Africa

USAID and Chinese state companies look to build white elephant

(January 24, 2014) USAID may join forces with Chinese state companies to build a controversial and uneconomic dam in the Democratic Republic of Congo.

Brady Yauch for Probe International

USAID, America’s foreign aid agency, and two Chinese, state-owned power companies are reportedly considering joining forces to build the controversial Inga III dam in the Democratic Republic of Congo.

A consortium of Sinohydro and China Three Gorges Corporation are currently one of three bidders hoping to build the project. According to a report in the South China Morning Post, if the two companies are successful in their bid, they may turn to USAID for financing, as Rajiv Shah, the administrator of the aid agency, has reportedly discussed cooperating with the firms on the Inga dam project under president Obama’s $7 billion U.S. government energy program known as Power Africa.

“USAID continues to work with a wide range of partners to determine whether an Inga dam project would be financially, environmentally, socially, and politically viable,” a USAID spokesman told the South China Morning Post when asked whether the agency is negotiating partnerships with Chinese firms to help fund the dam.

The project is as large as it is controversial. When completed, Inga III is expected to cost anywhere from $12 billion to $20 billion and produce 4,800 MW of electricity. In addition to the multilateral development banks, such as the World Bank and the African Development Bank, financing for the project is being sought from other big development agencies, including the French Agency for Development, the European Investment Bank, and the Development Bank of Southern Africa.

Inga III is just the first part of an even larger hydroelectric scheme under consideration in the war-ravaged and corruption-prone Democratic Republic of Congo. According to International Rivers, Grand Inga, as the entire project is known, would involve six development phases with Inga III being the first. If completed, the project would produce 40,000 MW of power – nearly double that produced by the Three Gorges Dam in China – and cost $80 billion.

Not only is Inga III’s financing uncertain, but its feasibility looks iffy as well. Past dams in the DRC have been costly and failed to meet forecast electricity production. Inga I and Inga II, completed in 1972 and 1982, respectively, have only operated at about 30% of their capacity and limp along in a state of disrepair.

The country also has a long history of civil war and chaotic governance. It is currently ranked 154 out of 177 on Transparency International’s Corruption Perceptions Index. One advisor to the government recently called the business climate in the country “disgusting.”

With private financiers clearly not willing to risk investing in the project, it seems only the deep pockets of state-owned enterprises from China and Western aid agencies will make Inga III fly.

Postscript:

USAID’s push into big hydro appears to fly in the face of American foreign aid energy policy. The Consolidated Appropriations Act of 2014, which President Obama signed in to law on January 17, 2014, would require that U.S. Executive Directors at all multilateral development banks, such as the World Bank and the African Development Bank, oppose any “loan, grant, strategy or policy … to support the construction of any large hydroelectric dam.”

See pages 1,307 and 1,308 of the 2014 Appropriations Act for the full reference to the U.S. prohibition on multilateral development bank funding to large dams.

See here for Obama signing the Appropriation Act into law.

Brady Yauch is an economist at Probe International. 

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1 reply »

  1. I assume that Probe is opposed to this project, but the article does not identify what the other two bidders are proposing. As well, there is no discussion about why the Inga 1 and 2 dams are not producing the electric power that was conceived originally. Were Chinese state companies responisble for those project failures and hence is the reason for Probe’s negative view of Inga 3? I would think that such a project is likely needed for the benefit of the country and if the business climate is “disgusting”, I say too bad! Maybe the the people who live in poverty should have their interests considered first and foremost!

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