of the project when an imposter impersonated the spiritual leader of the Basoga people to hurriedly carry out cultural rituals, a prerequisite for commencement of the project. 

Furthermore, the dam’s reservoir has submerged the Bujagali Falls, which Ugandans consider to be a national symbol of cultural and spiritual importance. The owners of Bujagali also have yet to account for the hydrological changes which the dam will impose on Lake Victoria. There is currently no mitigation strategy for climate change risks, which could reduce water levels in the lake and negatively impact Bujagali Dam’s ability to generate electricity.

Finally, though the dam was expected to have a total installed capacity of 250 MW, at the time of writing, the maximum generation capacity of the dam has been between 150 to 155 MW. This outcome is significant, given its direct impact on the expected economic efficacy of the dam. Nowhere is this failed promise more apparent than in the resultant increase in electricity prices of 151% from the pre-commissioned dam levels of US$ 13.99 in 2010, to USD cents 21. 2 in 2012.

The change in ownership in Bujagali power dam will not lead to a drop in the cost of power, officials have said.

Last week, Norwegian firm SN Power announced it was buying Sithe Global’s stake in Bujagali hydropower as the latter opts out. But according to Brian Kubeck, the Sithe Global president, “this is just a change in ownership and may not impact on the cost of Bujagali power… Government has where it wants power costs to be, but investors also look at the costs incurred.”

Sithe Global, which has owned interest in Bujagali for eleven years, is incorporated in Mauritius. President Museveni’s biggest complaint has been that Bujagali is too expensive because it is operated by private investors.

At one point, he said government was going to use money from the oil industry to buy them out so as to cut the cost of power. In June last year, he said the country had made a mistake to accept to buy power generated by Bujagali at $10.1 cents per kilowatt hour, which, he added, was partly responsible for high prices of electricity in the country.

SN Power’s entry had been understood as a move by government to reduce the cost of electricity. SN Power says Uganda was a stepping stone to launch in the sub-Saharan region.

“We look to more hydro-power investment opportunities in the sub-Saharan Africa,” said Torger Lien, the SN Power CEO.

SN Power, owned by Statkraft, the Norwegian state-owned power firm, and Norfund, a Norwegian development financial institution, will operate alongside the Aga Khan fund for economic development.

Bujagali was opened in 2012, having cost around $900m. It added 250MW to the grid, halting rampant power blackouts that had plagued the country. Also, it led government to discontinue annual subsidies to thermal power generators.

Uganda expects Karuma and Isimba dams, under construction, to come on board by 2019, bringing a combined capacity of 788MW to the grid. Both dams are being constructed using loans from China. According to government, the power from these dams will be cheaper, costing between $4 cents and $5 cents per kilowatt hour.

Currently, the energy ministry is investigating reports of shoddy works, especially at Karuma, which is likely to delay the completion of the dam. Bujagali was tendered internationally to private companies to build, operate and transfer to government after 30 years.

Karuma and Isimba dams will be owned and managed by the government through Uganda Electricity Generation Company Limited (UEGCL).

A row has erupted over the supervision of two of Uganda’s flagship hydro-power projects, pitting the Ministry of Energy and Mineral Development (MEMD) against the Uganda Electricity Generation Company Limited (UEGCL) with officials now turning to President Museveni as arbiter.

Daily Monitor has learnt that top UEGCL officials met the President at State House Entebbe a fortnight ago and reported shoddy work at the dams and how Energy ministry officials, according to a reliable source who preferred not to be named given the sensitivity of the matter, “have been picking bribes to cover up the shoddy work.” A source who attended the meeting said the President vowed to look into the matter and has since dispatched an intelligence team to establish the facts.

But Energy Infratech PVT Ltd, the Indian company providing consultancy services (technically called Owner Engineer), has also accused UEGCL officials of soliciting bribes and when this was not forthcoming, bringing on board rival companies to do the same supervisory work “through the backdoor”.

The correspondences
The two projects are now being supervised by three companies, with the two Austrian and Swiss entities reporting to UEGCL and the Indian firm to the ministry. The total supervision costs of the three companies will amount to $10.86m (about Shs37 billion) by the time the project is completed in 2018.

In a March 24 letter seen by this newspaper, Mr R.V Shahi, the chairperson Energy Infratech, requests an appointment with the President in the second week of April. “We have been made aware that at many forums, few stakeholders have raised few concerns recently with respect to quality and effective supervision in both projects. I request to meet you and brief you in detail about the ongoing Karuma and Isimba hydro-power projects,” the letter reads in part.

The letter comes against the backdrop of several correspondences between Energy officials and UEGCL questioning the motive of the latter’s procurement of SMEC and AF-Consults, companies that reportedly lost in the open bidding to Energy Infratech in 2013; this time as consultants charged with auditing the current Owner Engineer.

In a February 10 letter to Mr Harrison Mutikanga the chief executive officer UEGCL, Mr Paul Mubiru, the accounting officer in the Energy ministry, writes: “I wish to take this opportunity to advise you that in my capacity as accounting officer, I am neither answerable to you nor do I get instructions from you. I am, therefore, responding to your letter for the sole reason that these are public documents which you gave wide circulation.”

Mr Mutikanga had raised a number of quality issues and contractor failings, stating in his letter: “The technical advisors (PMC) and UEGCL site team have made certain small improvements because Sinohydro site staff are willing to listen and improve. On the other hand (Energy Infratech), appears to be the main hurdle in achieving the required quality as their management team seems inexperienced, disinterested and incapable to act.”

But in his response, Mr Mubiru argues that Energy Infratech PVT, the firm which carried out the feasibility studies and design for Karuma HPP, “was selected through a competitive procurement process under the PPDA Act and the Evaluation Team comprised two officers from UEGCL,”

The disagreements
“Don’t you think it would be misleading for you to make every one believe that the UEGCL (Project Management Consultants) know the Karuma HPP better than Energy Infratech who designed it and formulated the specifications? If there is non-compliance, is it the consultant who is not compliant or the contractor? Don’t you think that you may be misunderstood by the public out there that your real issue with (Energy Infratech) may not be professional but some other issue best known to yourself? If they asked how many power plants you have designed and supervised in your engineering career, don’t you think that the answer you would give would be embarrassing?” he adds.

Both Mr Mubiru and Mr Mutikanga are engineers by profession.
When this newspaper contacted Mr Mutikanga for a comment last Friday, he said: “We didn’t break any procurement law and I can’t comment further because we broke no law.” Asked to explain the economic efficacy of hiring the two additional consultants, he said: “We got all the necessary approvals from government for whatever we did in the interest of the project.”

Mr Henry Bidasala, the Karuma HPP project manager in the ministry of Energy, told Daily Monitor last Friday, “UEGCL is the implementing agency and since they don’t have the capacity to play that role, they engaged a consultant who would help them in their project management as they acquire the skills they need. Of course, there are two sides to that; one can sympathise with their argument but another can question why they got other supervisors. They all need to work for one objective.”

But how does UEGCL come into the picture in a project whose contract administration power lies with the Energy ministry which penned the contract with Chinese firm (Sinohydro), the construction contractor, and Energy Infratech, the Owner Engineer (supervisor)?
This, Mr Mutikanga and the UEGCL board chairman, Dr Stephen Robert Isabalija, told this newspaper on Saturday, is at the heart of the matter with Energy officials.

In an On Lending Agreement signed on May 6, 2015, between government (represented by ministry of Finance) and UEGCL following a $482,578,200 loan from the Export Import Bank of China, government was required to enter into On Lending Agreements with UEGCL and UETCL (as borrowers) to implement the 183 MW Isimba HPP and the 600MW Karuma HPP.

Under the agreement, UEGCL was to use proceeds of the subsidiary loan to make procurements in accordance with the procurement rules and, “execute the project with due diligence and efficiency in accordance with sound administrative, financial and technical practices under the supervision of qualified personnel and promptly inform government of any condition which interferes with the progress of the project and performance by UEGCL of any of their obligations.”

A tripartite memorandum of understanding was signed on December 3, 2013, between government (represented by the Energy ministry) and the Uganda Electricity Transmission Company Limited (UETCL) and UEGCL in relation to the power sector projects funded by Exim Bank of China after the Energy ministry concluded engineering procurement and construction contracts for the two dams.

The two entities were appointed as “lead agencies in overseeing the performance of the EPC contractors, project supervision consultants and project managers.”

It is on the basis of this agreement, UEGCL argues, that it derives basis for its persistent red flags raised to the ministry against consulting supervisor Infratech PVT.

UEGCL says poor quality work will affect the operation and life of the dams and that since it is the firm that will manage the two dams, it will be rigorous in ensuring that all specifications are adhered to the letter.

Officials in the Energy ministry now fear this ping pong will slow down the two projects slated to be launched early 2018.

In tomorrow’s edition, read about the shoddy work and the monies at stake.

ABOUT THE PROJECTS

Projected to produce 600MW, Karuma dam was awarded to Chinese firm Sinohydro in June 2013, starting construction in December the same year. It is expected to be commissioned in December 2018. China committed to finance 85 per cent of the dam’s $1.6b (Shs5.6 trillion). Uganda borrowed Shs1.435b (Shs4.8 trillion) from China’s Exim Bank and obtained the balance from the country’s Energy Fund. This newspaper reported yesterday that only 30 per cent of the work had been accomplished two years into the project and the balance would be completed by December 2018. Sinohydro has completed excavation of the dam and intake channels.Isimba Hydroelectric Power Station is a 183 megawatts hydroelectric power project worth US $570million (Shs1.4trillion) under construction by China International Water & Electric Corporation.
The project is financed by a loan from China’s Export-Import Bank after Parliament gave government a nod to borrow $482.5 million (about Shs1.4 trillion) from China Exim Bank at two per cent annual interest repayable over 20 years. Uganda will contribute the remaining $107 million.

French oil major Total S.A has said it will finance the development of the $4b (Shs13 trillion) crude oil export pipeline from Uganda’s Albertine Graben to Tanzania’s Tanga port at the Indian Ocean.

Mr Javier Rielo, the Total East Africa vice president, on Monday, assured Tanzanian President John Magufuli that “the company will begin construction of the pipeline project to transport oil from Uganda to Tanga as soon as possible, for funds to implement the project exist.”

According to a statement by the Tanzanian presidency, the two held talks on Monday at the State House in Dar es Salaam.
Mr Rielo, said, the statement indicated that the company “intended to spend nearly $4b on the project.

The meeting was also attended by the Tanzanian Energy minister Sospeter Muhongo who, according to the statement, expressed readiness to kick start the project immediately.

The news of the financing the 1,410-kilometre (876-mile) pipeline comes two weeks after the President Museveni and President Magufuli, meeting on the sidelines of the 17th Ordinary East African Community (EAC) summit in Arusha, “agreed” to develop the infrastructure via the southern route.

Uganda and Tanzania had last year in October signed a Memorandum of Understanding (MoU) for the development of the project after, leaving the earlier proposed route via Kenya hanging in balance.

Following the Uganda-Tanzania deal early this month, Daily Monitor understands, Kenya has since put the spanner in works in a bid to salvage the deal—since the country is also currently in exploration stage for cumulative commercial oil quantities in the Northern Lockichar basin—and the pipeline project [from the Albertine via Lokichar to Lamu port] is an advantage to export its crude to the international market.

Kenyan deal
In 2013, Kenya and Uganda hired the Japanese engineering and consulting firm, Toyota Tsusho, to conduct a feasibility study on the proposed routes for the pipeline and recommended the Lamu route.

The route to Kenya is approximately 1,120km with a tagged cost of $4.5b (Shs14.9 trillion).
The International Oil Companies (IOCs) UK’s Tullow Oil PLC, Total E&P and China’s Cnooc, currently licenced to operate in Uganda, will finance the project.

An official in the Energy ministry told Daily Monitor that the Kenyan government had expressed “consternation” at the Tanzanian deal, but expressed immediate willingness “to revive” discussions with Uganda.

“They also want the deal badly,” the official said. Government technocrats were not ready to comment on either development.
Kenya and Uganda inked an MoU last October for the Lamu route but Kenya vociferously contested some of the preconditions such as guaranteeing upfront financing for project and the attendant infrastructure, guaranteeing transit fees/tariff not higher than any of the alternative routes, and most crucially guaranteeing security—since the project stop point [Lamu] at the Indian Ocean coast borders the restive Somalia to the North.

Daily Monitor also understands that Uganda and Tanzania are still furthering discussions on the southern route.

However, with both Kenya and Tanzania jostling for the deal and notwithstanding the MoUs, the official position of Uganda remains in suspense.

The pipeline is among the proposed key upstream infrastructure required before Uganda leaps forward to the next development/commercial production phases.

Other infrastructure included a $4b oil refinery, whose tender was last year awarded to Russia’s RT.

The refinery will be financed/owned in Public Private Partnership (PPP) arrangement with government in a 60:40 equity ratio.
However other East African countries are set to buy stakes in the project to facilitate its financing.

Capacity
Currently Uganda’s oil volumes stand at 6.5 billion barrels but there are indications could soon hit the 8 billion barrels mark.

Geothermal energy is clean, green, its carbon footprint on the environment is minimal.Since geothermal energy production began in Kenya in the 1980s, the technology has evolved to help make it a cleaner process.

The region's underground is a geothermal hotspot, harbouring hot water sources and steam at 300 degrees Celsius (572 degrees Fahrenheit) that is piped up to the surface from depths of up to 2,000 metres (6,500 feet). For many years, Kenya has relied on its hydroelectric network, which last year produced 820 MW. But recurring droughts have rendered this source of energy much less reliable than before.