Re: Cheap electricity?

["Patrick Bond" <pbond@xxxxxxxxxxxxxx>]

> From:          Louis Proyect <lnp3@xxxxxxxxx>
> The economic justification of the 3,100 MW Yacyretá Dam in Argentina rested
> on the assumption that Argentinean electricity demand would grow at a rate
> of 8-10 per cent a year during the 1980s. In fact demand grew by an annual
> average of just over 2 per cent so that when the first turbines of the
> $11.5 billion megaproject came on-line in 1994 (eight years behind
> schedule), the country already had a sizeable surplus of generating
> capacity.

Funny how they ALWAYS do that. For our old friend the WB, the
overestimate on anticipated water demand in Jhb from 1986 (when they
started building the Lesotho dams) to today was 40%. Incompetence, or
pro-dam-building bias, or both?

Cde Nestor, help us. The Argentine nuke industry is this month doing
business plans for Zimbabwe -- where there are currently brownouts
due to a forex crisis, but also due to bad planning the whole way
along (since 1956 when the then world's largest dam, Kariba on the
Zambezi River, was started) and (like South Africa) really bad use of
energy resources for minerals beneficiation instead of for basic
needs -- to establish a nuclear power industry there.

By way of sharing more of my techno-babble, I've just finished a
critique of the capitalist financial planning techniques associated
with Kariba (and Lesotho), for a submission some left-eco-NGOs
(Cde Russell's friends NOT) are making to the World Commission on
Dams... I'll put the abstract/intro at the end of this ramble...

Obviously (or not?), what we are attempting is technocratic
codewording for socialist planning, a totally revamped system of
water/hydroelectricity consumption patterns, and the potential
construction of SMALL dams (which IRN's Paddy McCully isn't against,
by the way) to bring water to the masses who don't have it. For
electricity, it's true, as Russell says, that the national grids in
our region need to be expanded (SA's state producer hasn't done too
badly in macroterms, but it prices the retail electricity way out of
affordability range for rural and many urban folk). To generate
electricity in the first place, I suppose that after the revolution
we'd still be stuck with the ghastly legacy of thermal and hyrdo
projects (and in SA, some nuclear stations); but the overcapacity is
so great (more than 30% across SA, and a surplus for the region as a
whole even if all households got access to 1 kWh per day for domestic
use) that while revamping the economy away from mineral processing
(the main power consumers) there'd be plenty of space to avoid new,
environmentally harmful systems. Solar would be great, but there have
been such serious problems in operations/maintenance, and the
microgeneration capacity hasn't yet achieved the level of replacing
wood-burning stoves/heat, that formerly high hopes for sun-drenched
southern Africa have not been rewarded...

***

                    Paying for Southern African Dams

               Socio-Economic-Environmental Financing Gaps

                    A Southern African NGO Submission
                     to the World Commission on Dams

                                    February 2000

                         EXECUTIVE SUMMARY

     * Too much money has been spent on very large
     dams in Southern Africa, in relation to other
     uses of funds a) that are of a more urgent
     priority to the majority of citizens, b) that
     would save water and prevent environmental
     damage, and c) that would result in fairer
     distributions of water in a region that remains
     amongst the world's most unequal.

     * Too high a proportion of the costs of large
     dams are passed to low-income people, who
     therefore pay the bills for water that is
     predominantly wasted by inefficient, hedonistic
     users.

     * Too much emphasis in dam financing is placed
     upon enhancing the short-term profits of major
     corporate water or electricity users as
     justification for dam construction, without
     considering either the long-term nature of costs
     borne by government, or the equally vital short-
     term water and electricity requirements of low-
     income people who are too often denied access
     due to affordability.

     * Too much of the money borrowed for large dams
     has come from "hard-currency" sources, when in
     fact locally-sourced cement, steel and labour
     comprise the main cost inputs and should be
     sourced from local financial markets.

     * Too often, the inappropriate financing of dams
     has been motivated by geopolitical and
     multinational corporate interests, which are
     ultimately hostile to both democracy and the
     material interests of the majority of the
     region's citizens.

     * To address these gaps between what is required
     for sustainable development and what present
     systems offer, a dramatic reform of dam
     financing principles and practices is required
     in Southern Africa, incorporating a) better
     socio-economic-environmental cost-benefit
     analysis of dams; b) sensitivity to
     distributional implications of dam financing; c)
     more accurate matching of hard-currency inputs
     and debt liabilities for dam construction and
     operation; and d) a more democratic, less
     corrupt relationship between dam financing and
     politics.

1. Introduction

1.1 Technical competence and political values

Have Southern African dams been paid for in a way that
enhances developmental effectiveness? Large dams in
Southern Africa have a mixed legacy, one important
aspect of which is the multifaceted mismatch of
financing, both of initial construction and subsequent
operating and maintenance expenses. In this submission
to the World Commission on Dams, we consider the
particular problems associated with a) the volume of
financing available for large dams in view of inadequate
socio-economic cost-benefit analysis of dams; b) the
distributional consequences of such financing; c) the
source of funding, in particular the hard-currency and
debt-trap implications of dam financing; and d) the
financing-politics nexus that helps explain the
profusion of dam-related funding in relation to other
sources and uses of development finance.
     Even though there are complex technical arguments
associated with Southern African dam financing (some of
which suggest that the agencies responsible lack basic
professional competence), it is perhaps more appropriate
for civil society to highlight the objectionable socio-
environmental-political values involved, and their
implications for democracy and development. In
particular, the availability of hard currency from
international financial markets assures a funding source
for multinational corporate dam-builders, and in turn
shifts the relative weight of political and policy power
towards the dam-building lobby (and large corporate
constituents who may benefit from hydro-electricity),
away from ordinary end-users of water (particularly low-
income people), and others (such as dam displacees) for
whom large dams do not represent the optimal water-
supply solution. The role of state bureaucrats in all of
this is often quite ambiguous, as the line between
national interest and narrow, private interest is too
often blurred.
     In contrast, we argue, self-reliance on local
financial sources would make a significant difference to
the ability of governments and civil societies to
determine what kind of bulk water/hydroelectric
supply/demand system is socially, economically and
environmentally most appropriate.

1.2 South Africa:
The best case for developmental water finance?

To illustrate the extent of concern, not even long-
awaited democracy in South Africa in 1994 allowed the
qualitative and quantitative shift of resources away
from megadams into more appropriate "demand-side
management" and water conservation strategies. Although
adopted in principle by the Department of Water Affairs
and Forestry, the latter strategies have been
consistently underfunded. Likewise, poor financial
design meant that attempts to provide rural water
through national government rural supply projects
gathered less than 1% funding via cost-recovery pricing,
leading to a majority of projects failing.
     Meanwhile, financing of major dams in the Tugela and
Mkzomazi basins, the Mzimvubu basin, the Orange River
and the Western Cape have continued, although estimates
of the available water that can be drawn from such
supply enhancements are just three decades' worth under
existing consumption norms. Billions of South African
taxpayer and consumer rands were devoted to expanding
large dams during the late 1990s, in comparison to a few
hundred million rand of state funding (and several
hundred million more of foreign donors) for conservation
schemes like "Working for Water" and a few meagre tens
of millions for township-oriented demand-management
strategies.
     This contemporary record suggests more continuities
than changes associated with dam financing, from
apartheid to democracy, than society would accept, were
there sufficient debate and were the playing field
leveled. In the interests of such debate, the lines of
this argument are extended to the Southern African
region, and more fully explored, in two examples
involving South Africa, Lesotho, Zimbabwe and Zambia.

1.3 Two case studies:
Kariba and the Lesotho Highlands Water Project

The civil society critique of large dam financing in
Southern Africa can best be made through two detailed
case studies. Firstly, the Zambezi River's Kariba Dam
entailed financial calculations reflective of distorted
colonial-era priorities that in turn suggest flaws in
economic methodology often associated with dam policy.
These relate to multinational corporate hydroelectricity
needs, and to the failure of cost-benefit calculations
for large, long-term development projects to incorporate
the development needs of low-income people who have
shorter timeframes. In addition, hydroelectricity
generated at Kariba was priced inappropriately at retail
level, which has prevented the expansion of Zimbabwe's
electricity system to the country's majority.
     Secondly, the contemporary case of water drawn from
the Lesotho Highlands Water Project for Gauteng
consumption includes several financing controversies:
financial-sanctions busting, hard-currency loans,
corruption, World Bank "conditionalities" and pricing
advice, and the distributional consequences of resulting
tariffs.
     These case studies cover most of the controversial
issues associated with Southern Africa dam financing.
Many of the problems can be addressed through a review
of controversies and argumentation, so that
sophisticated modeling techniques become superfluous.
Hence these studies seek to draw attention to the issues
most important to civil society, namely the extent to
which the financing of the two largest Southern African
dams have contributed to a variety of other social,
economic and environmental problems, and vice versa.

(full paper available from pbond@xxxxxxxxxx)