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Congo (Kinshasa): Inga Dam Mirage Recedes, Again
AfricaFocus Bulletin
July 17, 2017 (170717)
(Reposted from sources cited below)
Editor's Note
The latest projections for the Inga 3 hydroelectric project on the Congo River to
become operational, cited in press reports last week, are 2024 or 2025. But even if
the project is financed and constructed, says a new report, the project will likely
provide only minimal electric power for the people of Democratic Republic of the
Congo and burden the country with more unsustainable debt.
According to the report, "The project will sell most of its electricity to South
Africa and to mines in eastern DRC. The report finds that losses along what would be
the world's longest transmission line to South Africa could leave very little power
available to the mines, and the Congolese people would receive little benefit in
increased electricity. Under the most likely scenario, 88% of the power would be sold
to South Africa, leaving just 90 MW for Kinshasa, rather than the 1000 MW claimed.
Under the worst-case scenario, no power at all would be available for sale to
consumers in Kinshasa."
This AfricaFocus Bulletin contains a press release and the executive summary of the
report from International Rivers, by economist Tim Jones. The full report is
available on the International Rivers website, http://www.internationalrivers.org
(direct URL: http://tinyurl.com/y8o4olgu)
For a summary background story on criticisms of the project, see
Adam Wernick, "Congo pushes for a mega-dam project, with no environmental impact
studies," PRI, July 3, 2017
http://tinyurl.com/y76o55qm
For an update on the latest developments in plans for Inga 3, see Christophe Le Bec,
"RDC: pour sauver le barrage hydroélectrique Inga III, l’union fait la force, Jeune
Afrique, 12 July 2017
http://tinyurl.com/yc7gmbo3
For an article providing extensive background on the history of plans to dam the
Congo River for hydroelectric power, see Charles Kenny and John Norris, "The River
that Swallows All Dams," Foreign Policy, May 8, 2015
http://tinyurl.com/laadz7v
For previous AfricaFocus Bulletins on Congo (Kinshasa), visit
http://www.africafocus.org/country/congokin.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Inga 3 Dam Risks Plunging DRC Deeper Into Debt
New report finds that DRC likely to suffer financial losses, continuing energy
poverty if hydropower project advances
International Rivers, June 27, 2017
http://www.internationalrivers.org - direct URL: http://tinyurl.com/y9g9kssh
Today, International Rivers is releasing the first in-depth economic study of the
proposed Inga 3 hydropower project in the Democratic Republic of Congo (DRC).
Authored by noted British economist Tim Jones, "In Debt and In The Dark" exposes
glaring flaws in the assumptions about the dam's likely performance. The report finds
that Inga 3 will likely plunge DRC deeper into debt, exporting needed power and
delivering little, if any, to Congolese citizens while allowing international
investors to reap the benefits.
The power from Inga 1 dam, which began operations in 1972, is far from sufficient
even for the capital Kinshasa.
Credit:
I, Alaindg, CC BY 2.5
"Claims about the benefits of Inga 3 are wildly overstated," says Jones. "In fact,
the dam would be a huge financial burden for the government and the Congolese people
and provide little if any electricity."
From the outset, Inga 3 has been plagued by dangerously optimistic assumptions about
the dam's performance, including power output well above the world's most efficient
plants, zero cost overruns, and unrealistically low transmission losses.
Using empirical evidence from the performance of similar hydropower projects in
Africa and globally, Jones tested proponents' claims regarding Inga 3's socioeconomic
benefits. He then forecasted the dam's potential performance across a range of
scenarios.
His findings highlight the serious financial risks associated with the Inga 3
hydropower project, and should be deeply concerning to the DRC government, potential
investors, and the Congolese people.
"The DRC is one of the most resource-rich countries in the world, but suffers from
massive energy poverty," says Freddy Kasongo of Observatoire d'Etudes et d'Appui à la
Responsabilité Sociale et Environnementale (OEARSE).
Emmanuel Musuyu of Coalition des Organisations de la Société Civile pour le Suivi des
Réformes et de l'Action Publique (CORAP), adds, "Unfortunately, this study shows that
the Inga 3 Dam will further impoverish the DRC without delivering the energy that we
need."
The analysis shows that in the most likely scenarios, the DRC government will lose
money on Inga 3. Even with fairly conservative estimates of cost overruns and
generous assumptions of power generated, electricity prices, and low interest rates,
DRC would stand to lose $618 million per year on the project, or nearly $22 billion
over the project's 35-year lifespan.
These financial losses could run as high as $1.5 billion to $2 billion per year under
unfavorable conditions – up to $70 billion over the project's lifespan – ballooning
DRC's debt levels and harming its long-term economic health.
"Not only will Inga 3 bring in no revenue, it will likely increase DRC's debt
burden," says Rudo Sanyanga, International Rivers' Africa Program Director. "And it
won't bring much-needed electricity access to the Congolese people. This would be a
disastrous investment for the DRC."
The project will sell most of its electricity to South Africa and to mines in eastern
DRC. The report finds that losses along what would be the world's longest
transmission line to South Africa could leave very little power available to the
mines, and the Congolese people would receive little benefit in increased
electricity. Under the most likely scenario, 88% of the power would be sold to South
Africa, leaving just 90 MW for Kinshasa, rather than the 1000 MW claimed. Under the
worst-case scenario, no power at all would be available for sale to consumers in
Kinshasa.
International Rivers' study shows that the DRC could achieve greater energy access
for its population if it used the funds intended for Inga 3 on micro-hydropower and
solar energy. Such investment would support the DRC to generate enough electricity to
increase access by an estimated 2.7 million people throughout the country.
Kate Horner, Executive Director of International Rivers, says, "If the DRC wants to
become a true economic leader that sets a model for energy access in Africa, it
should press the pause button on the Inga 3 Dam and instead explore energy solutions
that can make a lasting difference for the Congolese people."
[International Rivers is a global NGO with offices on four continents. It protects
rivers and defends the rights of communities that depend on them.
Media contacts:
Rudo Sanyanga, Africa Program Director, International Rivers |
rudo@internationalrivers.org | +27 76 842 3874
Josh Klemm, Policy Director, International Rivers | jklemm@internationalrivers.org |
+1 202 492 8904
Emmanuel Musuyu, Technical Secretary, CORAP | emmamus42@gmail.com | +243 81 169 7699]
In Debt and In the Dark: Unpacking the Economics of DRC's Proposed Inga 3 Dam
by Tim Jones
International Rivers, June 2017
http://www.internationalrivers.org - direct URL: http://tinyurl.com/y8o4olgu
Executive Summary
The Democratic Republic of Congo (DRC) needs reliable energy to power economic
development and increase its prestige and standing in Africa. Although it's one of
the most resource-rich countries in the world, the DRC suffers from massive energy poverty. In 2012, only 16% of Congolese had
access to electricity, and outside of big cities, this number drops to less than 6%
– less than one of every 15 people. This energy deficit stunts economic development,
as evidenced by the DRC having the lowest GDP per capita of any country in the world
in 2013.
In its bid to address these urgent needs for electricity and economic development, the DRC government has pinned its hopes
while other countries and international on the Congo River's Inga 3 Dam, the first in a planned series of hydropower
projects known collectively as Grand Inga.
In its bid to address these urgent needs for electricity and economic development,
the DRC government has pinned its hopes on the Congo River's Inga 3 Dam, the first in
a planned series of hydropower projects known collectively as Grand Inga. Proponents
of Grand Inga say that the project would harness the mighty Congo River and act as a
battery for the continent, exporting power to all corners of the continent and even
as far away as Europe.
This report analyzes the Inga 3 project to under-stand whether the dam will
accomplish its goals of energy production and economic gain to benefit the DRC. Our
analysis finds that Inga 3, in most scenarios, will sink the DRC deeper into debt
while other countries (notably South Africa) and international investors reap the
benefits.
The DRC should hit the brakes on Inga 3 and repurpose its investment share into
alternative ways of powering mines in Katanga and bringing electricity and
development to the Congolese people. DRC can power its future – and become a model
for energy development on the African continent – by making visionary investments in
small hydro, micro-hydro and solar energy.
Inga 3 Background
Inga 3 has a stated capacity of 4,800 MW, and its power is primarily intended for
export to South Africa and mining companies in eastern DRC. Any remaining power would
be sold to consumers in the capital, Kinshasa. The proposed dam and hydropower
project is planned as a public-private partnership involving investment by both the
DRC government and a consortium of private international companies.
Proponents of the project argue that Inga 3 will help reduce poverty and boost shared
prosperity in the DRC by:
- generating revenues for the DRC government, which could be allocated to poverty
reduction pro-grams;
- providing electricity to more people in DRC; and
- creating jobs in a country with a chronically high unemployment rate.
Methodology
To examine these claims, we analyzed the project proponents' claims based on Inga 3's
likely technical and financial performance. We used empirical evidence from the
performance of similar hydropower projects in Africa and globally to test the claims
regarding Inga 3's socio-economic benefits.
Our analysis lays out five possible scenarios for the socioeconomic performance of
the Inga 3 project: best, good, median, worse, and worst-case scenarios. The bestcase
scenario is based on the highly optimistic and favor-able conditions assumed by
the project's proponents; our analysis discusses the factors that make these
assumptions unrealistic. The worst-case scenario, on the other hand, assesses the
project under highly unfavorable conditions. While equally unlikely as the best-case
scenario, this scenario demonstrates the enormous risks that Inga 3 creates for the
DRC government. The median-case scenario presents our assessment of the most likely
outcomes, using the most realistic assumptions of project performance.
Revenue Generation
Proponents claim that Inga 3 will lead to a significant increase in revenue for the
government, which can then be invested in underfunded sectors such as health and
education. We conducted a financial analysis to determine the likely revenue levels
for the DRC government, under the five scenarios, based on construction and operating
costs, price and amount of power sold, technical losses, and borrowing costs. Our
analysis shows that Inga 3 could generate modest revenues under highly favorable
conditions in the best and good-case scenarios. However, under the worst, worse, and
most realistic median-case scenarios, Inga 3 would not even cover the DRC
government's debt payments for the project, let alone constitute a windfall that
could fund development priorities. It would instead become a significant drain on the
country's finances. Figure 1 illustrates the financial benefits and costs associated
with each of the five scenarios.
According to this analysis, under the best-case scenario, Inga 3 would generate $749
million per year for the DRC government. This scenario is, however, based on highly
unlikely and optimistic assumptions, including zero cost overruns, a capacity factor
well above the world's most efficient hydropower plants, high prices for the
electricity generated, very low transmission losses, and low rates of interest on
financing that do not in-crease for 35 years. Furthermore, even if these assumptions
were met, it is likely that a portion of the $749 million would accrue to the private
investors as profit, rather than to the government.
In the good-case scenario, Inga 3 offers a marginal return of just $78 million per
year for the DRC government. This scenario is based on slightly less optimistic
assumptions compared to the best-case scenario. Thus, even if all assumptions in the
good-case scenario are met, the DRC government would still receive only a modest
financial return.
In the median, worse and worst-case scenarios, the DRC government will lose money on
Inga 3. The median case – with fairly conservative estimates of cost overruns and
generous assumptions of electricity tariffs, capacity factor, transmission losses,
and interest rates – would result in a loss of $618 million per year. These financial
losses could be as high as $1.5 billion per year in the worse scenario and over $2
billion per year in the worst-case scenario, demonstrating the extreme risk that Inga
3 poses to the country's fragile financial position.
Increase in Access to Electricity
Project proponents claim that Inga 3 will increase access to electricity in the
country. Our analysis, however, shows that increased electricity access, if any,
would be quite limited. The project will sell most of its electricity to South Africa
and to mines in the Katanga region. In the median-case scenario, only 3% of
electricity from Inga 3 would be available to non-mining businesses and residents of
Kinshasa. In this median scenario, Inga 3 would provide electricity for only 340,000
additional people in Kinshasa, without any impact on electrification rates in other
cities and rural areas, where the need is greatest. Under the worst-case scenario, no
power at all would be available for sale to consumers in Kinshasa.
After observing the limited potential energy access benefits of Inga 3, we examined
alternative ways to in-crease energy access in the DRC and compared them with Inga 3.
DRC could achieve more energy access for its population if it used the funds intended
for Inga 3 on other energy sources. The cost of the Inga project is currently
estimated at $14 billion, with the DRC government expected to contribute $3 billion
obtained via concessional loans. Private partners would provide the balance of $11
billion. Our analysis showed that if the DRC government spent that $3 billion on
other sources of energy, including micro-hydropower and solar energy, it could
generate enough electricity to increase access by 2.7 million people and to increase
average electricity consumption by 48 percent.
Our analysis also shows that consumers would pay much less for electricity from
micro-hydro than for electricity from Inga 3. Electricity from micro-hydro would cost
between US 1.8 cents and 3.1 cents per kWh, well below the 7–8 cents per kWh
projected as the cost of electricity for domestic users in Kinshasa from Inga 3.
Furthermore, developers could build micro-hydro at many sites across the country,
thereby achieving a far higher geographical distribution of electricity than Inga 3
and reaching more people in rural communities.
Our analysis demonstrates that investing in solar photovoltaic (PV) electricity,
while not as attractive as micro-hydro, would still outperform an investment in Inga
3. The DRC would still bear significant financial risk if it used the concessional
funds solely for solar PV, though less so than Inga 3. It would also achieve a high
geographical distribution of power across the country and provide electricity to more
people across more diverse areas. Globally, the rapid scaling up of solar PV
technology has seen prices fall rapidly. Consequently, the return on investment in PV
power is likely to enjoy progressive increases with time. Our analysis showed that an
extra 960 million kWh to 3 billion kWh of PV power would enable between 400,000 and
1.5 million more people to gain access to electricity, and electricity consumption
would increase by between 6% and 21% for those with access. Similar to micro-hydro,
investing in solar would outperform an investment in Inga 3.
Our report therefore demonstrates that the DRC is more likely to meet its objectives
of energy production and economic gain if it redirects funds intended for Inga 3 to
micro-hydro and PV power.
Job Creation
Project proponents claim that Inga 3 would create jobs. Our analysis shows that Inga
3 is not likely to create significant numbers of jobs, and would actually destroy
more livelihoods than it creates. The national electricity company, Société Nationale
d'Electricité (SNEL), estimates that the construction phase would create 3,000 jobs
on average, with a peak of 7,000 additional jobs. After construction is finished, the
number of direct jobs would likely fall to a few hundred. In economic terms, our
analysis shows that it would cost $1 million in concessional loans to create just one
temporary job during the construction phase, and $6 million in concessional loans to
create one permanent job during dam operation.
In contrast, an estimated over 10,000 people would be displaced and therefore stand
to lose their livelihoods from loss of land or fishing resources because of the dam.
This figure significantly outweighs the number of people who would gain livelihoods
from the few hundred jobs generated.
Impact on DRC's Debt
Inga 3 will require large external borrowing by the DRC government. The most recent
figures from the International Monetary Fund (IMF) and World Bank say the DRC
government's external debt is $6.5 billion, which is 16% of GDP for 2016. Under the
best-case scenario, Inga 3 will lead to $3 billion of new debt for the government,
rising to $6 billion in the worst case. The new debt will increase government
external debt from $6.5 billion (16% of GDP) to between $9.5 billion and $12.5
billion (24% to 31% of GDP), and could change the IMF and World Bank's assessment of
DRC from being at moderate risk of debt distress to high risk of debt distress. Such
an assessment would further reduce the number of lower-interest loans available to
DRC from various public bodies, ex-tending the DRC's cycle of poverty and
indebtedness to foreign lenders.
Key Findings
- Construction of Inga 3 is likely to cause a financial loss for the DRC government
and become a drain on the country's limited financial resources, rather than a source
of new revenues.
- In the most likely scenarios, Inga 3 would generate little electricity for domestic
users in the DRC. In the worst-case scenario, domestic consumers would receive no
additional power at all.
- Inga 3 would lead to a large increase in external government debt, risking a
downgrade in the risk assessment of DRC's debt distress and harming DRC's long-term
economic health.
- If DRC invested its limited concessional loans in other energy options, that
electricity would reach far more users at lower cost and in more diverse places, and
create greater economic gain.
- Inga 3 risks destroying more livelihoods than jobs that it would support.
In conclusion, our analysis shows that if the DRC wants to achieve its stated goals
of increased energy access and economic development, and become a true economic
leader that sets a model for energy access in Africa, the DRC should press the pause
button on the Inga 3 Dam and instead explore micro-hydro and solar power.
AfricaFocus Bulletin is an independent electronic publication providing reposted
commentary and analysis on African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by William Minter.
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