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Uganda: Karuma Dam Quagmire

11 March 2013,

Bottlenecks in the procurement process for the Karuma 600 mega watt (MW) hydro power dam project are causing anxiety as experts consider its likely impact on the economy in light of the increasing energy demand in the country.

Karuma hydro power dam procurement process was supposed to have been concluded as early as March last year. However, a year later, it is still dogged by allegations of impropriety and whistleblowers' complaints that culminated in court petitions and the Inspectorate Government (IGG) halting the process citing bribery and corruption in the process.

In September 2012, a court injunction halted the process ordering the government to repeat the technical evaluation. This was after the court recommended that Cornelia Sabiti, the Public Procurement and Disposal of Assets (PPDA) boss, should be involved in the re evaluation. Several months down the road, the IGG has now halted the process before the Ministry of Energy and Mineral Development could proceed with the financial evaluation - the last stage of the three pronged procurement process.

In a decision on November 16, High Court Judge Eldad Mwangusya quashed an earlier evaluation report that had irregularly locked out other bidders in favour of the China Water and Electric Corporation (CWE).

"It is my considered view that given the urgency and magnitude of this project, it is only if the bids of the EPC Karuma Hydro Power Project are re-evaluated by an impartial evaluation committee that the project will be salvaged," Mwangusya ruled.

Meanwhile, the demand for power keeps rising and it's the citizens and the business community who are paying the ultimate price. Official figures show that over the last five years, maximum domestic demand has increased from 379.7MW in 2007 to 445.8MW in 2011. Consequently, peak time maximum load shedding in the same period has fluctuated between 152 MW to 162.3MW in 2011.

According to the demand forecasts, it is projected that from 2012 to 2015, the growth rate in demand will be an average of 10% per annum and 13% for 2012 to 2016.

Uganda's actual peak demand is about 487MW but requires an addition of 50MW to 60MW per year to the national grid. The projected annual lump sum load additions as per power distributor Umeme's submission are 56 MW (2012), 36 MW (2013) 83 MW (2014) but the mini hydro dams will not meet these demands alone.

While the country's installed generation capacity currently stands at 818.5MW, the generation capacity stands at 558.5MW. This comes from Bujagali (250MW), Nalubaale (180MW) and Kiira (200MW), while the smaller dams account for 41.5MW. Therefore by 2014, if Karuma is not kick-started, demand will outstrip supply and power scarcity could have a ripple effect on the economy, employment and regional trade. Because of this, there is serious concern.

"If Karuma delays, we have to meet the increasing demand for electricity from other sources like heavy fuel generators, waste energy, biomass and solar," Ben Mutambi Executive Director Electricity Regulatory Authority (ERA), said.

There are two heavy fuel oil thermal generating plants; Jacobsen Namanve and Electromaxx that generate 100 MW. However, each unit of heavy fuel generated costs about US 18 cents per KWh compared to hydro power generated power, which costs between US 8 to 10 cents. Assuming Uganda needs 60MW a year as additional load, it would cost about $94.6 million if it is generated by thermal compared to hydro power which would cost $42million - more than half as cheap.

While some say Uganda will have to resort to load shedding as the quickest fix to the problem if neither the heavy fuel nor hydro power can meet the rising demand needs, it is the most expensive of the three options. Mutambi says the economy could lose close to US 50 cents ($0.5) per unit of load shedding, which is about $262.8m (about Shs 680 billion).

Some of the biggest energy consumers include cement factories, steel rolling mills, breweries, bottling companies and water treatment plants. As it looks, these companies employ over 1,000 people each and if there is no electricity or it proves to be expensive and they close, it will culminate into unemployment. Also, these companies are large tax payers and contribute generously to the country's GDP. They therefore need cheap electricity.

Total industrial demand is projected to be 171 MW between 2012 and 2014 and if the construction of Karuma or Isimba will not have started by 2014, it would be a gross disincentive for industrial growth.

So, why would the government allow Karuma to stall given such a dire need for hydro power in the next three years? The culprit, as usual, is corruption.

Karuma was mooted way back in 1995, but has failed to take off due to corruption and poor implementation. It was alleged that a Norwegian company, which was lobbying to build Karuma had, through its British subsidiary, allegedly paid a $10,000 bribe to a Ugandan government official in 1999. The hydro power dam tendering process eventually stalled following a PPDA directive last September and a court injunction secured by one of the losing bidders. Apparently, the ghosts that fled from Bujagali are now haunting Karuma. Bujagali was delayed by ten years because of this kind of bickering and complaining cycle. Almost no big project in Uganda can start without any accusations of bribery, unfair evaluation or something wrong about the procurement process. For instance, a project to construct Pension House belonging to the NSSF has also hit a snag.

How many more of these projects have to stall before government bureaucrats and technocrats can learn how to be transparent and efficient in the procurement of such projects is what is bothering many Ugandans. And the delays can be really costly.

For example, the Bujagali project cost rose by 56% from $550million at inception to over $860million at completion. The Karuma dam project's starting price is $2.2 billion and experts say that if it goes the Bujagali way, it could even cost $3.4billion or $5.6 million per MW. It's for this reason that some analysts wonder if or not institutions such as the Inspectorate of Government consider these issues when they halt these projects.

The IGG Irene Mulyagonja told The Independent in an email that the feeling of some members of the public that stopping the procurement now would ultimately have dire consequences was understandable, allowing it to go ahead when the procurement process and the best bidder are questionable both in fact and in law; might also turn out to have dire consequences if not investigated. "One has to weigh the consequences of either option in order to make a very difficult decision," she said.

She was adamant that the IGG is doing her job and the critics are entitled to their views. "But if you ask me what the failing of implementation of the procurement law and procedures is contributed to, to a large extent, it's the manipulation of public officials by businessmen and women. If these did not proffer bribes or solicit for influence of politicians to gain contracts, the work of PPDA, the IG and the CIID would be made much easier," she said.

Patrick Kakwezi, a lecturer of procurement and logistics at MUBS, also appeared to concur with the IGG. He said the procurement process is clear about the roles of different people at different stages. "These projects have stalled because suppliers and bidders normally want to short-circuit the process so that they can win the tender," he said.

Kakwezi agreed that undermining the established procedures at the different stages is a very big problem for Uganda. He however also said that while the complaints overload delays the procurement process, it's catered for under the law.

Mulyagonja insisted that given its importance, Ugandans and the EAC region at large, are entitled to the best deal for the Karuma project.

Way forward

Kakwezi says what is going on is an indication that there is need to establish an institution such as a procurement court to handle procurement-related issues. Also, he says an independent body should be instituted to supervise PPDA.

Indeed, the IGG recognizes the need to amend the 13-year old PPDA Act so as to put in place stringent punitive measures such as creating specific offences that relate to abuse or and failure to follow the Act by public officials. There should be a price for public officials to pay for being negligent and careless. Other experts point to glaring lack of capacity at the national level to handle multi-million dollar projects. Mutambi says the government should consider hiring international experts to handle such projects even though it would involve additional costs to the tax payer.




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