Congo's Energy Divide by rhino kitty

Congo’s Energy Divide

HYDROPOWER FOR MINES AND EXPORT, NOT THE POOR

he Democratic Republic of Congo is rebuilding its power grid as part of the war-torn country’s reconstruction. Originally built to power copper mines, the grid reaches just 6% of the nation’s people and bypasses some of its biggest cities. Rather than improve its citizens’ access to electricity, the government plans to use the electricity from the rehabilitated power grid and new dam projects for mining and exports to South Africa and other countries. The rehabilitation’s slow pace, ballooning costs and emphasis on energy exports raise serious concerns that it will only perpetuate Congo’s great energy divide. AFRICA’S MOST POWERFUL RIVER

The Congo River is the deepest river in the world, and one of the most powerful. It has long been targeted by hydropower developers, particularly at the Inga Rapids. In the years following independence, the Inga 1 Dam (350 megawatts, commissioned in 1972) and the Inga 2 Dam (1,750 MW, commissioned in 1982) were built despite feasibility studies that found both projects uneconomical and far in excess of the country’s electricity needs at the time. Neglect, financial mismanagement, and years of war caused the dams’ turbines to deteriorate long before the end of their expected lifespan. By 2002, the dams were producing only 40% of their capacity.

The related transmission line, which runs for 1,725 kilometers, was the single largest contributor to the DR Congo’s debt burden. Budgeted at US$250 million, actual construction costs for the Inga-Kolwezi high voltage direct current (HVDC) transmission line quadrupled to $1 billion. The “state of the art” HVDC technology was meant to deliver large amounts of electricity to copper mines in the faraway Katanga Province, not cities or villages along its route. Within 10 years, poor maintenance, theft, and the ravages of the tropical climate caused the line to deliver less than half the electricity it was designed to carry.

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MARCH 2011

COSTLY REHABILITATION

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In 2003, the World Bank calcu&'(" !"#"$% lated that the power grid could be rehabilitated for less than $200 million and be completed by 2007. The Bank argued 6,5,4& that the rehabilitation would 37*/"389:;34%*1 allow the DRC to earn an additional $40 million each year by increasing its power sales to southern Africa. However, implementation fell far behind schedule. By the time the first major contract was awarded in 2009, the project budget had quadrupled and was still growing. In 2003, the World Bank said that rehabilitating the Inga dams would require less than $13 million of the overall rehabilitation cost. But by 2005, work was far behind schedule. The Bank realized that the rehabilitation would require much more work – and money. The degraded state of the dams, grossly overlooked in the Bank’s assessment, unexpectedly raised the risks of the transmission line rehabilitation. Without sufficient power supply from the dams, the transmission line would fail to earn expected export revenues on time. As a result, in 2005, the World Bank began to prepare a $150 million project to fully rehabilitate the dams. But by 2007, the cost had skyrocketed to more than $500 million. At this writing, the Bank was preparing an additional credit that would bring the total cost of the dams’ rehabilitation to more than

Generations of Trauma The DR Congo remains a country in trauma, where generations have been scarred by violent civil war, grand state theft and the chase for minerals. Widespread insecurity and the predatory system of governance have kept incomes, farming production and life spans hovering at the world’s lowest levels. GDP per capita: $106 per year (2009) Life expectancy: 48 years Undernourished: 42 million people (2005 – 2007)

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In 2003, after years of war, peace treaties were signed in the DRC, signaling the reentry of donors to support reconstruction projects across the country. Funds earmarked to rehabilitate the power sector targeted its three main components – the Inga 1 Dam, Inga 2 Dam and the Inga-Kolwezi transmission line.

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By 2008, another costly problem was discovered that will not be addressed by the rehabilitation. Large boulders barreling down the Congo River had blocked the reservoir’s intake canals, reducing available water. The blockage means that even after the dams are fully rehabilitated, they will only produce at 70% of their capacity. Removing the boulders requires draining the reservoir, which would send the DRC’s few electrified cities – including Kinshasa – into darkness. CONGO’S ENERGY DIVIDE

In a country of 66 million people, only 6% have access to electricity. The national power utility, SNEL, serves just over 400,000 customers, and almost half of the nation’s available electricity is consumed by just 20 large clients. The Congolese government has set a highly aggressive target to provide 60% of the population with access to electricity by 2025. But given projected population growth, this would require an estimated 400,000 new connections every year. The rising rehabilitation costs and momentum to develop future Inga dams are draining any chance for investments that could achieve the domestic electrification target. Investments in decentralized power supply projects, including small- and medium-scale hydro across the country, could more evenly reach the population, but are not being prioritized. The rehabilitation will disproportionately benefit big industries and foreign countries, not the average Congolese household. It is expected to improve electricity provision for existing customers, especially in Kinshasa, where constrained power delivery will be improved by a second transmission line. But the rehabilitation, which will increase power exports by 300 MW, includes just 50,000 new connections within the country. GRAND INGA: TO LIGHT OR TO LOOT?

In addition to the rehabilitation, the DR Congo’s future energy development is centered on two more large hydro projects – Inga 3 and Grand Inga – that together could generate an astounding 44,000 MW. These projects, especially Grand Inga, are hyped by donors and the dam industry as a magic bullet that could electrify the entire African continent. But two insurmountable factors make Inga’s contribution to African development more pipe dream than reality.

CONGO’S ENERGY DIVIDE

Private Deals Benefit Industrial Giants In 2005, MagEnergy, a subsidiary of Canadian firm MagIndustries, signed a $132 million contract with SNEL to rehabilitate half of Inga 2 Dam, giving MagEnergy long-term rights to sell power from four of the dam’s eight turbines. MagEnergy planned to power MagIndustries’ other subsidiaries: a magnesium smelter, potash fertilizer plant and a eucalyptus chipping mill. But rehabilitation work quickly fell behind, a situation which MagEnergy has blamed on the state. In 2008, the contract was halted, just as mandatory payments from the state to MagEnergy were about to begin. After two years and a parliamentary inquiry, the dispute reached a fragile agreement. The terms of the privatization agreement, including power tariffs, remain unknown.

First, decades of plundering state coffers and natural resources in the DR Congo have institutionalized corruption and disregard for the public good. Public officials systematically misuse their offices for private gain. In the mining sector alone, at least $200 million in annual taxes go uncollected due to illicit negotiations and corrupt oversight. Activists who challenge the system face intimidation, prison, and even death. The direct social and environmental impacts of the Inga 3 and Grand Inga dams have so far not been properly assessed. It is possible that the Inga dams could provide an acceptable energy option on environmental grounds. Yet without a seismic shift in the DR Congo’s current political reality, Inga hydropower cannot successfully “light up Africa” because there is no political will to use it for the development of the Congolese people, much less Africa’s unelectrified masses. The project’s electricity would power more mines and faraway cities, while contracts for Inga would trigger a fresh feeding frenzy for bribes and kickbacks. Transforming the underlying political framework will take time and require vigilant pressure from donors, governments and civil society. Promoting projects such as Grand Inga helps perpetuate the corrupt “winner takes all” system. Implementing small- and medium-scale power projects could foster the needed transformation by decentralizing power and making local oversight more possible (while also being a better match for meeting local needs). Despite the large power supplies that Inga could generate, widespread distribution in the DR Congo is cost-prohibitive. Building a national power grid that relies on Inga electricity would require unplanned investments into local AC transmission and distribution lines. The current design for Grand Inga includes more HVDC lines like Inga-Kolwezi. This whole system is ill-suited to meet energy needs in DRC.

Despite the chronic delays in rehabilitating Inga 1 and Inga 2, BHP Billiton – the world’s largest mining company – has signed an agreement to develop the massive Inga 3 hydropower scheme. BHP Billiton’s interest in Inga 3 is believed to have triggered the government’s abrupt termination of its preexisting plans to develop the site with other African governments. BHP Billiton would like to use 2,500 MW from Inga 3 to power a proposed $5 billion aluminum smelter. Given the slow and costly rehabilitation of Inga 1 and Inga 2 dams, there is no reason to believe that Inga 3 will translate into development benefits for Congolese citizens.

A SCANDAL-RIDDEN UTILITY

The state power utility, SNEL, is at this writing on the verge of bankruptcy. The utility has long been marked by corruption and unaccountability. In 2008, two of SNEL’s top directors were interrogated after the disappearance of $6.5 million earmarked for Inga 2 rehabilitation. The scandal triggered a parliamentary inquiry into SNEL’s management and finances. SNEL’s revenues reportedly plunged by 30% thereafter. The World Bank is leading power-sector reforms in the DR Congo to unbundle and privatize SNEL, and enable longterm plans to develop more hydropower at the Inga site. But the reforms could thwart any chances to increase access to electricity in the country. Similar reforms across Africa have failed the poor by ignoring the gap in energy access. Countries that privatize their power utilities while having low rates of electrification have found it nearly impossible to achieve high access rates after privatization. Ongoing power sector reforms will also set the stage to increase electricity supplies for regional power exports, mines and industrial consumers. Without addressing the electrification of the 94% of Congolese without access, privatizing the DR Congo’s power sector will further skew electricity delivery away from local development. THE 50-YEAR STRUGGLE FOR JUSTICE

Six communities were forcibly displaced in order to develop the Inga rapids hydropower site. Despite decades of demanding compensation owed to them, they have never received payment. In 2006, the World Bank wrongly stated that “the population who had the land-use rights at the time of the construction of Inga 1 and Inga 2 has been adequately compensated,” and “there is no social legacy” from the original construction. The Bank is planning a social development project for communities currently living near Inga. However,

the Bank should ensure that a legal agreement between the state and the communities to resolve the outstanding compensation is reached prior to approval of the additional credit, or else the injustice will continue. During the original dam construction, a temporary workers’ camp called Camp Kinshasa was erected in the Inga concession area. After construction, many of the workers remained. Today, an estimated 9,000 people – a mix of former project workers and their families, and some families from the Inga displaced communities – call Camp Kinshasa home. The Camp is like a militarized zone. Residents cannot meet freely. They cannot build new housing, which has led to multiple families living in each house. Water is available intermittently from a single pump, and new toilets cannot be built. The dead cannot be buried at the camp, so families pay hefty fees to transport bodies for burial. The national power utility, which made no effort to close the camp after the original construction, has attempted to evict the Camp Kinshasa residents twice since rehabilitation began.

In 2008, the financing of DRC’s energy sector rehabilitation took an unexpected hit from a South African court ruling. The ruling allows FG Hemisphere, a US-based “vulture” fund (which buys up defaulted debts at a reduced cost, then uses international legal systems to extract much higher payment) to garnish up to 15 years of South African payments for power exports from Inga. This ruling could reduce export revenues by nearly $7 million annually, or even lead to a cancellation of power sales between the two countries. Either way, the ruling affects the DR Congo’s financial capacity to repay its growing energy-sector loans or invest the revenues into pressing development priorities. CLEANING UP THE MESS

At this writing, the World Bank is considering its next infusion of rehabilitation funds. Additional Bank financing for the Inga dams’ rehabilitation (as well as other donors’ investments into large, centralized power projects in DRC) should only be approved after the following measures have been taken: !

Achieving Energy Access: A clear and detailed strategy must be developed for achieving the DR Congo’s own target of 60% access to electricity by 2025. Donors should prioritize energy investments that help the country achieve this target.

Resolving Past Injustices: Binding legal agreements between the government and communities displaced by Inga should be reached in order to resolve outstanding social issues. A binding legal agreement for resettlement of Camp Kinshasa residents also needs to be reached. The relatively small but vital tasks of resolving outstanding social claims would demonstrate good faith and political will.

Demanding Accountability: In a country where corruption is rife, implementing fiscal accountability is a fundamental necessity. Donors should implement mechanisms to monitor fiscal accountability of post-rehabilitation operations. They should also proactively ensure that their lending does not enable or support corrupt activities.

Successful Rehabilitation First: A moratorium on promoting the Inga 3 and Grand Inga developments should be adopted until there is evidence of development gains from the current rehabilitation. The moratorium should be upheld until at least two years of post-rehabilitation operation of the power grid has been evaluated and considered successful.

REINFORCING UNACCOUNTABILITY

Since 2002, nearly $1 billion of donor aid has been approved to rebuild the DR Congo’s power sector, although little of the funding has been disbursed. Delays, largely stemming from corrupt governance and a lack of political will, have slowed the rehabilitation to a snail’s pace. As the timeline grows longer, project costs keep rising. The government’s failure to effectively rehabilitate its national power grid in a timely manner raises questions regarding the its political will to transform the investment into development benefits for its citizens. Public and private investors should be wary of supporting additional power projects for the DR Congo grid until the operational and financial performance of the rehabilitation effort is a proven success. As the largest supporter of the DR Congo’s energy sector, the World Bank could play a critical role in increasing access to electricity and fighting corruption within the sector. But it’s not clear that the Bank intends to do either. The World Bank has demonstrated complicity in several instances. An emergency multi-sector loan approved by the Bank in 2002, which included $116 million for power-sector rehabilitation, became mired in corruption. A 2006 assessment of the transmission-line rehabilitation found that loan approval had relied on questionable project preparation and cost analysis. Despite more than a decade of World Bank rhetoric deploring fraud and corruption, a 2008 evaluation by the Bank itself found virtually no headway had been made to systematically protect its funds.

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