SINOHYDRO’s decision to take control of the Memve’ele dam project in Cameroon is just the latest in a long line of Chinese support for hydro schemes in Sub-Saharan Africa. While many of the contracts are undoubtedly motivated by commercial considerations, they appear to be part of the Chinese government’s wider policy towards the region. In a strategy that has been dubbed power plant diplomacy, Beijing is helping to develop African infrastructural projects in an apparent attempt to gain control over a wide array of natural resources, from oil and gas to copper and iron ore.
Globeleq had originally planned to develop the Memve’ele project. The British company, which is an offshoot of CDC Corporation (previously called the Commonwealth Development Corporation), invests in power schemes in developing countries that can improve living standards as well as generate profits. It intended to develop the scheme through its local subsidiary, Sud Energie, via a build own operate transfer (BOOT) contract that would see ownership transferred to the government of Cameroon after 20 years.
However, Globeleq withdrew from the scheme in May 2009, less than two years after signing the BOOT contract. The government appeared to have changed its mind about the structure of the deal and objected to the fact that it would take two decades to secure ownership. Sinohydro signed its own preliminary agreement to construct the project in September this year and a government spokesperson revealed that the final agreement is expected to be completed in the near future.
The scope of the project, however, will remain unchanged. A total of 200MW of generating capacity will be installed at Memve’ele on the Ntem River, with first electricity due by December 2014. At the conclusion of the preliminary agreement, the minister of energy and water resources, Michael Ngako Tomdio, commented: “I hope everything will be done rapidly so that Sino Hydro Corporation can begin work at the latest early next year.”
New transmission infrastructure will also be developed by the Chinese firm in order to connect the scheme to the rest of the national power grid and also to neighbouring states. Yaoundé has a set a target of boosting national generating capacity to 2GW by 2015, with much of the additional output provided by Memve’ele and other new hydro and gas fired power plants used to generate export revenues. It is believed that Equatorial Guinea, Gabon and the Republic of Congo could all import Cameroonian hydroelectricity, although some output will also be used to boost supplies to the south of Cameroon.
Memve’ele project director Dieudonné Bisso has pledged that a comprehensive social and environment impact assessment will be carried out, with all displaced and affected people given support to resettle. He said that many of those affected would be offered employment in the construction phase of the venture. Project finance of CFA 365B (US$814M) is expected to be provided by the Export Import Bank of China (Exim Bank China), confirming that Sinohydro’s participation is supported by Beijing.
Regular readers of IWP&DC will be aware of a number of other similar Chinese deals in Africa. Sinohydro itself is already developing the long awaited 400MW Bui scheme in Ghana, has held talks with the government of Zambia over the expansion of the Kariba Dam in Zambia, and is constructing the 300MW Tekeze Hydro Power Project (THPP) in Ethiopia, but it is not the only Chinese company interested in Africa’s hydro potential. China International Water & Electric Corporation is a member of a consortium developing the 1250MW Merowe Dam in Sudan, while China National Machinery & Equipment Import & Export Corporation is building two smaller dams in Gabon.
China does have a track record of investing in Africa. Beijing helped to fund a series of projects in the 1970s as part of a Cold War diplomatic strategy to support countries with left wing governments. As a result, Chinese money and manpower constructed the Tanzania-Zambia Railway (Tazara) to reduce both countries dependence on Apartheid era South Africa. Beijing’s interest in the region waned during the 1980s and 1990s but has re-emerged in recent years.
Massive increases in commodity prices between 2004 and 2008 were in large part fuelled by sustained Chinese annual economic growth of 10%, as the volume of shipments of hydrocarbons and mining products to China increased relentlessly. Chinese companies have often been unable to compete with the established international oil and mining firms that dominate many African economies but by tying infrastructural investment to raw materials concessions, they are able to offer something beyond the deals provided by their western competitors.
Oil or copper concessions are sometimes explicitly tied to infrastructural investment but more often the connection between the two is implicit. Wide ranging intergovernmental agreements between Beijing and African states are often agreed on a bilateral basis, to be followed by more specific deals between those African nations and Chinese companies regarding individual projects that had previously been agreed only in principle. The fact that many Chinese firms are entirely or partly state owned obviously provides the Chinese government with a great deal of influence over investment policy.
From the point of view of African governments, such investment is greatly welcomed. Hydro schemes account for most power production outside North Africa and South Africa, while most of the continent’s hydro potential remains untapped. Yet local power companies generally lack the financial muscle to develop new projects, while foreign firms from most of the rest of the world have avoided investing in Africa because of the lack of revenues on offer. As a result, relatively few large hydro projects have been completed on the continent since a spate of dams were constructed during the first wave of optimism following the independence era of the early 1960s. The fact that Chinese firms are prepared to construct dam projects, as well as railway, port and other much needed infrastructural ventures, is therefore generally embraced by cash starved African governments.
In addition, the development of the 18.2GW Three Gorges Dam, 15.8GW Yellow River and 12.6GW Xiluodu projects have helped China to build on its already substantial supply of hydro sector expertise, providing a training ground for thousands of engineers and other industry specialists. Beijing’s power plant diplomacy has given the industry an opportunity to further its expertise in a variety of challenging environments, helping to generate yet more export revenues in the process.
Bui underway in Ghana
One of the most high profile African hydro schemes to be developed by a Chinese firm is the Bui dam on the River Black Volta in Ghana’s Brong Ahafo region. Successive Ghanaian governments have sought to develop the project in order to reduce the country’s reliance on the 1020MW Akosombo Dam and also to reverse the country’s decline from net power exporter to importer but foreign developers and even international financial institutions were reluctant to fund the venture, partly because it will result in the flooding of a large area of Bui National Park, thereby displacing a rare population of hippos.
In April 2007, however, Sinohydro finally put pen to paper on a $622M build operate transfer (BOT) contract for Bui, with almost all funding provided by Chinese sources. The Chinese government has supplied a $270M low interest loan, while Exim Bank China has provided a $292M buyer’s credit facility, leaving Accra with just a $60M contribution. Some western governments and development agencies have criticised this and other hydro schemes for generating more African debt at a time when real progress has been made on debt reduction, particularly through the World Bank’s enhanced highly indebted poor countries (HIPC) scheme.
The Ghanaian government argues that the boost to the economy will more than compensate for increased debt repayments but the lack of transparency on the terms of credit encourage criticism of such arrangements. However, it could be argued that the apparent absence of guarantees on governance and social benefit leave African governments with more room for manoeuvre. Apart from providing much needed electricity, it is hoped to irrigate 30,000ha of agricultural land and create a tourist centre.
Generating capacity of 400MW will be provided by three turbines and a 110m high roller compacted concrete (RCC) dam. Phase two of Bui began in December last year, when the river was blocked in preparation for the construction of the main dam, power house and spillway. Bui lies within the same river system as Akosombo, which has been affected by droughts over the past decade, but Accra is confident that Bui will improve the power supply situation, providing electricity for northern Ghana and also Togo and Burkina Faso via the West African Power Pool (WAPP). At present, most power consumed in the north is generated at the Akosombo Dam in the south and so the national power company, the Volta River Authority (VRA), suffers substantial transmission losses in transferring electricity across the country.
Sinohydro also signed an engineering, procurement and construction contract with Zambia Electricity Supply Ltd (Zesco) in November 2007 to expand the Zambian portion of the Kariba scheme. The other half of the project is located in Zimbabwe but the $243M Kariba North Bank project will provide Zambia with an additional 360MW of generating capacity and therefore offers a good ratio of investment to MW. Exim Bank China is again involved, providing $206M.
Construction work is already underway and is scheduled for completion in 2012 when Zesco hopes to step up the pace of its rural electrification programme, although some of the new power production could be consumed by the mining sector. At present, Zesco relies on importing electricity from the rest of the Southern African Power Pool (SAPP) during periods of prolonged low rainfall but rising consumption elsewhere in the SAPP and South Africa’s growing power supply problems mean that this may become a more unlikely option in the future, with SAPP tariffs expected to increase.
Perhaps the biggest prize in Africa in terms of securing access to natural resources is Nigeria. With the continent’s biggest oil and gas reserves, it has certainly attracted the attention of Chinese investors, including China National Offshore Oil Corporation (CNOOC), which paid $2.3B for a 45% stake in Nigeria’s OML 130 concession in January 2006, while further investment in oil assets has been made. However, many planned infrastructural projects have stalled, including $8.2B of promised Chinese investment in railway modernisation and the development of the 3.9GW Mambila Dam by China National Machinery & Equipment Import & Export Corporation, as a host of contracts signed by the previous government of President Olusegun Obasanjo are reviewed by the new administration. The fate of the Mambila venture has therefore yet to be decided.
In March, Sinohydro signed a deal with the Benin Electricity Corporation (CEB) to develop the 147MW Adjarala hydro scheme on the Mono River, which forms part of the border between Benin and Togo. According to Chinese sources, the contract is worth EUR282M and the scheme is scheduled to come on stream during the first half of 2013. Benin and Togo, which will jointly own the project, have both relied heavily on imported electricity from Ghana and Nigeria for many years but could now become net exporters to the WAPP. The completion of Adjarala could make it less likely that spur pipelines from the West African Gas Pipeline (WAGP) will be developed to transport Nigerian gas to Togo and Benin, as all of the WAGP target states increase their hydro generating capacities.
Tekeze on the brink
On the opposite side of the continent, a consortium of Sinohydro-CWHEC (49%), China Gezhouba Water and Power Group (30%) and local firm Sur Construction (21%) is developing the Tekeze scheme in Ethiopia. With a height of 185m, the dam will be higher than that employed in the Three Gorges project, although expected generating capacity is far more modest at 300MW. All output will be sold to the Ethiopian Electric Power Corporation (EEPC) under a long term power purchase agreement (PPA). Dam construction was completed in February and the first of its four 75MW turbines will be brought on stream by the end of this year, two and a half years after first electricity was originally expected.
More recently, in September, the Ethiopian Electric Power Corporation (EEPCo) announced that it had signed agreements with Chinese firms for another two hydro schemes. Sinohydro is to construct the $555M Chemoga Yeda project, which will comprise five dams on five rivers in Amhara state. No details of generating capacity were given. The second contract was awarded to the China Gezhouba Water and Power Group for the development of the 254MW Genale Dawa III scheme in the south of the country, on the border of Somali and Oromia states. Located on the Genale River, it will include a 110m high dam and is priced at $408M, with first electricity due in 2013.
If all of these schemes, together with a series of projects without Chinese involvement, are completed as planned, the Ethiopian government could fulfil its ambition of becoming a net power exporter within a decade but at present the country continues to suffer from power rationing. It has been reported in the Ethiopian press that supplies have been cut every second day over the past six months.
The biggest hydro project in Africa with Chinese support is the Merowe Dam in neighbouring Sudan, although China International Water & Electric Corporation is just one member of the development consortium, which also includes Cegelec of France and German firm lahmeyer. However, Exim Bank China is also providing a EUR240M (US$353M) loan, as Beijing continues to demonstrate that it is one of Sudan’s closest allies in the international community. Many foreign firms have fought shy of investing in the country because of accusations that such support has helped fuel conflicts in south Sudan and Darfur. Yet China National Petroleum Corporation (CNPC) is now the biggest investor in the Sudanese oil industry, prompting Beijing to support a range of infrastructural projects in the country.
The additional generating capacity provided by Merowe will be welcomed, given that Sudan continues to be affected by power cuts. The first 250MW phase of the project came on stream in March but power shortages were reported as recently as July. According to the Sudanese government, all 1250MW should be in place by the end of this year, greatly increasing total Sudanese capacity. As a result, the Sudanese ministry of energy and mining has announced that power tariffs will be reduced by 25-30% next July.
Outlook
It may seem unwise for African governments recently freed from most of their debt burden to be accepting new loans, on whatever terms. Yet the lack of access to electricity and the unreliable nature of many power systems on the continent remain two of the greatest obstacles to more rapid economic growth and improved living standards. While 98% of North Africans have access to electricity at home, the figure is much lower in most of Africa, falling to 5-10% in Uganda, Malawi, Burkina Faso, Democratic Republic of Congo and Mozambique, while the lack of reliable figures for a host of other countries suggests that electrification may have made even less progress elsewhere.
More investment in thermal power projects and renewables would produce a more balanced generation mix but large hydro remains the cheapest option for most African nations, particularly away from the coastal strip. The Chinese government and Chinese companies are prepared to invest billions of dollars in African hydro schemes that have been on the drawing board for decades but which have remained undeveloped because other governments and private sector firms are either unwilling or unable to develop them.
It is therefore understandable that so many African governments are prepared to accept such investment, even at the risk of inflating their national debt. With so many infrastructural projects awaiting construction and so much untapped hydro potential in Africa, it would not be surprising if this wave of Chinese investment in African hydro were to continue for many years to come.
