Bujagali cost not up - Aga Khan

By James Odomel

THE cost of Bujagali dam has not gone up, the leading co-sponsor, Industrial Promotion Services (IPS) of the Aga Khan Group, has clarified.

“The project cost was all along $860m. This comprises $568m in engineering procurement and construction cost and $292m in development, land, contingency and financing cost, including interest, among others,” said Kevin Kariuki of IPS in an interview with Saturday Vision.

He acknowledged that brittle rock was found instead of solid rock in a key area of the construction site, making it necessary to undertake redesign and remedial works. “The adverse ground conditions only became apparent following investigative drilling after dewatering of the river’s left channel.” However, he said, this would be addressed within the agreed project cost, using the contingency allowance.

On allegations that the power tariffs are likely to go up after Bujagali becomes operational, Kariuki explained that the final price is not determined by the Bujagali investors but by the Electricity Regulatory Authority.

“Power generation is only one of the inputs in the tariff formulation. There is also the transmission and distribution cost, as well as technical and commercial losses.” The latter is mainly as a result of theft.

“For generation, the price is actually coming down. The average wholesale tariff for Bujagali will be 6 to 6.5 cents per unit over the next 30 years, which is the contract period.”

In comparison, Aggreko, the generator of thermal power, charges 16 cents per unit before fuel, according to the Electricity Regulatory Authority website. Including fuel, thermal power comes to over 30 cents.

Still according to the ERA website, Jacobson charges 18.5 cents per unit for the generation of heavy fuel oil.

IPS rubbished allegations that Bujagali is the most expensive dam in the world.

“Comparing dams is absurd,” said Kariuki. “There are very many parameters to look at, among them the mode of financing – is it publicly or privately financed, the location of the project and therefore the proximity to raw materials, and the structures involved. Does it require a dam and if so, what type of dam is required – concrete, rock-fill or earth?”

He pointed out that Bujagali is the first privately financed power project in sub-Saharan Africa.

He also noted that the Ethiopian hydro-power project it was compared with did not entail the construction of a dam and instead utilised water from an upstream constructed earlier.

“You also look at the economies of scale – the larger the project the lower the cost per unit. Finally, you look at the time of construction. In 2006, when Bujagali was being procured, the cost of most materials was 200% higher than what it was in 2002.”

He pointed out that the assessment done by the lenders independent engineer had concluded that, given the prevailing market conditions, the Bujagali cost was “reasonable”.

The lenders for the project include the World Bank Group, the African Development Bank, the European Investment Bank, and other European financing institutions comprising KfW/DEG bank of Germany, FMO of Holland and AFD/Proparco of France.

On recent statements of energy minister Hilary Onek calling Bujagali a bad project, Kariuki said: “I do not understand why the Government can say that the project is bad or overpriced when in actual fact, the Government approved the entire project, including project cost and terms of financing. Nothing has changed between now and then.”