Inga III Advances, But Risks Remain

BMI View: Although the DRC has claimed that development of the Inga III dam is set to start in 2015, we continue to adopt the view that the project will likely suffer significant delays based on previous false starts. With a number of multilateral development institutions potentially supporting some of the biggest players in the infrastructure market to bring Inga III online, the development has certainly received a boost. However, we reiterate that the scale of the funding needed raises major concerns about project feasibility, as does a lack of clarity regarding an environmental impact assessment.

The Inga III dam, which will prove an integral part of the Democratic Republic of Congo (DRC) ' s 40,000MW Grand Inga complex, is moving closer to realisation, with a host of Chinese, South Korean and Spanish firms all reported to be vying to develop the project. Plans for the construction of Inga III have been mooted since the early 2000s, but despite having the support of neighbouring African nations that hope to buy the electricity produced, the project has been repeatedly delayed. However, with a deal to export electricity to South Africa now firmly in place, and the backing of a host of multilateral institutions, the project could prove more feasible and begin to edge forward.

Construction of Inga III and 3,000km of associated transmission lines is now expected to begin in October 2015 and will cost an estimated US$9-US$14bn, according to Congolese officials quoted by Reuters. Inga III is the first of seven phases that will comprise the Grand Inga mega project, which is located 225km south west of Kinshasa. The Inga I and II projects were commissioned at the site in 1972 and 1982 respectively, but have since fallen into disrepair and only operate at a fraction of their joint 1,700MW capacity.

The Light Of Africa
Map Of The Proposed Grand Inga Complex

The project received a major boost in March 2013 when South Africa agreed to import 2,500MW from Inga III annually to help put an end to its own electricity outages - a move which allowed the DRC to secure the viability of the project and significant future revenues. Furthermore, when a host of potential developers and the World Bank and African Development Bank (AfDB) met to advance the project in Paris on May 18, it was reportedly agreed that Inga III was integral to energy-hungry southern Africa and should not be allowed to fail.

Inga Hydropower Plants
Commissioned Installed Capacity (MW) Number of Units
Source: BMI
Inga I 1972 351 6
Inga II 1982 1,424 8
Planned Power Stations
Cost Installed Capacity (GW) Number of Units
Inga III US$9bn-US$14bn 4.7 16
Grand Inga US$80bn 40 52

The Inga III project (as part of the broader Grand Inga complex) would undoubtedly be significant in terms of its sheer scale and the impact it would have on the African energy landscape. While the DRC has been wracked by years of war that have taken a toll on its power infrastructure, the one thing the country does have in abundance is hydropower potential. The World Bank estimates that the DRC currently exploits just a fraction of its hydropower resources and could potentially generate a huge 100,000MW. As a consequence, if the Inga III is seen through to completion, it would not only transform the DRC's power sector (which is proving insufficient to support its mining sector), but also the power sectors of Botswana, Namibia and other neighbouring nations, so long as the requisite transmission and distribution (T&D) infrastructure is put in place.

Furthermore, some of the consortia reported to be interested in the project include China Three Gorges Corp and Sinohydro; a Korean/Canadian group comprising Posco, Daewoo Corp and SNC-Lavalin Group; and a Spanish group led by Groupe ACSI Ltée. These potential bidders create significant upside to the realisation of the project based on the fact they to have the funds and expertise to deliver, particularly state-backed Chinese firms that are already active across Africa.

Hydropower Dominates
DRC - Installed Capacity By Type (MW, 2010)

Major Hurdles To Overcome …

Nevertheless, while there is certainly a desire to develop the project in order to bring an end to electricity shortages across the region and support rapid economic growth, there have been numerous delays to this project in the past - with the need to find such a huge amount of funding raising major questions with regards to feasibility ( see our online service, October 22 2012, Inga III: Risky Despite New Plan).

Although the exact details regarding financing are unclear, it now appears that the Inga III will rely on a public-private partnership (PPP) model, which would require private investors to take significant risks. This was made clear after Hela Cheikhrouhou, director for energy environment and climate change at the AfDB, was quoted by local news sources as saying: 'It is the public-private partnership financing solutions which will be vital for the success of the project.'

To this end, we are still very cautious, as at least two previous agreements between the government and external partners have collapsed because of political disagreements and an inability to negotiate funding. In 2010, a bid by an Eskom-led consortium called Westcorp was reportedly rejected by the DRC, while in 2012 a rival proposal from BHP Billiton, to build a 2,500MW plant, failed to materialise - in part, because of frustration with the Congolese government's decision-making processes.

As a consequence, we maintain our view that financing will be one of the biggest threats to the Inga III, and also the Grand Inga complex more broadly. Furthermore, while we note that the financial and technical support offered by World Bank and AfDB might give private companies more confidence in their dealings with the government, no deals have as yet been signed. With BMI's Country Risk team recently downgrading the DRC's medium-term ec onomic outlook based on concerns that lower commodity prices and rising domestic instability will inhibit foreign direct investment (FDI) , the government ' s ability to attract funding could certainly come under greater scrutiny, deterring potential partners (see our online service, April 24 2013, Outlook Clouded By Foreign Headwinds, Domestic Instability and May 03 2013, M23 Refusing To Go Quietly).

… And Considerable Risks Remain

Furthermore, there have also been rumblings of discontent amongst the DRC's population, many of whom are unhappy with the fact electricity from the project will be directed primarily towards the country's mining sector. Transmission lines are due to be installed between the project and Katanga in the south of the country, the location of DRC's vast cobalt and copper reserves. With most of the DRC's 70mn people having no access to electricity, the prospect of exporting power and building transmission lines to support the DRC's mining intensive areas - rather than for wider domestic consumption - could certainly prove to be a sore point.

Additionally, the role that environmental concerns can play in delaying project should not be underestimated. Such worries have dogged the project since inception and it is currently unclear as to whether an environmental impact assessment (EIA) has been carried out. According to United Nations Environment Programme, Grand Inga will entail the diversion of the entire flow of the Congo River down a nearby valley, which would have a significant impact on biodiversity and the river's population of fish. We have seen other major projects across Africa delayed for the same reasons in recent years and highlight that this creates major risk to what is an already questionable completion date.

This article is tagged to:
Sector: Infrastructure, Power
Geography: Congo, Congo, Congo, Congo

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