Africa: Water Development, Hydropower & Growth The Africa Infrastructure Consortium Africa: Water Development, Hydropower & Growth

3 Messages: Africa, growth, water development & hydropower Africa’s ‘dual’ water resources legacy is a major constraint to growth The infrastructure gap is huge & must be addressed in innovative ways Hydropower: anchor infrastructure for multipurpose water development

A natural legacy : massive climate variability much higher rainfall variability than USA Risk of recurrent drought Kenya: variability & shock

$2.39b infrastructure damage Kenya winter flood 97/98 $2.39b infrastructure damage Kenya 1998-2000 drought $2.41b losses

Kenya: climate, shock & competitiveness - Drought & flood in Kenya: Impact 22% GDP/ annum - transport 50% - energy 13% - industrial production 29% Source: Business Environment & Comparative Advantage in Africa: Evidence from ICA data; Jan. 2005 Investment Climate Assessment in Kenya: low competitiveness, indirect costs 20-30% of total costs vs. 7-12 % for strong performers transport 31% & energy 19% of indirect costs.

with drought in Kenya in 2000…..... massive flooding in Mozambique -23% +44%

Ethiopia: variability and growth Infrastructure platform Rainfall & GDP growth: 1982-2000 Ethiopia Country Water Resources Assistance Strategy: preliminary results of the baseline scenario (2005) Impact of historical levels of variability on 2003-2015 growth projections 38% decline in avg. projected GDP growth rate when historical levels of variability are assumed

Africa’s colonial legacy: many international rivers 60+ basins More int’l rivers shared by 3 or more countries than any other continent Every country has at least 1 37 countries have 2 or more 15 countries have 5 or more future dev’t increasingly on int’l rivers political complexity requires capacity and resources few clear int’l guidelines no overarching authority

3 Messages: Africa, growth, water development & hydropower Africa’s ‘dual’ water resources legacy is a major constraint to growth The infrastructure gap is huge & must be addressed in innovative ways Hydropower: anchor infrastructure for multipurpose water development

River regulation, storage & poverty Water storage in m3/cap 43 746 1,287 1,406 2,486 3,255 4,729 6,150 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Ethiopia South Africa Thailand Laos China Brazil Australia North America River regulation, storage & poverty River regulation/storage needed to reduce impacts of drought/flood & often essential for poverty eradication dams & reservoirs have been extensively implemented in developed countries, regulating almost all rivers but, poorly implemented, they can cause significant adverse impacts on local communities & the environment

Water storage/security investment gap: proxy of 750m3/cap/yr (SA, 10% of USA) Country Additional Storage needed per person (m3) Storage investments required per person (US$) Storage Investments Required (US$ Billion) Period needed at 5% current GDP investment per year (no pop. inc.) (Years) Lesotho 751 939 1.7 44 Namibia 542 678 1.3 8 Nigeria 402 503 67.3 32 Ethiopia 555 694 46.2 144 Kenya 307 384 12.1 24 Tanzania 610 763 27.4 60 Uganda 511 639 17.9 58 Burkina Faso 152 190 2.5 22 Senegal 683 854 9.9 40

World’s realistic potential developed: 33 % Current hydro production: 2740 TWh/y Realistic potential production: >8000 TWh/y 75% 69% 22% 7% 33% With only one-third of hydro’s potential developed, it is clear that substantial new development will continue in South America, Africa and Asia. In Europe, North America and Australasia, the market will focus on Upgrading/Modification, Renewables Incentives and Emission Trading. 49% Current hydro generation: Africa = 80 Asia = 800 Australasia = 43 Europe = 570 N/C America = 700 S America = 550 (TWh/year) Source: World Atlas of Hydropower & Dams, 2002

Hydropower potential tapped …electricity gap

E. Africa-Europe: Hydropower comparison Popul. Mill. GNP/cap $ HP pot. MW HP dev. MW Elec./cap kWh/yr CO2 em. ton/c/yr Ethiopia 61 105 45,000 700 22 0.00 Kenya 29 361 1,600 106 0.05 Rwanda 8 241 100 27 26 Tanzania 33 267 3,200 557 56 0.01 Uganda 298 2,800 278 38 Austria 23,333 18,300 11,700 6,457 1.51 France 59 22,128 26,000 25,200 6,539 4.32 Germany 82 22,430 8,000 5,600 5,963 4.50 Italy 58 18,808 22,800 15,267 4,732 2.98 Norway 5 36,889 47,200 27,873 24,422 3.23

3 Messages: Africa, growth, water development & hydropower Africa’s ‘dual’ water resources legacy is a major constraint to growth The infrastructure gap is huge & must be addressed in innovative ways Hydropower: anchor infrastructure for multipurpose water development

Hydropower can contribute to water security by supporting multiple objectives ‘new’ renewable Power Options analysis thermal nuclear hydropower Multi-purpose, by product Single-purpose, primary storage & regulation Water resources Multi-purpose options irrigation water supply navigation, recreation..

Multipurpose water & power development Maximizing economic, social & environmental benefits Multiple source financing of public & private goods Embedding multiple objectives in project concept & design MP Offsets Dam allocated to power Transmission Power Benefits Carbon Credits MP Benefits

Senegal River, OMVS, 35 yrs, now 4 countries… Guinea Mali Mauritania Senegal

Senegal River: multipurpose development Regulated flows below Manantali Dam: multipurpose benefits 255,000 ha irrigation 900 km navigation Run-of river hydropower: Felou 60 MW; Gouina (180MW) Power at 6c/kwh vs 22c/kwh for thermal 30,200 fiber optic comms with 1500 km joint power grid. Reliable urban water supply: St-Louis, Dakar, Nouakchott Multisector income generation: recessional agriculture, fisheries, agro-forestry, recreation New investments to optimize/sustain multipurpose gains: Irrigation expansion/rehab: 2ndry infrastructure ($60M); Navigation: docking inf. & port at river mouth ($ 250M); Felou hydropower: public finance (WB $75 M, EIB $40 M). Public & private funds needed for Gouina 25% of 1200MW hydropower potential developed; $600M for Guinea multipurpose (Kuku Tamba $300M; Balasa $100M & Boureya $200M

Senegal River development options… Felou Gouina

Niger: 9 countries, NBA, 40 years, renewal, joint planning commencing… Benin Burkina Faso Cameroon Chad Côte d’Ivoire Guinea Mali Niger Nigeria

Zambezi: 9 countries, ZACPLAN 15 yrs, ZRC 2 yrs, joint development? Botswana Malawi Namibia Mozambique Tanzania Zambia Zimbabwe

Nile River, Nile Basin Initiative, 9 years, (Commission Nile River, Nile Basin Initiative, 9 years, (Commission?), 10 countries…. Burundi Egypt Eritrea Ethiopia Kenya Rwanda Tanzania Sudan Uganda

Nile: Kagera: Rusumo Falls Project 61 MW; renewable energy Earliest on power date 2011 3.2 c/Kwh est. gen. cost at site Total cost: $114M + $32M transmission Environmental & social issues & opportunities

Possible Institutional Arrangements Nile Basin Initiative / River Commission Four-country basin-wide multi-purpose priority setting – Kagera TIWRM Kagera Basin Management Structure Coordination of multi-purpose basin development and management initiatives RRFP Joint Utility/Power Company (Rwanda, Burundi, Tanzania) Multi-Sectoral International Board Power generation Reservoir management Environmental and social monitoring Catchment management MP investments PPA PPA PPA Electrogaz Regideso Tanesco Power transmission and distribution Load promotion for public/private multi-purpose use

RF Project economic analysis - range of benefits 3. Downstream Benefits e.g. downstream irrigation, flood protection, impact on water hyacinth in Lake Victoria Off-taker Benefits Direct power sales to national utilities, carbon credits Uganda 4. Transmission corridor Benefits e.g. rural electrification, indirect investment in schools and health centers Rwanda EIRR Power benefits: 20% EIRR Power + MP benefits: 84% DRC Burundi Tanzania 2. Project Area Benefits e.g. irrigated agriculture, local navigation, sediment control, fisheries, business development 5. Regional Benefits e.g. cooperation benefits between utilities, development of common energy and water policies, regional integration, peace and stability 6. Extra-Regional Benefits e.g. increased trade within the EAC region -

Major Blue Nile Reservoir Options Regulation benefits of one dam

Logic of Joint Multipurpose Investments on the Eastern Nile Egypt Growth Pole Investments Main Nile Joint basin management Watershed Management & livelihoods Regional Transmission Hydropower Sudan Blue Nile Irrigated Agriculture (Modernization/Development) Large Storage White Nile Local Community Infrastructure (to ensure local benefit sharing) Ethiopia

Is there a “bankable” project …? Financially viable With an acceptable risk profile In a suitable enabling environment

Financial vs Economic viability ENJMP has very strong economic benefits: Flood attenuation (Sudan 1999 floods cost $450 m.) Increased area and reliability of irrigation Reduced cost of sediment control Power generation Watershed management But, power generation may be the only benefit convertible into a financial revenue stream. Allocating concessional financing from MDBs and donors to monetize economic benefits can reconcile economic and financial benefits

Possible Financing and Implementation structure - Split Public-Private ownership

Preliminary financial estimates 1. Multipurpose Dam ($1 bln) Financed in the public sector (MDBs and donors), justified by significant economic benefits Revenues from taxes on MP related economic activities and water charges 2. Power complex and Transmission ($2 bln) Financed in the private sector, e.g. sponsor equity and debt from commercial banks and ECAs, supported by MDB guarantees Debt-Equity ratio @ 75/25 and energy tariff between 5-7 US cents would generate ROE in excess of 20%

MDB Guarantees will widen role of private sector But risks are significant…. MDB Guarantees will widen role of private sector Without With

Eastern Nile Joint Multipurpose: some early conclusions Private funding achievable, subject to energy price and public sector support (i.e., split private-public scenario) Substantial amount of concessional funding required to monetize non-power benefits (e.g. from MP dam) . MDB support in the form of guarantees will attract commercial lenders Will require strong legal & institutional regime to ensure enabling environment in place

The World Bank’s Hydro Portfolio: Africa up… Pipeline Currently, the Bank’s hydro portfolio is mixed, with run-of-river, new storage and rehabilitation projects. Africa currently accounts for about 14% of the portfolio in terms of numbers of projects, although the dollar amounts are a smaller proportion (large projects in China have tended to dominate the financial picture). In terms of financial instruments, the Bank is increasingly looking at innovative approaches and combinations of approaches (e.g., IDA grants with risk guarantees) and is also moving into carbon funding of all size of hydro. Looking to the future, Africa’s share of the pipeline for projects is more robust: about 30%. There is of course some uncertainty about how many of these project swill move to full appraisal, but the change in volume is noteworthy. NOTE TO DAVID: the numbers are not very specific for Africa for two reasons: (i) we are still dependent on identifying hydro projects through “word of mouth” and perusal of PADs -- hence, I am not sufficiently confident in the numbers yet to go deeper than direction indicators; and (ii) pipeline numbers include both PID and no-yet-PID projects, so we don’t want to invite to many detailed questions (which detailed numbers tend to engender!) Current portfolio

Back in hydropower responsibly 1. Regional cooperation Exploiting returns from riparian cooperation and web of dependency for integration and peace 2. Sharing benefits Managing hydraulic infrastructure for multiple purposes, for multiple beneficiaries 3. Environmental and social protection Adopting new standards and ensuring meaningful consultation DAVID: This and the next slide provide two ways of getting the message across about how hydro is different this time around, from the Bank’s perspective anyway. They are based on the messages we used a year ago in Norway, but I have refined the adaptive management message, wrapped multi-purpose with sharing benefits and added financial architecture. This one is text and photos (except I deleted the nice photos and animation b/c they made the file way too big); the other the Kuznets curve. 4. Adaptative design Responding to changes in societal values, technology and markets Financial architecture Seeking new combinations early in the planning process

The Modified Kuznets Curve: Back in hydropower responsibly Regional cooperation High No investment Sharing benefits Adaptive mgmt Financial architecture Environmental & Social Costs DAVID: The diagram is modified from 4th World Water Forum (by the way, I liked the changes you made from Norway – especially a “no investment” line that makes a lot more sense). The changes from 4WWF are: Addition of a third curve (green dash-dot-dot). This is the line that we would get from more proactive adaptive management through good monitoring, experimentation and flexible design. It moves the point at which one starts reversing damage and so, over the life of the project, reduces overall impact. Recast the drivers of moving the curve down to match the broader messages of “new hydro”. Public participation Low Development Benefits Low High

Many innovative mechanisms to share benefits with affected people: Revenue streams more ethical than one-time compensation Revenue sharing: royalties tied to power generation or water charges Development funds: financed from power sales, water charges, etc Equity sharing or full ownership: local authority equity with share in profits and risks Taxes paid to regional or local authorities: fixed tax (eg on dam’s property value) or tax on project sales or net income Preferential electricity tariffs & other water-related fees for local or regional authorities ….affected people could be within nations or in other nations

3 Messages: Africa, growth, water development & hydropower Africa’s ‘dual’ water resources legacy is a major constraint to growth: political leadership is moving basin programs The infrastructure gap is huge & must be addressed in innovative ways: ICA has a key role to recognize & support this Hydropower: anchor infrastructure for multipurpose water development: many projects now ready for financing…

Thank you CIES AND INVESTMENTS