World Bank backs world's largest hydro in DR Congo

From the newsletter

The World Bank is committing $1 billion to support DR Congo in developing the next phase of the 40,000 MW Grand Inga hydropower complex, starting with an initial $250 million. This marks a pivotal step for the project, which had stalled for decades due to conflict, corruption and prohibitive costs. It is now a key part of the World Bank's "Mission 300" program.

• The Grand Inga Dam will be the largest power plant in the world when (if?) completed. Other countries are already planning around it. South Africa intends to import at least 2,500 MW from the plant.

• Large-scale hydropower plants often face challenges due to their immense environmental and social impact, high upfront costs, lengthy construction periods and complex political and governance issues.

More details

• The Grand Inga Dam project builds on the existing Inga I (351 MW, commissioned 1972) and Inga II (1,424 MW, commissioned 1982) dams. Inga III is currently in its design stage. The World Bank funding will support studies on Inga III and reform the state electricity company to attract private developers. The project will be bigger than the current largest, the 22,500 MW Three Gorges Dam in China. It aims to meet the country's demand, where only about 21% of the population has access to electricity.

• The project has faced decades of delays and withdrawals. Several reasons have contributed to this, including persistent governance issues, a lack of transparency, including incomplete environmental impact assessments, and political instability. The overall project cost, which goes up to $80 billion and is more than the country's GDP, has also been a major impediment.

• Various international entities and consortia have attempted to support the project. The World Bank initially approved a $73 million grant for technical studies in 2014 but suspended and cancelled it in 2016. It cited the government's "different strategic direction" and "major governance concerns" as reasons. Other key players included the AfDB, Chinese consortia like China Three Gorges and Sinohydro, and a Spanish consortium led by ACS, which withdrew in 2020 due to internal disagreements. 

• The World Bank's recent re-engagement marks a significant turning point. It aligns with its mission to electrify 300 million by 2030 and DR Congo's vision to have 62% of its population connected by 2030.

• The project is positioned to serve industrial consumers, particularly the copper and cobalt mining sector, and for export to other countries. South Africa has consistently been a key interested party, committing to purchase 2,500 MW and plans to double it later. Angola has also indicated interest in purchasing up to 5,000 MW, and a Nigerian company, Natural Oilfield Services, has signed on as a potential off-taker. There is also an emerging focus on leveraging Inga's hydropower for green hydrogen, green ammonia, and metal processing, primarily for export to European and other markets.

• Despite the vast potential, the economic benefits for DR Congo, particularly in terms of export revenue, are contentious. A 2017 analysis projected that, even under conservative estimates, the DR Congo could face an annual loss of $618 million from Inga III. Critics argue that the project's public-private partnership model incentivises developers to prioritise industrial and export interests over domestic needs. This could potentially deepen the country's debt burden without delivering promised energy access to its citizens.

• In other parts of Africa, hydropower continues to attract significant funding, complementing the rise of intermittent renewable sources. Its capacity to provide reliable baseload power positions it as a crucial component in the energy transition. For instance, Malawi last month received a $350 million grant from the World Bank. The increasing interconnectedness of cross-border power lines is opening up new export/import markets. Zambia, Mozambique, Mauritania, and Kenya are developing transmission lines to extend their reach for additional electricity markets

Our take

• The project should probably be built in phases to spread out its high cost. Doing it in a single phase could lead to significant delays and project overruns, making it even worse economically. A phased approach could help manage the financial burden and mitigate the risk of repeating past issues of debt accumulation and economic losses.

• The World Bank's pledge to support studies and reform the DR Congo's national electricity company, SNEL, is a welcome move. By addressing historical governance concerns, it creates a more transparent and reliable environment. Such measures are vital to de-risk private sector investments and increase their confidence in investment.

• While the country risks leaving much of its populace unconnected by primarily pursuing export markets, there is a big opportunity here. The project can generate revenue in foreign currency from electricity sales to regional markets and potentially green hydrogen production. This foreign currency will be critical for repaying national debts and cushioning consumers against currency fluctuations.