US$1 billion hydropower project set to boost Nigeria’s energy
Nigeria has requested financial support from the Forum on China Africa Cooperation for a power project propelled by natural forces that will ultimately generate low-cost energy
22 May 2019 | Michael Marray

Nigeria’s Federal Executive Council (FEC) has agreed to move ahead with the Gurara II hydro project, officially submitting the project for financing to the Forum on China Africa Cooperation (FOCAC). The renewable energy project is expected to be supported by a US$1 billion loan from China Exim Bank.

Minister of water resources, Sulieman Adamu, made the announcement after the weekly meeting of the FEC, led by President Muhammadu Buhari, at the council chamber in the capital city Abuja.

Adamu said that Gurara II would have the capacity to generate 360 MW. The project, sponsored by the Federal Ministry for Power, is located 140 kilometres downstream of the existing smaller Gurara 1 hydro facility, placing the scheme around 40 kilometres from Abuja.

Nigeria, with a teeming population of around 181 million residents, ranks as Africa’s most populous nation. Though boasting abundant fossil fuel resources, its growing economy and growing middle class thirst for reliable energy.   

Indeed, this development marks another stage in the ongoing upgrade of Africa’s energy infrastructure, with hydroelectric power featuring heavily in China-backed projects. The upfront capital outlay is often supported by Chinese finance, which leaves questions marks in some quarters, but the projects aim to bequeath long-term energy provision generated and charged to consumers at a lower cost.

Last September, FOCAC held its third summit meeting in Beijing. Most of Africa’s leaders attended the event, which was hosted by Chinese President Xi Jinping, who outlined future financing arrangements and addressed head on some of the concerns raised by these projects,

At the summit, he announced US$60 billion of Chinese financial support for Africa. This was broken down into US$20 billion in conventional credit lines, US$15 billion in grants, interest-free loans and concessional loans, and US$10 billion in investment financing. Xi also took the opportunity to push back against the debt trap narrative for Chinese activity in Africa, reiterating that he saw it as a win-win for China and African countries.

Nigeria is one of China’s largest investment partners in Africa. China Civil Engineering Construction Company (CCECC), a subsidiary of China Railway Construction Company, is involved in several large Nigerian infrastructure projects, backed by concessional loans from Exim Bank of China.

Chinese contractors are major players in hydro projects elsewhere in Africa.

As a renewable source of electricity, these projects are low-carbon energy sources and allow African countries to move away from being over-reliant on fossil fuels. However, some environmentalists have of late questioned how effective hydroelectric power plants are at preserving biodiversity.

In Uganda, the 183 MW Isimba Hydro Power Station on the River Nile was commissioned in March. And the Karuma Hydro Power Plant is currently under construction, and will command a power capacity of 600 MW.

The Isimba project, owned by Uganda Electricity Generation Company, costs about US$568 million to develop. China International Water & Electric Corporation was the main contractor, while Zhejiang Fuchunjiang Hydropower Equipment Co (Zhefu) manufactured the four 45.8 MW turbine generator units.

Meanwhile, the US$2 billion Karuma project is close to completion. Karuma is on the River Nile near Lake Victoria, in Kiryadongo and Oyam districts. It lies around 15 kilometres downstream of Karuma Falls. It will be the largest dam in East Africa, and the first underground power plant in Uganda, with the water flowing through a series of tunnels. PowerChina Huadong is the lead designer for the project, and SinoHydro is the engineering, procurement and construction (EPC) contractor.

According to Sinohydro, the EPC project comprises a 20-metre-high, 311-metre-wide concrete gravity dam, with six 100 MW turbines.

Exim Bank of China has lent around US$1.4 billion dollars for Karuma, of which US$790 million is via a loan offered at the concessional rate, repayable over 20 years. Another US$645 million carries an interest rate of 4%, payable over 15 years, from the date of full commissioning of the dam. The Ugandan Ministry of Energy & Mines has put up the project equity.

Uganda has ambitious economic development plans, which rely heavily on renewable energy. The government said recently that Isimba and Karuma hydro power plants would reduce the generation tariff by 17.45%.

According to Uganda's Ministry of Energy and Mineral Development, once the two power plants are commissioned, the generation tariff will be reduced from the current US$0.064/kWh to US$0.0534/kWh.

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