Parliament Okays Shs4.289 Trillion Loan For The Construction Of Karuma Dam

Parliament of Uganda finally Okayed $1.435 billion loan for the construction of Karuma dam.

Museveni commissioning the construction of Karuma dam last year
Museveni commissioning the construction of Karuma dam

The Executive on Wednesday got Parliament’s approval to borrow $1.435 billion (Shs4.289 trillion) from the Export–Import (EXIM) Bank of China to finance the construction of Karuma Hydropower Plant.

This financing facility came as a result of negotiations in a bilateral meeting between Uganda and China on Sept. 17, 2013 at the Office of the then Prime Minister, Amama Mbabazi in Kampala.

Zhang Dejiang, chairman of the Standing Committee of the 12th National People’s Congress of the People’s Republic of China represented his government in a meeting where Mbabazi praised China’s support to Uganda’s economic development through finance from China Exim Bank which, he said, has facilitated the country’s pursuit for strategic national development objectives.

The construction of this Karuma dam has been enshrouded in serious controversy characteristic of what has become the norm in the practice of tender business practice in Uganda.

If you make a good recollection of events, the award of the tender for the construction of the Karuma Dam to Sinohydro was done before any contract was signed.

It is alleged that as President Yoweri Museveni was busy launching the start of the construction of Karuma dam on Aug.12, 2013, Sinohydro Corporation Ltd officials were running up and down the corridors attempting to finalize contract negotiations with the Ministry Contracts Committee which had various queries the most profound being how Sinohydro Corporation Ltd had won the the contract ahead of the leading bidder, China International Water Electronic Corporation (CWE).

Sinohydro was awarded the contract through what is referred to as Private Public Partnership direct award process after a bilateral arrangement agreed in South Africa between President Museveni and his Chinese counterpart.

Under the deal, the Chinese government would extend a loan to the government of Uganda to cover 85% of the cost of the project.

Chinese financing

It should be noted that in as much as the Exim Bank of China provides concessional loans from the Chinese government to approved countries, it also has a commercial arm which provides export credits to Chinese export entities like Sinohydro that are engaged in huge projects abroad.

The net result in the economics of financing such undertakings is that their entities make tonnes of money while pushing up the cost of projects they are financing in the recipient poor countries essentially crippling them albeit in a politely sneaky way.

The confidence that the Exim loan terms will be manageable as we are made to wholesomely believe because of claims that it is a concession from a rich government to a poor one is faulty thinking.

What that selling point does not factor in is the commercial interest of Sinohydro and Exim Bank.

While both are government entities, the Chinese government is quite insistent when demanding high revenue results from the managers of its entities.

To this point, therefore, it is not clear how much Karuma Dam will cost or when actual work will start, but with the parliamentary go ahead given yesterday, events could change quite fast.

By mid-August, Sinohydro had not opened their offices although a geotech company had set up camp to start drilling the rocks at the construction site to test the hardness of the rocks.

Regarding cost of the dam, officials of the Ministry of Energy, sector watchers and experts, and pundits have been bandying around myriad cost figures.

Very Expensive Dam

From vailable information on-line, the Minister of State for Energy, Simon D’Ujanga says the dam’s construction will cost US$1.3 billion and the Permanent Secretary of the ministry, Kabagambe Kaliisa puts it at US$1.39 billion.

If the dam is built for US$1.3 billion; the lowest quotation that is most likely based on a quote by a bidder who lost the bid, we will find the cost per megawatt of electricity almost equal to that of the 250MW Bujagali Hydroelectricity Dam that was completed in 2012 at an eventual cost of US$862 million.

Initially, the Bujagali Dam had been budgeted to cost US$250 million. That cost shot up when the procurement process was frustrated over allegations of corruption and the initial contractors, the American outfit AES Corporation, quit.

When Bujagali Energy Limited (BEL), the consortium that eventually built the dam arrived on the scene, their initial quotation was US$580 million which in the end shot up by 48%.

If what happened were to happen in case of the Karuma project as it is the norm, then the construction cost will shoot from US$1.3 billion to US$1.9 billion at the lowest.

It could also shoot from US$2.1 billion to US$3.1 billion at the highest.

That would mean Karuma, even by the lowest estimates will not only be Uganda’s most expensive dam to date, it will also generate the most expensive electricity for consumers if it does.

Hydroelectricity dams are for all intents and purposes the most expensive to construct after nuclear power plants, but by international standards, Uganda is notoriously blowing the lid of the price cap in the costing of hydro power plants construction.

As Ugandans were facing acute power outages and paying a leg and an arm for thermal generated intermittent power, the government always promised cheap uninterrupted power touting Bujagali as the magic bullet. Government explained that the reason power was astronomically high in cost was because the thermal generators that were supplementing Nalubaale and Kiira dams use expensive fuel.

Is it not ironical then that barely a month after Bujagali was commissioned on January 15, 2013; Minister Muloni announced an increment in the consumer tariffs for electricity?

With the loan coming in from China, we believe for a miracle now. The cost of power to the Ugandan consumers is unlikely to come down in any envisaged future since Karuma too is going to be financed by a Chinese loan. In the meantime get used to the power cuts and high cost.

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