Project Number: E.12.1 Project Title: Ruzizi III Hydropower Project Status: S3 programme/project structuring and promotion to obtain financing Countries Region Rwanda, Burundi, Democratic Republic of Congo (DRC) East Africa Project Location Near Lake Kivu and the Ruzizi River at the border of Rwanda and the DRC Sector Sub-Sector Energy Generation Project description A 145 megawatt run-of-the-river hydro-electric plant with three power units will be constructed. Objectives Supply of sustainable electricity to the three countries Control of the water level in the river basin Promotion of peace and stability in the Great Lakes Region Economic Sustainability and expected benefits The project is expected to contribute to the stabilization of the region by enhancing economic cooperation, and to address economically the issue of the growing lack of generation capacity in the sub-region, which hampers access to electricity. There is potential to flourish thanks to the mounting need for power and for replacing high-cost gas-oil based generation with lower cost sources; precedent set by the hydro-electric generation plants Ruzizi I and II, which have never stopped during the past decade of war; cross-border coordination; and tariffs tailored specifically for the needs of the parties involved. Project structure A public-private partnership (PPP) structure will be followed as a 20-year build, own, operate and transfer (BOOT) concession, and the project company will operate the plant as an independent power producer. REC COMESA, EAC Project Sponsors Governments of Rwanda, Burundi, DRC Implementing Authority Lead Agency: Energie des Grands Lacs (EGL) Regional organization comprising of Burundi, DRC and Rwanda, responsible for the elaboration and implementation of the strategy of energy development in the Great Lakes region, operating under the auspices of the Economic Community of the Great Lakes Countries (CEPGL). A new supra-national authority is planned in order to replace EGL and temporary structure, ABAKIR, as the implementing agency. Private Sector Developer Consortium of SITHE Global Power Ventures LLC (USA) and Industrial Promotion Services Ltd (IPS) (Kenya) Project Status Feasibility study for the project completed by Sofreco and Fichtner between 2008-2011 Preferred bidder selected after tendering process in 2012 Negotiations on exemptions to the preferred bidder on-going Total estimated Project Value USD 600,000,000 Way Forward Signature of the PPP contract between EGL and Sithe Global/IPS Mid 2014 Financial Closing End 2015 Mid 2016 Beginning of the construction 2016 End of the construction 2020 Political Support This project enjoys strong political support in all countries involved. It is the first regional PPP power project in Africa and is a model for successful implementation as per the African Development Bank. There is a single agency, EGL, to co-ordinate between the three countries, thus presenting a unified policy to development finance institutions and private sector financiers. 1
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Background The Ruzizi River forms the border between the DRC and Rwanda. The south-flowing river connects Lake Kivu with Lake Tanganyika. Lake Kivu, which is surrounded by Rwanda to the east and the DRC to the west, drains at the south into the Ruzizi River, also known as the Ruzizi Cascades, which flows into Lake Tanganyika. In 1959, a small hydropower project was developed near Buakavu (DRC), located 3 kilometers downstream of the outlet from Lake Kivu, with a capacity of 29.8MW. This plant was owned and operated by the SNEL, national utility in DRC. However, due to technical problems only 21.2MW are currently available. This power plant is known as Ruzizi I. Later a second plant, Ruzizi II, was commissioned further downstream with a capacity of 43.8MW in 1989. The second plant was initiated by «Organisation de la CEPGL Pour L Energie des pays des Grands Lacs (EGL)» and managed by Société Internationale d'electricité des Pays des Grands Lacs (SINELAC). SINELAC is a multi-national organization established by a treaty among Burundi, the DRC, and Rwanda. It has the mandate to (i) operate the Ruzizi II hydropower plant and its dependencies like the regional substation of Mururu II, and (ii) sell the energy production of Ruzizi II to the three national utilities, namely REGIDESO in Burundi, SNEL in DR Congo and RECO in Rwanda. As the hydrology of the Ruzizi river was such that there was potential for more power to be generated downstream of the existing operations, the three bordering countries DRC, Rwanda and Burundi mandated EGL to study and prepare the development of Ruzizi III. Economic Sustainability and Strategic Importance While other parts of sub-saharan Africa are experiencing high growth rates, countries of the Great Lakes region have had extremely high levels of poverty and very low levels of key services such as access to electricity. This project will enable an increase in power generation and interconnectivity by taking advantage of low-cost and renewable sources of hydropower and geothermal energy that can be easily harnessed in the region. Developing the hydropower potential in DRC, in particular, will provide Burundi and Rwanda access to low-cost power and a stake in regional stability. This landmark scheme has the potential to transform electricity supply for an estimated 107 million people living in the Great Lakes region, where energy use is currently dominated by use of charcoal for cooking. It is noted that the dam and the hydro-electric generation plants Ruzizi I and II have never stopped during the past decade of war, and cooperation between the three countries has always existed to generate power from the Great Lakes. In fact, this project has been selected by EU to support the peace process in the Great Lakes region. It is expected to contribute to the stabilization of the region by enhancing economic cooperation between the three countries involved, and to address economically the issue of the growing lack of capacity in the sub- 3
region, which hampers the development of access to electricity and has been identified as a major obstacle to economic growth. The primary objectives of the project are to: Bridge the medium term energy deficit; Provide the energy necessary for economic recovery in the sub-region; Contribute to reconstruction and rehabilitation of socio-economic infrastructure and to rural electrification. This post-conflict project has potential to flourish thanks to the mounting need for power and for replacing high-cost gas-oil based generation with lower cost sources; precedents set by previous initiatives; crossborder coordination, (primarily performed through EGL); and tariff tailored specifically for the needs of the parties involved. We explore each of these is some detail below. THE NEED FOR LOW-COST CAPACITY: The power systems of Burundi, the eastern DRC, and Rwanda are mainly based on gas-oil fired units. The cost of gas-oil based generation is especially high in the Great Lakes region due to huge transport costs from Kenyan and Tanzanian ports. Most of the alternative economical hydro sites are small and Ruzizi III is the largest and lowest cost option in the region, along with methane gas extracted from Lake Kivu for the generation of base load electricity. Increasing demand for electricity has been fuelled by economic growth and ambitious electricity access programs financed by donors. As a result, the region is facing a rapidly increasing shortage of capacity and energy. PRECEDENTS PAVE THE WAY: The Ruzizi III dam will be the third in a series of four projects on the Ruzizi River. The experiences of the first two initiatives provide the clues to the success of Ruzizi III. Donors and governments wanted a fully commercial and independent structure protected from interference by any of the three governments, assuring that they are all equal, and the project has been designed to ensure this. CROSS-BORDER COORDINATION: The need for cross-border coordination has derailed many projects that are economically attractive. Typically, the political issue of distributing power among three nations is trickier than the technical solutions proposed. In this case, the cross-border coordination facilitated by EGL has been key. EGL has been successful at bringing the three countries together by developing practical solutions, and sidestepping the more sensitive political issues by emphasizing values such as transparency, competence, and socio-economic benefits. Most importantly, EGL has arranged for a balanced project structure, which ensures benefits and cost are distributed evenly between the three countries. COMMON CAUSE, COMMON POWER: The countries will enter into a Common Power Purchase Terms Agreement before firm pricing is known because the tariff will be set using a so-called regulation by contract method. To allow for a system of regulation that entails many of the benefits of return on rate base regulation, the regulation by contract method defines the methodology that will be used to establish the final tariff in an agreement that is subject to international arbitration. This agreement is entered into before the investment is made. This approach leads to a balanced sharing of risks on construction cost between the investor and the future off-takers. 4
Technical Specifications The proposed Ruzizi III Hydro Power Plan (HPP) comprises of a dam and a power plant, totaling 145MW of installed capacity. It will be a run-of-the-river hydro-electric plant with three power units. The reservoir will cover approximately 200.000 m² with 18716 million cubic meters of water with a useful volume of 900.000 cubic meters. The Proposed Technical Solution has a total installed capacity of 147 MW, with each turbine designed for a maximum flow rate of 50m3/s, giving a total plant discharge of 150 m3/s (not including the small unit at the dam site). Given the hydrology of the river, it is anticipated that the nominal mean annual energy production will equal approximately 710 gigawatts per hour, which equates to a capacity factor of approximately 56 percent. It will be a medium-head power plant which will have the following technical characteristics: A diversion dam; the dam will be either a gravity dam made of concrete, or an embankment dam with watertight core. A 7 kilometer headrace tunnel. The three plants will operate as a cascade: the same water will flow successively through the turbines of Ruzizi I, II and III. The reservoir will cover approximately 140,000 m² with a storage capacity of 1,34 million cubic meters of water. A surface powerhouse; the powerhouse itself, located 3.9km from the dam, will be built above ground, and comprise of 3 Francis type turbine generator units. A penstock and surge chamber; while the derivation channel will be dug on the Congolese side of the river, the penstock (3.9km long) will be on the Rwandan side. 92% of the river flow will pass through the penstock and turbines, leaving an ecological residual flow in the river bed. Downstream of the powerhouse, all the water will be returned to the riverbed. A 220 kilovolts switchyard. A 10 kilometre transmission line to a substation located at Kamanyola in the DRC. The design also includes a small generating unit at the dam site to produce energy from the ecological flow that will be released to the bypassed reach of the river between the dam and power station. The electricity will be evacuated by 220kV lines that connect the powerhouse's elevating substation to the transmission substation. A smaller 30kV line is used to carry power to the dam site. Associated facilities include: Access roads on both sides of the river (DR Congo and Rwanda); Temporary and permanent colonies accommodation for workers; Storage areas. The Ruzizi I and II plants are already in operation with a combined capacity of 74 megawatt, while the 287 megawatt Ruzizi IV is still in the planning stage. 5
Project Structure Development Finance Institutions: EU, EIB, KFW, AfDB and AFD-DBSA PPFS Project Sponsors: Govt.s of DRC /Rwanda /Burundi Ruzizi III Co-ordinating agency on behalf of the 3 countries: Organisation de la CEPGL Pour L Energie des pays des Grands Lacs (EGL) Off-takers: Govt.s/utilities (the stakeholders): SNEL for DRC, EWASA for Rwanda, REGIDESCO for Burundi. Private Sector Developer: SITHE Global Power Ventures LLC (USA) and Industrial Promotion Services Ltd (IPS) (Kenya) The proposed Ruzizi III project will involve the cooperation of three countries as co-owners of the site or water basin, or as off-takers. The energy will be equally sold between the 3 countries utilities (the stakeholders): SNEL for DRC, EWASA for Rwanda, REGIDESCO for Burundi. For Ruzizi III, EGL has arranged for the project s capacity to be purchased by the parastatal utilities of Burundi, the DRC, and Rwanda. Each off-taker will purchase on commercial terms, with a full payment security package, one-third of the capacity of the project under a Common Power Purchase Terms Agreement, and separate Power Purchase Agreements. Tariffs are being structured with cooperation in mind as well. Off-takers will pay for the capacity made available by the project company. Capacity will be adjusted hourly from actual to nominal hydraulic conditions to determine an hourly availability payment, which will later be converted to a monthly availability payment. This structure achieves two objectives: it incentivizes the project company to ensure that the plant is available, and it allocates day-to-day hydrological risk to the offtakers. This all for one and one for all concept allows the nations to share equally in the benefits as well as the risks. 6
The EGL Authority des pays des Grands Lacs (EGL) is responsible for the preparation and development of the project. A key feature of the project is that the stakeholders agreed to develop it as a fully commercial PPP under parallel long term concession agreements awarded by the riparian countries. A PPP structure will be followed as a 20-year build, own, operate and transfer (BOOT) concession, and the project company will operate the plant as an independent power producer. Multi-lateral development finance institutions (DFIs) have expressed an interest in providing or have already provided significant funding for the Ruzizi III project. Interested private lenders will be encouraged to participate by the protection offered by a possible (under discussion) partial credit guarantee from the World Bank. The sponsors are expected to request political risk insurance on equity from MIGA. Risk Analysis Potential Risk Description Impact on Project Mitigation Arrangement Political Project located in Ruzizi I & II have Instability politically sensitive continued operating area at the border of despite rebel DRC, Rwanda & movements, but Burundi Inflation project costs of Financial situation of national utilities Inflation of project cost may lead to tariff structures that less viable Arrears from national govt. to utility and bad financial situation of national utilities in Burundi and the DRC possibility of targeting facility cannot be eliminated. May impact project feasibility, if tariffs become too high for off-takers Capacity from the national utilities to the pay the Energy to the SPV Project will lead to peace and stabilisation in the region; Continued peace discussions between the three countries and addressing of rebel movements complexities. Sponsor and lenders to tie down the developer to fixed price, turn key solution with heavy cost control during construction; Project team currently engaging advisors to EGL to ensure a cap on the project cost is placed on the developer. Guarantees from the 3 states to pay the energy in case of default from the 3 utilities; Authorisation to the Rwandan energy utility to buy all the energy from the SPV in case of surplus. 7
Project Status 2008-11 The feasibility study for the project was completed by Sofreco and Fichtner between 2008-2011 Hunton & Williams (H&W) is the advisor to assist EGL in phase I - the preparation of the Request for Proposal (RFP) document & the selection of the preferred bidder. 2012-13 The RFP was sent out in April 2012 and the Sithe Global /IPS consortium was selected as the preferred bidder. The composition of the consortium was: - SITHE Global Power Ventures LLC (USA) - (http://www.sitheglobal.com/) - Industrial Promotion Services Ltd IPS (Kenya) (http://www.akdn.org/akfed_ips.asp) consortium The Sithe Global / IPS consortium is the developer of The Bujagali Hydropower project, a 250-megawatt power plant on River Nile in Uganda. Negotiation of the exemptions is the main issue at this stage of the development of the project. Signature of PPP contract between EGL and Sithe Global/IPS to be done 8
Financial Status Total estimated Project Value USD 600,000,000 Distribution of estimated project costs (December 2011): USD (million) Preparation 13 Ruzizi III Construction 449 Ruzizi III Supervision 23 Ruzizi III Environment 13 Financial expenses and reserve accounts 71 Total Ruzizi III 569 Rehabilitation Ruzizi I 10 Rehabilitation Ruzizi II 19 Total Rehabilitation R I & R II 29 Total Ruzizi Cascades 600 Financing Obtained: EU & EIB KFW, AfDB and AFD-DBSA PPFS Financed the feasibility study and bankability study Financed the advisor to EGL, Hunton & Williams, for the first phase of advisory services Euro 2 million USD 2.2 million Funding Gap USD 200 million 9