Chinese civil contractor Sino-Hydro Group has committed $150 million in pre-finance for Uganda’s 600MW Karuma hydropower station, after winning a protracted battle for the contract that has dragged on for nearly two years.

The commitment, made as part of a memorandum of understanding signed between the Energy Ministry and the Chinese firm on June 20, means construction work can start even as the government moves to close financing deals with China’s Exim Bank that is expected to underwrite the project.

The signing of the MoU had originally been scheduled for June 19, but was postponed to the next day after talks dragged into the night, on the advice of Attorney General Peter Nyombi.

Read: Karuma project hits snag

Mr Nyombi had reasoned that it would look odd for an agreement to be signed outside official working hours.

Sino-Hydro will build the power station at the cost of $1.38 billion offered in discredited contractor China Water and Electricity Corporation’s bid, as well as a transmission line from Karuma to Kampala at $287 million.

According to sources familiar with the negotiations that culminated in the award, two weeks prior to signing, President Yoweri Museveni welcomed presentations from three Chinese companies including Sino-Hydro, China Three Gorges Corporation, which was fronted by China International Water & Electric, and China Gezhouba, at State House Entebbe.

During Sino-Hydro’s presentation, the company’s chairman Zhang Yunli said he would be on site within two weeks of signing the deal.

He also promised $150 million from Sino-Hydro’s internal resources to facilitate construction as the government proceeded with negotiations with the project’s financiers.

According to the implementation timetable in the June MoU, the company committed to “mobilisation to the site for further geological investigation” by July 15.
Sino-Hydro visited the site Thursday, in the company of Ministry of Energy officials.

Construction work

As per the MoU, the Ministry of Energy also handed Sino-Hydro all project information and data. SinoHydro is now expected to provide an implementation proposal to the Ministry by July 11, while signing of the engineering, procurement and construction contract has been set tentatively for August 2.

Construction work is supposed to start four days later, with ground breaking on August 9.

A loan application by the three parties — Sino- Hydro, Ministry of Finance and the Energy Ministry is supposed to be logged in August, with disbursement expected by December 24.

The first 200MW will be commissioned in April 2018, and handover of the project is expected to follow four months later.

However, it turns out that Uganda will pay more than the $1.22 billion Sino-Hydro had proposed in its original bid, because following the evaluation committee’s refusal to open its bid, the $1.38 billion offered by CWE became the base price for the contract.

Coming more than a year late, Karuma is supposed to pick up the baton from the 250MW Bujagali hydropower station, which was commissioned last year.

Read: Bujagali finally comes on stream, eases power crisis

The project was developed on a public private partnership (PPP) basis between the Ugandan government and Bujagali Energy, a consortium comprising Sithe Global Power and the Industrial Promotion Services of the Aga Khan Fund for Economic Development.

According to the World Bank, the project has helped to spur economic growth through industrialisation and modernisation, in addition to contributing to the wellbeing of Ugandans.

This, it says, is crucial for the industrial sector, which had been depending largely on expensive thermal power that increased operating costs, making Ugandan products less competitive on the global market.