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DRC short-circuits power supply

Roman Grynberg

Southern African countries bear the brunt of ambitious plans gone awry, writes Roman Grynberg.

Engineers inspect equipment at a semifunctional hydropower plant on the Congo River. (Marlene Rabaud, Reuters)

For many years the Democratic Republic of Congo (DRC) has proposed the development of new hydropower plants along the Congo River.

In the early post-independence phase, it developed the Inga I and II dams, which supplied the country with what has become increasingly intermittent hydroelectric power. The government now wants to develop the Inga III dam on the river, which will produce somewhere between 4000MW and 5000MW of electricity a year.

But the intentions of the DRC go well beyond this. Over time, it wants to develop the Grand Inga Dam project, which will provide 40000MW of electricity at a staggering cost of $80-billion to $100-billion. The dam will be twice as large as the Three Gorges Dam in China – the world’s largest in terms of electricity production.

The World Bank estimates that the Congo River, if properly used, could generate up to 100 000MW of electricity a year – enough to supply the entire Africa for decades to come.

When South Africa began running out of electricity from its ageing thermal plants at the beginning of this century, a new project, Westcor, was established in 2003 to bring the DRC’s vast hydroelectric resources to an increasingly energy-starved Southern Africa.

Memorandum of understanding
The project had the backing of the New Partnership for Africa’s Development and the Southern African Development Community (SADC) and would have directed electricity through a new western corridor to Angola, Namibia, Botswana and South Africa.

The SADC members even signed an interutility memorandum of understanding and an intergovernmental memorandum of understanding with the DRC to develop the Inga III dam. Namibia, Botswana and Angola were to share 1000MW of the project when it peaked in 2015.

With the DRC winding down from the largest war in Africa’s history, there was no way it could develop such a project alone – and so its neighbours agreed to buy the electricity and help to develop the dam. Initially all seemed well, but cheap electric power results in a fiendish “addiction” for big users and the worst “addict” is probably the aluminium industry.

About 60% of the cost of aluminium is the electricity used to refine it. As a result, mining companies are willing to ship their bauxite to the most remote locations to take advantage of cheap power.

In Mozambique, BHP Billiton managed to use a large amount of that nation’s cheap electricity from the Cahora Bassa Dam to power the Mozal I and II project’s smelters. The Mozal plants produce 500000 tonnes of aluminium a year. By the mid-2000s the Mozambican government made it clear that it had no interest in the further expansion of Mozal III because there was not enough electricity available.

Embedded derivative
In the late 1990s, Mozambique – desperate for investment after its economy had been virtually destroyed by decades of the liberation struggle and civil war – had agreed to give the company a 50-year tax holiday in terms of which it would only pay taxes on 1% of turnover.

The company could use what Eskom proudly advertised as the cheapest electricity in the world through an opaque financial instrument called an embedded derivative, which linked the price that BHP Billiton paid to Eskom to the price of aluminium and the value of the United States dollar.

Eskom lost R9.5-billion in 2009 as aluminium prices and the value of the dollar collapsed. But the power utility, unlike the government of Mozambique, was able to renegotiate what had been a bad deal with BHP Billiton.

However, BHP Billiton knew that Southern Africa was running out of cheap electricity and, like all “addicts”, went elsewhere for a fix – to the next nearest source of cheap power, the DRC, which, like Mozambique a decade earlier, was war-ravaged and desperate for investment.

BHP Billiton agreed to build a $2.5-billion smelter near Inga III and to develop the dam, thereby undermining supply to the Westcor partners.

Predictions
The DRC’s four neighbours, which by then had poured a great deal of money into Westcor, were not amused. Pat Naidoo, then-chief executive of Westcor, was quoted as saying in 2009: “The DRC government has said to us that they would like to take on the development of the Inga III on their own in order to cater for the supplies of, principally, BHP Billiton’s energy demand for its proposed smelter. So they would develop the power station themselves, which is very unlikely.”

In 2010 Westcor, after having swallowed millions of rand, vanished into history. Naidoo was proved correct in his predictions because, in March, BHP Billiton opted out of the Inga III project, saying the economics were unfavourable.

Perhaps, after weighing the risk of investing in a country that was ready to pull the plug on its neighbours, it realised that it was unwilling to take the risk of having the DRC change its mind again.

Ironically, in the past few weeks DRC ambassadors and representatives have been going around the region desperately looking for customers to buy electricity from Inga III. It will have to find them before anyone will consider funding the $5-billion to $8-billion project.

It is now proposing what is reported to be an “Eastcor” project, which would include Zambia. In the meantime, Botswana appears to have learned its lesson and has built a 600MW thermal power station at Moropule and is planning a further 600MW later this decade to meet its growing energy demands.

Grand Inga
This is fine for Botswana, which has vast coal reserves, but quite another matter for countries such as Namibia, which is short of energy and – presumably out of desperation – is reported to be considering buying electricity from the DRC.

The DRC’s ambassador in Namibia, Kaboba Wa-Kimba, reportedly said: “South Africa has already indicated that they want 1700MW from the DRC and an agreement to this effect was signed in November 2011.” It has also been reported that President Jacob Zuma and the DRC’s president, Joseph Kabila, are expected to sign an agreement this year on developing the $100-billion Grand Inga dam.

If this is the case, Zuma will need to explain where he sees Grand Inga fitting into Eskom’s long-term power supply plans. The parastatal has resisted attempts by Botswana over the past few years to sell large volumes of coal-powered electricity from CIC Corp’s Mmambula thermal coal mine. Hydropower is, of course, much cheaper than coal.

The World Bank, the African Development Bank and regional bodies are now pushing regional power integration at the cost of prudence and good sense.

In the wake of the Westcor fiasco, the DRC cannot be regarded as a credible partner and it is imprudent to rely on it for electricity to fuel development. But some countries have short memories and will not wean themselves off offers of cheap power no matter what has been done to them in the recent past.

Perhaps the only real lesson from this sad attempt at regional power integration is “fool me once, shame on you; fool me twice, shame on me!”

These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis, where he is employed

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