The 700 Megawatt Karuma hydropower project kicks off this week after the successful selection of a consultancy firm to carry out feasibility studies.

And in more good news, the Standard Bank Group and Canada-based Lonsdale have expressed an interest in joining a public-private partnership to bring the project online.

Ministry of Energy and Mineral Development officials said the winner of the consultancy for the $1.2 billion hydropower project 150 kilometres downstream of Owen Falls will be announced in the course of the week. 

Without revealing more details, State Minister for Energy Simon D’Ujanga told The East-African the consultant had been selected and would be announced this week. The winning consultancy firm will carry out a detailed feasibility study on the site, engineering design and bid preparation. 

Some 10 consultancy firms from all over the world, including a Ugandan company, had expressed interest in the feasibility studies.   

Sources revealed that the process, which was supposed to terminate in March this year, was initially riddled with irregularities and had to be re-examined.

Energy ministry officials confirmed that complaints from the bidders had delayed the process. But they said this would not alter the target of having Karuma generating electricity within three years and the entire project completed in five years to bring the combined capacity of Uganda’s largest power projects to 950 MW.  

The 250 MW Bujagali hydroelectric project is on track and is expected to be complete by early 2011. The two dams should be able to meet – and even surpass – Uganda’s power demand, estimated to be growing at 8 per cent or 30 MW per annum.  

Uganda’s peak electricity demand was 399 MW in 2008, up from 384 MW in 2007, while off-peak demand was 205 MW and 213 MW. The Bujagali project is designed to meet the country’s electricity needs in the medium term while Karuma’s optimised capacity will address the long term.   

The government has also abandoned its intention of wholly financing the Karuma hydropower project, preferring instead to go for a public-private partnership, although it will still draw funds from the ring-fenced Energy Fund.   

The Fund, set up at the central bank in 2006/07, has already accumulated $300 million. Ministry of Finance officials said the fund is expected to grow to $1 billion in the next five years with injections of $191 million in 2010/11 and $357 million in 2011/12 the only projections they could give at this point. 

But as the Karuma project starts this money is not available, necessitating the public-private partnership.

So far two firms – the Standard Bank Group and Lonsdale – have expressed interest in financing the project. A delegation from Lonsdale led by company manager Samuel Slutsky was in the country last month to meet President Yoweri Museveni to express their interest.  

Lonsdale officials said they were ready to participate in the Karuma partnership to produce cheap and affordable electricity. The company is a co-investor with Tacua, another Canada-based firm.

The Standard Bank Group is already in the Bujagali project public-private partnership. 

“We expect to get more companies that want to join this project, but we have not yet set the criteria on how the partnership will work,” said Commissioner of Energy Paul Mubiru.

This is the second time government has attempted to bring in a private partner in the Karuma project. The first deal was with the Norwegian company Norpak.

Energy ministry officials said Norpak had developed a conservative design that suggested the dam would be small because they anticipated low electricity demand.  

Norpak later lost interest in the project mainly due to lack of funding, to the disappointment of the government which then resolved to go it alone. The Energy Fund was then formed to “resolve the energy crisis once and for all.”

Fortunately, the partnership between Norpak and the government had ended in a happy divorce, with the private investor handing over most of the study and design documents which provide for an underground station dam and contain valuable geo-technical and environmental conservation data.

However, analysts see the challenge in the cost-benefit analysis because, unlike Bujagali, Karuma is a challenging site, extending as it does into a game park and possessing a complicated topography.

The underground design is, therefore, in consideration of the environment as it should not affect the water quantities to the detriment of the wildlife.

All this could affect the unit cost of production.