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Interconnection Power Grid in West Africa - Sambangalou Hydropower Project
- 4. Introduc$on • Sub Saharan Countries, especially West African Countries are power starved. By 2025, demand of powers in Guinea Bissau, The Gambia, Guinea and Senegal could rise above 4000 MW. • For these countries, due to their fragile condi7ons, financing energy projects individually could be extremely challenging; • In the energy sector, crea$ng interconnec$on regional power grid could poten$ally reduce the genera7ng cost by concentra$ng on providing interconnec$ng transmission lines; • West African Power Pool (WAPP) men$oned in their 2015 report that in West Africa, only Senegal and Mali are interconnected. 4
- 5. Project Objec$ves and Benefits Objec$ves: • Supply of sustainable electricity to the par$cipa$ng countries; • Control of the water level in the river basin; • Promo$on of peace and stability in the region; Benefits: • Countries involved will enjoy low cost clean energy; • To increase regional power trade, integra$on and security. 5
- 6. Project Informa$on • Loca$on: 930 km upstream from the mouth of the Gambia River. The dam will be located in Senegal with part of the reservoir in Guinea; • Sector: Energy – Genera$on; • Energy source: Gambia River; • Descrip$on: 128 MW Hydropower plant and 185 km2 reservoir (4 turbines of 32 MW each); • Energy produc$on: 402 GWh per year; 6
- 8. Project Status • Detailed design study was completed in 2008; • Feasibility study was completed in 2011; • Last cost update was in April 2013; • Two detailed social and environmental impact assessments and a rese`lement ac$on plan have been completed; • All policies, studies and the legal framework have been completed; • New transac$on advisor will be updated once the financing has been mobilised; 8
- 9. Project Cost • Total cost: US$ 711 million; • IBRD and IDA commitment: US$ 200 million; • Financing gap: US$ 511 million. 9 Poten$al Financing or Funding sources
- 10. Key Challenges and Issues to be solved • Finding the financing to fill in the gap, tremendous effort will be required to unlock investment opportuni7es; • Social impacts – the scale of the planned reservoir spans mul$ple countries and will require significant community planning and restructuring (not in the scope of the course); • Poli7cal instabili7es and unrests in The Gambia and Guinea Bissau could poten$ally pufng the project at higher risk for possible investors. 10
- 11. Interest for Government and Private Sectors to par$cipate The current project would be advantageous because: • During both construc$on and opera$ons of Energy Sector Projects, a significant number and range of jobs would emerge in supply industries; • While larger, high-tech equipment, such as turbines, and major boiler components and other complex materials, will be imported, we would expect most sub-Saharan African countries to be able to supply basic construc7on components and materials, such as cement; • Finally, the increased demand for primary energy would likely spark employment growth along other parts of the value chain, such as mining, oil and gas, and transport, including pipelines and rail. 11
- 12. Main obstacles from unlocking financial opportuni$es • Out of the four collabora$ng countries, three countries, Guinea Bissau, The Gambia and Guinea are in rela$vely fragile poli7cal situa7ons; • Local banks are not offering interes7ng benefits for possible private investors; • Taxa$on is mainly the source of revenue for the government and more efficient taxa7on structure is required in these countries; • Private sector presence in the industry and mining is very restricted and very difficult to a`ract to do business due to the high cost of fossil fuel in the absence of low cost power; 12
- 13. Key ideas to convey the project Power sectors that have advanced over the past few decades have pursued three important elements: • Ensuring the financial viability of the power sector; • Crea$ng an environment that will aLract a broad range of funding sources, with par$cular focus on the private sector; • Demonstra$ng poli7cal will. 13
- 14. Key Ideas: Financial Viability • Providing cost reflec7ve tariff: differen$ate prices based on the size of the consumer and the $me of day the electricity is consumed. The end revenue should reflects the full costs to the sector; • Assuring cost transparency: cost-reflec$ve tariffs provide a good start, the government should provide informa$on about embedded subsidies and about how costs are split across the value chain; • Make the most of the exis7ng assets: making efficiency improvements for the u$li$es; increase compe$$on in the sector through priva$za$on, establishment of independent power producers. 14
- 15. Key Ideas: A`rac$ng Private Sector • Public–private partnerships: Public–private partnerships (PPPs) are used in power-sector deals where a government wants to retain some ownership in the country’s electricity assets; • Incumbent corpora7za7on: Incumbent corpora$za$on is an approach aimed at raising private-sector funds using exis$ng assets as equity; • Independent power producers: Independent power producers (IPPs) are plants constructed en$rely by the private sector, and the energy they generate is sold to the market through a power-purchase agreement. 15
- 16. Key Ideas: Good Poli$cal Will • Priori7ze efforts: Not to do too much at once. Many countries face skill shortages and developing local project-delivery capacity is $me consuming. A faster route is to focus that limited capacity on selected projects and complete them more quickly. • Do not lose sight of the long term: Ensuring power is delivered can help win elec$ons. This may invite counter produc$ve behaviour, where short-term decisions are made that can cost the country in the longer term. • Focus not just on plants and infrastructure, but also on capabili7es and regula7ons: Long-term success requires paying a`en$on not only to the hard infrastructure (power plants and transmission networks) but also to the soler side of execu$on. 16
- 17. Conclusion In conclusion, to unlock financing opportuni$es, the par$cipa$on of private sector is key. Therefore, in conclusion the governments/authori$es should: • Provide clear, consistent, and transparent regula7ons: Nothing makes the private sector more nervous than uncertainty, which is why long-term transparency, a track record of following through on commitments, and s$cking to policy decisions are so cri$cal. • Allocate risks to the party best suited to absorb them: Any investment has risks. Power investments are no different, other than the scale of investment is olen much higher, and require much longer payback $me horizons. • Seek support from external ins7tu7ons to help guarantee the risks: One important mechanism for governments to strengthen their posi$on and increase their credibility is to obtain a par$al risk guarantee from mul$lateral ins$tu$ons such as the African Development Bank or the Mul$lateral Investment Guarantee Agency, and, in some cases, through private-sector ins$tu$ons. 17
- 18. References • Africa Power Vision (APV) Concept Note and Implementa$on Plan (2015); • Brighter Africa - The Growth Poten$al of the Sub-Saharan Electricity Sector (2015), McKinsey & Company. • WBG Project Data: h`p://projects.worldbank.org/P146830?lang=en • h`p://addisababa.mfa.ir/uploads/Sambangalou_Dam_19964.pdf • WAPP Publica$on: h`p://www.ecowapp.org/?page_id=10 • Environmental-and-Social-Assessments: h`ps://www.afdb.org/fileadmin/ uploads/afdb/Documents/Environmental-and-Social-Assessments/ 30744628-EN-OMVG-ENERGY-ESIA-SUMMARY.PDF • Dam figure: h`ps://commons.wikimedia.org/wiki/File:Srisailam-dam- with-gates-open-2.jpg • Countries background (Guinea Bissau, The Gambia, Guinea and Senegal) from Britannica Online Encyclopaedia 18