Construction of the 600MW Karuma hydropower station formally started last week, boosting Uganda’s ambitious electricity development programme that seeks to install 2,088 Megawatts in the next seven years.
The groundbreaking ceremony, officiated by President Yoweri Museveni at the site, 254 kilometres north of Kampala, on August 12, brought to an end a controversial procurement process that saw the project falling almost two years behind schedule.
“It is a pity that this project was delayed by the shoddy work that was done by our side in the previous procurement of the engineering, procurement and construction (EPC). The Ugandan professionals are challenged to do a thorough and honest job. In this case, an EPC and funding agreement has been reached in a fairly short time. This is how things should be,” Presisdent Museveni said.
Karuma is expected to be operational in 2018, but with demand for electricity growing at eight per cent annually and economic growth projected to stay above six per cent in the medium term, it is anticipated that Uganda will need a bridging solution in two years’ time.
China Sinohydro is the EPC contractor that clinched the $1.7 billion deal last month, after President Museveni took charge of the procurement process.
The president secured Chinese commitment to fund the project during a meeting with Chinese President Xi Jinping on the sidelines of the BRICS Summit last May. The $1.7 billion price tag for Karuma included the cost of building 280 kilometres of associated transmission lines.
Construction comes a year after the Akfed-linked Bujagali Energy Ltd commissioned the 250MW Bujagali power station. The additional power brought a temporary end to widespread power rationing that cost the manufacturing sector close to 35 per cent in output.
Karuma, which will be Uganda’s biggest dam, is supposed to pick up the baton from Bujagali in a cascade of projects that Prime Minister Amama Mbabazi says will see five power stations, with a combined capacity of 2,088MW, constructed over the next seven years.
According to President Museveni, an understanding has already been reached with two other Chinese firms — China Gezhouba and the China International Water and Electric Corporation — to undertake the next two projects, Isimba (188MW) and Ayago (600MW).
Speaking during the launch of the second World Bank Economic Update for Uganda on August 12, Mr Mbabazi said two more power projects — Koryang (400MW) and Kalagala (300MW) — will be constructed in the next seven years. This will be in addition to a couple of thermal and geothermal power stations planned in the Hoima region.
Although the 2,088MW target could be more than Uganda’s immediate needs, Mbabazi said the country is envisaging exports to South Sudan and DR Congo, as well as power sharing under the Eastern Africa Power Pool that also includes Ethiopia.
The high cost of Uganda’s power projects could however render their output uncompetitive, amidst reports that Ethiopia is offering an export tariff as low as $0.03, against initial generation tariffs of more than three times that figure in Uganda.
Analysts say the high financing cost has escalated the cost of power projects in Uganda, with each Megawatt of capacity at Bujagali costing more than $3 million. At $1.7 billion, Karuma will cost less because of what President Museveni says are better terms from Chinese lenders.
Uganda is borrowing 85 per cent of the funds for the project. The arrangement will release resource initially pooled under the energy fund to co-fund the next set of projects.