China's Three Gorges project, long derided because of its threat to the environment, is fast turning into a bidding jamboree. The world's biggest hydropower project was always going to be a major attraction for foreign engineering and construction companies and they have been able to lean on home governments to make available export financing.
The US$26bn project is scheduled for completion by 2009 and at full power will generate 84.7bn kWh of electricity.
Eximbank stands alone
Not only have six major Western consortia mobilised bids for the supply of 14 of the 26 turbines for the 1,820MW project, most of the world's leading export financing institutions are now fully on board to back the scheme. There is one exception ? the US Export-Import Bank. Last year it articulated a detailed criticism of the project, entirely on environmental grounds, stating that unless its findings were dealt with by the Chinese authorities, the project would not benefit from US Eximbank backing.
This was good news for UK, German and French companies, among others, for it meant that American firms would be at a competitive disadvantage because they would not be able to access government financing.
The Japan Export-Import Bank (Jexim) was one of the latest bastions to fall. Until the end of last year, it had been tacitly supporting the US position; but any lingering concerns were swept aside when bids went in for the initial turbine contracts.
The turbines award, which is expected in July or August, will be preliminary insofar as the winner(s) will then have to mobilise the manufacture of the turbines and financing and delivery package, tailored and costed to the construction timetable. The contract award is expected to involve a countertrade and offset package.
The turbine bidding consortiums and financial institutions include:
* GEC Alsthom and Neyrpic of France, with financing by France's Coface
* Mitsubishi Heavy Industries, Hitachi, Mitsui and Itochu of Japan, with Jexim financing
* Impsa of Argentina and Turbatom of Ukraine
* Siemens of Germany and GE / Vioth of Canada, with financing by Hermes and EDC of Canada
* Energomachexport of Russia and Sulzer of Switzerland, with Swiss government financing
* ABB Power and Kvaerner of Norway, financed by the Swiss government and the UK's ECGD.
Zest for hydropower
How long Eximbank can hold out against the pressure being exerted by American companies will depend on China's willingness to comply with its environmental demands. In its criticism, made last June, it was particularly concerned about the environmental and social impact of resettling 1.3 million people, but it also touched on silting, soil conservation and water quality.
Indications are that Eximbank will yield, providing it gets positive signals from Beijing that it has taken aboard its concerns. This would be a relief to big US companies such as Caterpillar, Rotec Industries and GE, which is bidding for the turbines contract through its Canadian subsidiary, Voith Hydro.
Barring disaster, there is little doubt that the project will be built as planned. Were Three Gorges up and running tomorrow, it would add about eight per cent to China's installed capacity, which stands at around 220,000MW. This will not happen until at least 2009, when China's installed capacity will conservatively stand at 420,000MW. By then, hydropower capacity will account for about 13 per cent of all China's installed capacity, down from the current level of around 24 per cent.
This relative decline stems from China's plans to build up its nuclear capacity ? it hopes to have some 20,000MW of nuclear capacity either online or in advanced planning by 2010. Nearly all the balance will be coal-fired, with liquid nitrogen gas-fired schemes also likely in key cities such as Shanghai.
Much of the success of Three Gorges is based on its getting built on time and according to budget, not to mention delivering the forecast amounts of electricity. However, a study by the International Rivers Network (IRN), a US-based non-governmental organisation, shows that large dams almost never get built anywhere near close to schedule or to budget.
Potential for disaster
The report acknowledges the zest China has shown for hydropower projects since the 1949 revolution, an enthusiasm shared by India and many Latin American countries. By then China had only eight dams of more than 15 metres high, but today it has more than 19,000.
The potential for disaster is real, notes the report, citing the series of dam bursts in Henan province in 1985 which left up to 230,000 people dead ? 85,000 from the immediate floods and the balance from the subsequent epidemics and famine. Outside China, says the study, some 12,000 people have been killed by dam bursts.
Further, the dislocation factor is also familiar. The 3,300MW Ertan project, which does have World Bank support, will cause the dislocation of 35,000 people while the 1,200MW Tianshengquio project will displace 48,800 people. Both are scheduled for completion by 1999. The Xiolangdi, an 1,800MW scheme to be completed by 2001, will require the dislocation of 181,600. In terms of cost overruns, the run-of-river Gezhouba project on the lower Yangtze, downriver from Three Gorges, exceeded its estimated cost of US$163m by 270 per cent, coming in finally at US$600m.
Cost overruns in developing world dam projects of 100 per cent are commonplace, and there have been instances of projects overshooting by 1,000 per cent. As for Three Gorges, a 1995 edition of Institutional Investor magazine of the US quotes an unnamed executive as claiming that the dam won't deliver power for 30 years. He further expected the cost to reach US$36bn, making it highly uncompetitive, if any capital costs of the power are charged to the overall electricity tariff.
Foreign funding needs
According to Zhang Denan, vice-minister of the Three Gorges Project Construction Committee, funding should not be a problem. For the first stage, US$8.4bn should come from the state; about 25 per cent of loans will be supplied by the State Development Bank, which supports big infrastructure projects; and the rest will come from foreign sources.
China has already started to scale back its capacity targets. It had hoped to reach 300,000MW by 2000 but has acknowledged that this could be as low as 275,000MW. However, even this is no mean achievement given that it is already adding 12,000-15,000MW of capacity a year.
China's overall foreign funding requirements for power are increasing. Between 1984 and 1995, some US$4.lbn was lent, mainly from aid institutions, to support 15 hydropower projects. Another US$4.7bn was lent to support 16 thermal power schemes.
Whether Three Gorges gets US Eximbank financing remains to be seen. The World Bank and the Asian Development Bank cautiously state that they haven't been asked for help ? more confidentially, they say they don't want to be asked. It is not out of the question that both institutions may one day also provide some form of support, perhaps to finance downstream developments for Three Gorges.
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