APAC: Chinese and Spanish groups sign USD 14bn Congo hydropower deal

18 October 2018 - 12:00 am UTC

Chinese and Spanish investors have signed an exclusive development agreement with the government of Democratic Republic of Congo to develop a USD 14bn hydropower project in the African country.

The China Inga III and Pro Inga of Spain consortia, respectively led by China Three Gorges and Spain’s ACS Group, will form a single consortium and update feasibility studies based on the project’s revised size (11GW), according to the government website. They are then expected to submit the “final outline of the project which is estimated to cost USD 14bn” for approval. 

The two groups will take into account the significant rise in the national, sub-regional and continental power demand, as well as economies of scale created by building basic structures that could boost Grand Inga’s total capacity. The agreement also highlighted the project’s prospects for producing power at what could be “one of the lowest prices” in the world.

While it is believed that the Chinese consortium — formed between Sinohydro and CTG — and ACS Group are likely to co-finance the long-awaited project, the government is still open to new investors — either strategic or institutional, a government source told Inframation. They are expected to provide debt or equity to what is poised to become the largest power project in the DRC, Africa’s biggest copper producer and the world’s largest source of cobalt.   

The Inga 3 hydro project was first proposed more than a decade ago. The government noted on Tuesday (16 October) that it would collaborate with South Africa, with which it secured an ad hoc treaty in 2013 for the power plant to export 2.5-4.8GW to state utility Eskom. It will be the DRC’s third dam on the Inga Falls complex and also form part of the 50GW Grand Inga hydropower plant complex.

The government and the three companies are also arranging a project loan from international lenders, which is likely to be financed on the basis of a 70:30 or 65:35 debt-equity ratio, the source noted

In 2004, a consortium of five countries – Angola, Botswana, Namibia, South Africa and the DRC – signed an MOU in 2004 to build Inga 3, which at the time had a designed capacity for 4.8GW of electricity. Five years later, the DRC withdrew from the deal and awarded the tender to BHP Billiton.

In 2013, the World Bank came to fund the project but pulled out of the deal after President Joseph Kabila took control of the project, raising transparency concerns.

The project attracted three bids, from Sinohydro / CTG, a consortium one led by ACS, and a South Korean team comprising Posco and Daewoo in partnership with Canada’s SNC-Lavalin, which withdrew in March 2016.

The bulk of the power produced by the project is expected to go to South Africa, the DRC’s mining sector, and the capital, Kinshasa, plus the southeastern city of Lubumbashi, according to an industry insider.

The 30-year project IRR is estimated to be 10-25% in the base case scenario, he said. “If the Congolese government does not want to finance or provide sovereign guarantees to the project, it would be hard to secure low interest rate loans from Chinese policy lenders such as the Eximbank of China,” he said.

“That means commercial bank loans or project bonds will be two major project financing options for the investors with a financing cost of 5-10%.”

Moreover, the implementation of the project faces political uncertainty, as Kabila, who is now overseeing the project, announced he would not run for the presidency in elections scheduled to take place on 23 December.

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