Uganda in talks with China to fund Karuma dam project

Uganda is negotiating with China to obtain funding for construction of a Nile River hydro-power dam at Karuma, a project that is expected to generate 600 MW of electricity, a senior official said on Monday. China - as elsewhere in sub-Saharan Africa - has rapidly expanded investment in Uganda in recent years, funnelling vast sums into projects ranging from gleaming public office blocks to highways, hospitals and underground internet cables. "We have begun negotiations with China to offer us credit to fund the (Karuma) project," junior Energy Minister Simon D'ujanga told Reuters. "We hope we'll get them to agree to help us and once they give us the money they will also supply the contractor so that we don't have to go through protracted procurement procedures." New Vision, a state-owned daily, reported earlier that President Yoweri Museveni had discussed the Karuma project with Chinese President Xi Jinping during a summit of BRICS emerging economies in South Africa last month. The Chinese leader voiced "a willingness to fund the dam", the paper said.

Construction of Karuma is likely to take five years and cost around $2 billion. It would be Uganda's biggest hydro-electric dam, after the recently commissioned Bujagali dam, also on the Nile. Most of the country's energy is hydro-electric.

Uganda is banking on Karuma to generate cheap, sufficient power to meet fast-growing energy needs and support an economy eyeing double-digit growth rates once crude oil production starts, anticipated in 2017.

The east African nation discovered hydrocarbon deposits near its western border with the Democratic Republic of Congo (DRC) in 2006. Reserves are estimated at 3.5 billion barrels.

Energy officials say the internal rate of return for energy projects in Uganda is fairly attractive at between 15-18 percent and higher than South Africa's 12-14 percent, although Uganda has a higher risk perception.