Africa: Water Development, Africa: Water Development, Hydropower & GrowthHydropower & Growth

The Africa Infrastructure Consortium

3 Messages: Africa, growth, water development & hydropower

1. Africa’s ‘dual’ water resources legacy is a major constraint to growth

2. The infrastructure gap is huge & must be addressed in innovative ways

3. Hydropower: anchor infrastructure for multipurpose water development

A natural legacy : massive climate variability

Risk of recurrent Risk of recurrent droughtdrought

Kenya: variability & shock

Median rainfall and standard deviation USA - SSA

0

200

400

600

800

1000

1200

0 20 40 60 80 100

median rainfall %

stan

dar

d d

evia

tio

n

SSA

USA

much higher rainfall variability than USA

Kenyawinter flood 97/98

$2.39b infrastructure damage

Kenya1998-2000 drought

$2.41b losses

Kenya: climate, shock & competitiveness

Indirect firm costs by type, Kenya

Security6%

Land3%

Bribes2%

Transport31%

Other23%

Energy19%

Admin.10%

Water1%

Telecom5%

Source: Business Environment & Comparative Advantage in Africa: Evidence from ICA data; Jan. 2005

Investment Climate Assessment in Kenya:

• low competitiveness, indirect costs 20-30% of total costs vs. 7-12 % for strong performers

• transport 31% & energy 19% of indirect costs.

- Drought & flood in Kenya: Impact 22% GDP/ annum

- transport 50%- energy 13%- industrial production 29%

10/97 – 2/98 Flood Infrastructure Damage $2.39 b10/98 –5/00 Drought Crop loss $0.24 b

Livestock loss $0.14 bReduction in hydropower $0.64 b

Reduced industrial prod. $1.39 bTOTAL $2.41 b $2.39 b

10/97 – 05/00 Cost of Climate Variability $4.8 b

Approx (annual) GDP ($9 b/yr) $22 bImpact as % GDP/annum 22%

with drought in Kenya in 2000…..... massive flooding in

Mozambique

-23%

+44%

Ethiopia: variability and growth

Rainfall & GDP growth: 1982-2000

-80

-60

-40

-20

0

20

40

60

80

1982

1983

1984

1985

1986

1987

1988

1989

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2000

year

percen

tag

e

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

rainfall variation around the mean

GDP growth

-80

-60

-40

-20

0

20

40

60

80

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

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1997

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2000

year

percen

tag

e

-30

-25

-20

-15

-10

-5

0

5

10

15

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25

rainfall variation around the mean

GDP growth

Infrastructure platform

0

20

40

60

80

100

% Developed or Served

HydroDeveloped

IrrigationDeveloped

Access toPotable Water

Water Infrastructure

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

GDP Growth rate Ag GDP Non-Ag GDP

An

nu

al

Rate

s

Smoothed

Drought

Variability

Ethiopia Country Water Resources Assistance Strategy: preliminary results of the baseline scenario (2005)

Impact of historical levels of variability on 2003-2015 growth projections

38% decline in avg. projected GDP growth rate when historical levels of variability are assumed

Africa’s colonial legacy: many international rivers

60+ basins

More int’l rivers sharedby 3 or more countries than any other continent

Every country has at least 1

37 countries have 2 or more

15 countries have 5 or more

future dev’t increasingly on int’l rivers

political complexity

requires capacity and resources

few clear int’l guidelines

no overarching authority

3 Messages: Africa, growth, water development & hydropower

1. Africa’s ‘dual’ water resources legacy is a major constraint to growth

2. The infrastructure gap is huge & must be addressed in innovative ways

3. Hydropower: anchor infrastructure for multipurpose water development

River regulation, storage & poverty

• River regulation/storage needed to reduce impacts of drought/flood & often essential for poverty eradication

• dams & reservoirs have been extensively implemented in developed countries, regulating almost all rivers

• but, poorly implemented, they can cause significant adverse impacts on local communities & the environment

Water storage in m3/cap

43746

1,287 1,406

2,4863,255

4,729

6,150

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Eth

iop

ia

So

uth

Afr

ica

Th

aila

nd

La

os

Ch

ina

Bra

zil

Au

stra

lia

No

rth

Am

eric

a

Country Additional Storage needed

per person (m3)

Storage investments required per

person(US$)

Storage Investments

Required(US$ Billion)

Period needed at 5% current GDP

investment per year (no pop. inc.)

(Years)

Lesotho 751 939 1.7 44

Namibia 542 678 1.3 8

Nigeria 402 503 67.3 32

Ethiopia 555 694 46.2 144

Kenya 307 384 12.1 24

Tanzania 610 763 27.4 60

Uganda 511 639 17.9 58

Burkina Faso 152 190 2.5 22

Senegal 683 854 9.9 40

Water storage/security investment gap: proxy of 750m3/cap/yr (SA, 10% of USA)

69%

33%7%

75%

22%

49%

Source: World Atlas of Hydropower & Dams, 2002

Current hydro generation: Africa = 80 Asia = 800 Australasia = 43Europe = 570 N/C America = 700 S America = 550 (TWh/year)

World’s realistic potential developed: 33 %

Current hydro production: 2740 TWh/y

Realistic potential production: >8000 TWh/y

Hydropower potential tapped

Potential and actual hydropower generation in different regions

0%10%20%30%40%50%60%70%80%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Economically-feasible potential (millions of GWh/year)

% o

f p

ote

nti

al

tap

ped

Africa Asia (including China)

N AmericaEurope

S America

18

4

85

21 1

26

55

38

29

20

4

11

4

58

1

90

0

43

0

2108

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Ca

me

roo

n

Nig

eri

a

Eth

iop

ia

Ke

nya

Ta

nza

nia

Ug

an

da

Bu

rkin

a F

aso

Gh

an

a

Se

ne

ga

l

Alg

eri

a

Eg

ypt

Mo

rocc

o

Wo

rld

Ave

rag

e

Ele

c c

on

su

mp

tio

n (

kW

h/y

r)/C

ap

ita (United States consumption - 11994 kWh/yr/capita)

500 kWh/capita-year minimum consumption for reasonable quality of life

…electricity gap

E. Africa-Europe: Hydropower comparison

Popul. Mill.

GNP/cap $

HP pot. MW

HP dev. MW

Elec./cap

kWh/yr

CO2 em.

ton/c/yr

Ethiopia 61 105 45,000 700 22 0.00

Kenya 29 361 1,600 700 106 0.05

Rwanda 8 241 100 27 26 0.00

Tanzania 33 267 3,200 557 56 0.01

Uganda 22 298 2,800 278 38 0.00

Austria 8 23,333 18,300 11,700 6,457 1.51

France 59 22,128 26,000 25,200 6,539 4.32

Germany 82 22,430 8,000 5,600 5,963 4.50

Italy 58 18,808 22,800 15,267 4,732 2.98

Norway 5 36,889 47,200 27,873 24,422 3.23

3 Messages: Africa, growth, water development & hydropower

1. Africa’s ‘dual’ water resources legacy is a major constraint to growth

2. The infrastructure gap is huge & must be addressed in innovative ways

3. Hydropower: anchor infrastructure for multipurpose water development

storage & regulationWater resources

Multi-purpose options

irrigation

water supply

navigation, recreation..

‘new’ renewable

Power Options analysis

thermal

nuclear

hydropower

Hydropower can contribute to water security by supporting multiple objectives

Multi-purpose, by product

Single-purpose, primary

Multipurpose water & power development

• Maximizing economic, social & environmental benefits • Multiple source financing of public & private goods • Embedding multiple objectives in project concept & design

-1200.0-1000.0

-800.0

-600.0-400.0

-200.0

0.0200.0

400.0

600.0

Cost

s &

Bene

fits

(Mill

ion

$US)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mainstem Financial Analysis

Ben_Drought/ WaterSupply

Ben_Carbon Credits

Ben_Flood Control

Ben_Irrigation

Ben_Power

Cost_MP Offset

Cost_O&M

Cost_Irrigation

Cost_Dam (w/o MP Offset)

Cost_Transmission

MP OffsetsDam allocated to power

Transmission

Power Benefits

Carbon CreditsMP Benefits

Senegal River, OMVS, 35 yrs, now 4 countries…

Guinea Mali Mauritania Senegal

Senegal River: multipurpose development Senegal River: multipurpose development Regulated flows below Manantali Dam: multipurpose benefits 255,000 ha irrigation 900 km navigation Run-of river hydropower: Felou 60 MW; Gouina (180MW) Power at 6c/kwh vs 22c/kwh for thermal 30,200 fiber optic comms with 1500 km joint power grid. Reliable urban water supply: St-Louis, Dakar, Nouakchott Multisector income generation: recessional agriculture,

fisheries, agro-forestry, recreation New investments to optimize/sustain multipurpose gains: Irrigation expansion/rehab: 2ndry infrastructure ($60M); Navigation: docking inf. & port at river mouth ($ 250M); Felou hydropower: public finance (WB $75 M, EIB $40 M).

Public & private funds needed for Gouina 25% of 1200MW hydropower potential developed; $600M for

Guinea multipurpose (Kuku Tamba $300M; Balasa $100M & Boureya $200M

Gouina

Felou

Senegal River development options…

Niger: 9 countries, NBA, 40 years, renewal, joint planning commencing…

Benin Burkina Faso Cameroon Chad Côte d’Ivoire Guinea Mali Niger Nigeria

Zambezi: 9 countries, ZACPLAN 15 yrs, ZRC 2 yrs, joint development?

Botswana Malawi Namibia Mozambique Tanzania Zambia Zimbabwe

Nile River, Nile Basin Initiative, 9

years, (Commission?), 10 countries….

Burundi Egypt Eritrea Ethiopia Kenya Rwanda Tanzania Sudan Uganda

• 61 MW; renewable energy

• Earliest on power date 2011

• 3.2 c/Kwh est. gen. cost at site

• Total cost: $114M + $32M transmission

• Environmental & social issues & opportunities

Nile: Kagera: Rusumo Falls Project

Kagera Basin Management Structure

RRFP Joint Utility/Power Company(Rwanda, Burundi, Tanzania)

Multi-Sectoral International Board

Electrogaz Regideso Tanesco

PPA PPA PPA

Power generationReservoir managementEnvironmental and social monitoringCatchment managementMP investments

Four-country basin-wide multi-purpose priority setting – Kagera TIWRM

Nile Basin Initiative / River Commission

Power transmissionand distributionLoad promotion for public/private multi-purpose use

Coordination of multi-purpose

basin development

and management

initiatives

Possible Institutional Arrangements

RF Project economic analysis - range of benefits

Rwanda

Burundi

Uganda

DRCTanzania

-

6. Extra-Regional Benefits

e.g. increased trade within the EAC region

5. Regional Benefitse.g. cooperation benefits

between utilities, development of common

energy and water policies, regional integration, peace

and stability

2. Project Area Benefits

e.g. irrigated agriculture, local

navigation, sediment control, fisheries,

business development

4. Transmission corridor Benefits

e.g. rural electrification, indirect investment in schools

and health centers

3. Downstream Benefits

e.g. downstream irrigation, flood

protection, impact on water hyacinth in Lake

Victoria

1. Off-taker BenefitsDirect power sales to

national utilities, carbon credits

EIRR Power benefits: 20%

EIRR Power + MP benefits: 84%

Major Blue Nile Reservoir Options

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Current

with Karadobi

Month

Data

Regulation benefits of one dam

Large Storage

LocalCommunityInfrastructure(to ensure local benefit sharing)

Irrigated Agriculture(Modernization/Development)

Joint basin management

RegionalTransmission

Hydropower

Logic of Joint Multipurpose Investments

on the Eastern Nile

WatershedManagement & livelihoods

Growth PoleInvestments

Egypt

Ethiopia

Sudan

Main Nile

Blue Nile

White Nile

Is there a “bankable” project …?

• Financially viable

• With an acceptable risk profile

• In a suitable enabling environment

Financial vs Economic viability

• ENJMP has very strong economic benefits:– Flood attenuation (Sudan 1999 floods cost $450 m.)– Increased area and reliability of irrigation– Reduced cost of sediment control– Power generation– Watershed management

• But, power generation may be the only benefit convertible into a

financial revenue stream.

Allocating concessional financing from MDBs and donors to monetize economic benefits can reconcile economic and financial benefits

Possible Financing and Implementation structure - Split Public-Private ownership

Preliminary financial estimates

1. Multipurpose Dam ($1 bln)– Financed in the public sector (MDBs and donors), justified by

significant economic benefits– Revenues from taxes on MP related economic activities and

water charges

2. Power complex and Transmission ($2 bln)– Financed in the private sector, e.g. sponsor equity and debt from

commercial banks and ECAs, supported by MDB guarantees– Debt-Equity ratio @ 75/25 and energy tariff between 5-7 US

cents would generate ROE in excess of 20%

MDB Guarantees will widen role of private sector

Without With

But risks are significant….

Eastern Nile Joint Multipurpose: some early conclusions

• Private funding achievable, subject to energy price and public sector support (i.e., split private-public scenario)

• Substantial amount of concessional funding required to monetize non-power benefits (e.g. from MP dam) .

• MDB support in the form of guarantees will attract commercial lenders

• Will require strong legal & institutional regime to ensure enabling environment in place

The World Bank’s Hydro

Portfolio: Africa up…

WBG projects with hydropower components by region

(FY03-FY05)

EAP18%

LCR36%

SAR11% AFR

14%

ECA21%

WBG projects with hydropower components by region

(FY06-FY08)

EAP25%

LCR13%

SAR25%

AFR31%

ECA6%

Current portfolio

Pipeline

Back in hydropower responsibly

3. Environmental and social protectionAdopting new standards and ensuring meaningful consultation

5. Financial architectureSeeking new combinations early in the planning process

1. Regional cooperationExploiting returns from riparian cooperation and web of dependency for integration and peace

2. Sharing benefits Managing hydraulic infrastructure for multiple purposes, for multiple beneficiaries

4. Adaptative designResponding to changes in societal values, technology and markets

The Modified Kuznets Curve: Back in hydropower responsibly

Low

Environmental & Social Costs

Low

High

HighDevelopment Benefits

Regional cooperation

Sharing benefits

Public participation

No investment

Adaptive mgmt

Financial architecture

Many innovative mechanisms to share benefits with affected people:

Revenue streams more ethical than one-time compensation– Revenue sharing: royalties tied to power generation or

water charges– Development funds: financed from power sales, water

charges, etc– Equity sharing or full ownership: local authority equity with

share in profits and risks– Taxes paid to regional or local authorities: fixed tax (eg on

dam’s property value) or tax on project sales or net income– Preferential electricity tariffs & other water-related fees for

local or regional authorities

….affected people could be within nations or in other nations

3 Messages: Africa, growth, water development & hydropower

1. Africa’s ‘dual’ water resources legacy is a major constraint to growth: political leadership is moving basin programs

2. The infrastructure gap is huge & must be addressed in innovative ways: ICA has a key role to recognize & support this

3. Hydropower: anchor infrastructure for multipurpose water development: many projects now ready for financing…

CIES AND INVESTMENTS

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