Electricity projects set to boost Uganda
East African country sees low-cost power from two dams being built on Nile as key to attracting investors, factories
By almost doubling Uganda’s electricity generation capacity, two new dams on the Nile River, scheduled to begin operations within two years, will help transform the business attractiveness of the country.
The Isimba Dam, which is being built by China International Water & Electric Corp, will generate 183 megawatts every year. And the Karuma Dam, being built by Sinohydro, will generate 600 mW a year. Uganda now has total electricity generation capacity of about 810 mW.
Uganda has the highest electricity prices in East Africa, with a tariff, or price, of 15.3 US cents per kilowatt-hour in 2016. Kenya was at 15 US cents, Tanzania at 9.8 cents and Ethiopia at 2.4 cents per kWh, according to statista.com. In addition, Uganda’s electricity prices have been rising 22 percent per year in the past three years, according to The Independent, a newsmagazine published in Kampala, Uganda.
“If this situation continues, then local companies, which produce goods that are at the same time imported into the country cheaply, are likely to become uncompetitive and possibly forced to shut down,” Martin Kyeyune, the finance and economic adviser at Roofings Group, Uganda’s leading producer of steel products, told The Independent.
Only 27 percent of the population has access to electricity and only 8 percent of rural villages have access, according to energypedia. Businesses are reluctant to locate in the country if they cannot get power.
Li Xiaogang, the authorized representative of Sinohydro in East Africa, says the Ugandan government is pushing for low-cost power and better transportation to promote the country’s development.
“Hydropower always can provide cheap power, at 2 or 3 cents per kilowatt-hour. After Karuma and Isimba activate, they will dramatically decrease the tariff to 5 or 6 cents. This will attract a large number of companies and investors to operate their factories here,” says Li.
He says the dams are very good projects for Uganda. He calculates that the Karuma Dam “will generate 4 billion kilowatt-hours at a price of about 5 cents per kilowatt-hour. It will bring the government of Uganda $200 million per year, almost 1 percent of GDP. The total investment is $1.6 billion, so in seven to 10 years, the Ugandan government will recoup its investment.”
Li says the Karuma Dam cost $1.5 billion, of which 85 percent was funded by the Export-Import Bank of China and 15 percent by the government of Uganda, with a sovereign guarantee.
Of the 85 percent funded by the China Exim Bank, 55 percent is at concessional rates of interest, and 45 percent at market rates. The interest rate for the concessional loan is 2 percent, while the market rate loan is at 4 percent, he says.
In an inspection tour of the Karuma project on Aug 23, Ugandan President Yoweri Museveni commended the Chinese government for enabling the soft loan. He also hailed Sinohydro, the main contractor of the electricity infrastructure, for the good work of ensuring the provision of 600 mW, instead of the initial 200 mW suggested by the other companies.
Museveni tasked local officials with taking advantage of the new power by allocating land for the establishment of industrial parks. He said such parks would ensure value addition for various agri-products and employment for the people, according to a statement from the Ugandan government.
Policy banks, including the China Exim Bank, are essential for infrastructure investments because they can offer loans for more than 15 years, which is very difficult for a commercial bank to do. The loan for Karuma has a term of 20 years, plus a grace period of seven years, Li says.
Sinohydro will probably make some money on the project, Li says, but much of the work involved underground excavation with problems that were impossible to anticipate. But the contract is fixed at $1.6 billion, so Sinohydro cannot raise the price and has to bear the risk. “For this project, the risk is very high,” Li says.
Such projects have created jobs and new opportunities for Ugandans.
According to Xinhua News Agency, Zheng Zhuqiang, China’s ambassador to Uganda, said during the inspection tour of the construction site by President Museveni: “Over 6,000 Ugandans have been employed by the Karuma project. Local employees account for 13 percent of managers, 50 percent of technical workers and 87 percent of workers. By the end of 2017, more than $150 million had been paid for local procurement of diesel, cement, steel, wood and vehicles.”
Denis Rubangakene, a worker at the construction site, told Xinhua that by working under the close supervision of his Chinese instructor, he has gained welding skills. He said he was employed at the site without any working skill qualification.
“I have come to realize that these people do not bother much about certificate and the level of education as long as you can manage to do the work they give you,” Rubangakene said, adding that he now has experience and can start his own welding workshop when the construction project ends.
Alice Nikisita, a secretary at Isimba, says her job changed her life. “This has been a good opportunity because it is a job with a monthly payment. It has also given me exposure to the world. China International Water & Electric sent me to Beijing to participate in a singing contest. So I had the opportunity to see the city and to go to the huge Three Gorges Dam.”
Lloyd Rutaremwa, an engineer on the Isimba Dam, says the two dams will transform his country in the long term.
“We will have a huge excess of supply of power that we might even supply to outside countries,” Rutaremwa says. “Many villages don’t have access to electricity, so I’m thinking that in the future they will all have access to electricity. At the moment, there are so many investors coming into the country, and all of them need power to do business.”