Q&A with the African Development Bank

IWP&DC: Could you give a quick overview of African Development Bank (AfDB) funding for hydropower and dam projects across the region.

Roger Gaillard: In the last five years, the total amount provided by the bank for hydropower and dam projects is in the range of US$300M. The capital cost of these projects is actually three to four times larger thanks to the leveraging of other donors, government contributions and private investors shares. The regions/countries that have benefited the most are Western Africa, the Niger Basin, Uganda, Sierra Leone, and Madagascar.

The major part of this funding was devoted to new projects. Refurbishment efforts remained modest with the Massingir dam rehabilitation project in Mozambique.

Is the bank focusing more on funding for refurbishment as opposed to new projects?

The bank provides funding for both refurbishment and new projects that meet its social and environmental standards. Africa has tapped only a small fraction (4%) of its hydropower potential (estimated at 1750TWh), so the scope for new projects is large. The challenge remains that much of Africa’s energy potential is far from the urban centres where it is most needed. Regional energy schemes that encourage the creation of regional markets will be important.

Are there certain countries that have received more funding over the past five years? If so, why?

Obviously the activities and efforts of the bank to support hydropower projects are concentrated in areas where there are large river basins with untapped potential for hydropower such as the Fouta Djalon in West Africa, Zambezi and Nile river basins, Congo river basin, Niger river basin, Cameroon, Ethiopia, etc.

Overall, the African Development Bank Group’s mission is to help reduce poverty, improve living conditions for Africans and mobilise resources for the continent’s economic and social development. With this objective in mind, the institution aims at assisting African countries – individually and collectively - in their efforts to achieve sustainable economic development and social progress.

Like other development banks, the AfDB promotes the investment of public and private capital in projects and programmes that are likely to contribute to the economic development of its stakeholders. The bank therefore finances projects run either by the government or the private sector.

The AfDB works with each borrowing regional member country to define a medium- to long-term development strategy and operational programme in a document called a country strategy paper. The paper considers performance and results, is aligned to the country's own development plan and poverty reduction goals, and its preparation or planning cycle. This assessment and planning document guides much of the work in each country. In addition, sector strategies guide overall priorities in their respective sectors.

In 2010, infrastructure made up 71% of the Bank’s portfolio of approved projects.

Has bank funding for African hydropower and dam projects increased or declined over the past ten years?

The bank’s funding for hydropower and dam projects remained more or less steady during the last ten years. Nevertheless, in recent years, the bank has funded a series of feasibility and detailed studies (the Gambia River Basin Development Project and Inga in the Democratic Republic of Congo are major examples) that will lead to projects worth several billion dollars in investments in the coming years.

Can you give examples of current Bank projects that are live in Africa?

In the Democratic Republic of the Congo, the bank is currently financing a feasibility study of the Inga River to identify the optimal site for hydropower development. The project is significant not only for the DRC but for Africa as a whole, as it has the potential to provide one-third of Africa’s current power through clean, low cost energy (up to 40,000MW).

Meanwhile the Bujagali hydroelectric power plant in Uganda will mean fewer blackouts and brownouts and will reduce the need for expensive, polluting back-up generators. The plant is a 250MW run-of-the-river power plant. The project includes upgraded transmission lines and 100km of new lines as well as upgraded and new substations. The total project cost is US$736M. The bank is contributing US$110M towards the power project and US$27M for interconnection.

The OMVG energy programme in West Africa will improve access to electricity in four countries: Senegal, Gambia, Guinea Conakry and Guinea Bissau. It will be the largest integrated hydropower scheme in Western Africa, with two hydropower plants totaling a capacity of 368MW. Approximately 1700km of overhead lines will connect the four countries and later other countries in the region. It is a substantial contribution to a regional energy market. The project includes: two hydropower plants, 15 substations, and 1700km of transmission lines. The total estimated cost is US$1.27B.

In Madagascar, the 15MW Sahanivotry hydropower plant generates 90GWh on average, supplying 10% of the island’s electricity. It is privately owned and operated and is Madagascar’s first project to earn the right to sell carbon credits through the Clean Development Mechanism. The project cost was US$13M with the African Development Bank providing US$6M.

In Sierra Leone, the Bumbuna hydroelectric project will provide a 50MW hydroelectric power station and a 200km transmission line and associated substations to distribute electricity from Bumbuna to Freetown and nearby villages. The goal is to complete a project begun in 1990 that was interrupted by civil strife. When complete, it is expected to lower the country’s annual fuel bill by US$11.5M, thereby reducing Sierra Leone’s trade deficit by 5-6%. Completing the project is expected to cost US$57M. The AfDB is contributing a US$16M loan.

The Kandadji project in Niger includes the construction of a 1.6B m3 dam to regulate the flow of the Niger River to provide water for irrigation, water supply and sanitation, etc. The electricity by-product will be a source of revenue. The dam is necessary to help address Niger’s recurrent drought. The bank is providing US$62M in loans and grants.

Please give one good case study of a project that the bank has been working on in Africa.

The Bujagali hydroelectic plant is a 250MW project on the White Nile in Uganda. It is located at Bujagali Falls, about 5m from the source of the Nile in Lake Victoria. Uganda’s current generation capacity is 283MW. This plant will double its current capacity and bring the price of electricity down from 24 to 11 cents per kWh.

It is also one of the largest private equity investments in the hydropower sector in Africa. As part of the financing arrangement, the AfDB guaranteed the debt provided by the commercial lenders through a partial risk guarantee, effectively protecting lenders from a default by the host country government. This, in combination with other carefully planned and innovative financing arrangements, enabled the deal to go forward and close in just under two years.

As noted above, the project includes upgraded transmission lines and 100km of new lines as well as upgraded and new substations. The total project cost is US$736M. The Bank is contributing US$110M towards the power project and US$27M for the transmission lines, which are being constructed as a separate but linked project.

Construction of the transmission lines is about 80% complete. There is ongoing work to secure the remaining access rights to the transmission corridor. Construction of hydroelectric plant is progressing well.

Looking to the future, is AfDB-funded support for hydro and dam projects likely to increase?

Support for projects will certainly increase, in part as a result of efforts to prepare projects through studies and advisory services and in part due to the increased attractiveness of the renewable energy sector. This is thanks to more adequate concessional financing resources mobilised by the international community for the struggle against climate change.

Africa has 20% of the world’s hydropower potential but only uses a small fraction of that capacity. Currently, there is renewed and active global interest in developing that capacity. Demand for electricity in Africa’s is expected to grow at about 3.5% per year for the next two decades, meaning electricity consumption will double within the same period. The high price of crude oil continues to have an impact. In addition, there is growing government and public awareness of the potential for green growth to mitigate greenhouse gas emissions and take advantage of new growth opportunities through renewables.

The AfDB is committed to reducing poverty in Africa, and increasing access to energy is a key part of that commitment. Under its forthcoming energy strategy, clean technologies, like hydropower, play a major role. Over the next three years, the AfDB intends to invest more than US$3.5B in improving energy access, with more than a third of it going to renewable energy under its new energy strategy.

The bank has been approached by several of its member countries for funding various hydropower and dam projects in the short term. These projects are at various stages of the bank instruction process, ranging from identification to final appraisal for submission to its board during the coming months.

The most significant projects are:

• The Itezi Tezi 120MW plant in Zambia.

• The 60MW Rusumo Falls multinational project in East Africa.

• Geba project in Ethiopia.

• Félou and Gouina schemes for OMVS in Western Africa.

• Lompangar power plant in Cameroon.

• Boali Scheme in the Central African Republic.

It is worth noting that the evaluation and appraisal activities on these projects will always focus on assuring that they meet the social and environmental standards of the bank prior to the decision to finance.

Roger M. Gaillard can be contacted via email at the African Development Bank: r.gaillard@afdb.org