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

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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: Alaindg     

“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.

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