December 17, 2022

Analysis

# Droughts and Dams

##### The troubled future of World Bank-funded hydropower in Zambia

Most of Zambia’s grid electricity is generated by hydropower. Over the past decade, recurring droughts—in 2015, 2016, 2019, and now again in 2022—have exposed deep vulnerabilities in the system. These droughts have unleashed unprecedented power outages, with low reservoir levels constraining hydroelectricity generation capacity.

The consequences of the droughts rippled across Zambia’s economy: power cuts damaged manufacturing inventories and equipment, created new costs of backup generation, and hurt the reputations of domestic businesses in export markets.1 Only a third of Zambian households have electricity access to the grid, and even those privileged few experienced power outages up to fifteen hours a day.2 The lessons of these droughts are clear: for Zambia’s system of energy provision to be climate resilient, it would need to diversify away from hydropower generated from its Zambezi river basin.

Zambia is one of thirty-two developing countries facing the challenge of hydropower dependence3 amidst increasingly frequent El Niño droughts.4 The droughts have revealed a perversity: hydropower was initially considered as a key renewable energy source for climate mitigation, but its own availability has been curtailed by already-present climatic changes. Seventeen of these hydropower-dependent and drought-vulnerable countries, including Zambia, received World Bank investments for hydropower from the 1950s to the 1970s to support mineral extraction and industrialization. In Zambia, the uneven distribution of these investments, and the univariate investment appraisal process, created a system of energy provision which has failed to deliver power after its primary river basin experienced droughts.

The World Bank played a crucial role in establishing hydropower and power supply infrastructure in Zambia, and across Africa. Since the completion of the nation’s two largest hydropower dams in 1974 and until the recent commissioning of a coal-fired power plant, hydropower had accounted for almost all the nation’s power supply. But before the entrance of multilateral lenders, a lack of established markets, low commercial demand, and little private sector investment precluded the development of the energy sector. The World Bank and other development finance institutions provided investment, and encouraged further private investment by providing debt, issuing guarantees, and offering political leverage to equity investors and private co-lenders. More recently, China has invested heavily into African infrastructure, to the point where Chinese state-owned enterprises are now larger debtors to Zambia’s state-owned bank ZESCO than the World Bank.5 But even though its most significant investments into Zambian power generation took place forty years prior to the power outages of 2015 and 2016, the World Bank still accounts for the greatest share of investment in Zambian power generation assets.

### The World Bank and twentieth-century hydropower

In 2014, the year before the major power outages began, the Kariba and Kafue hydropower projects accounted for 81 percent of electricity generated by ZESCO.6 These projects were financed by the World Bank in 1956 and 1974, respectively.

Investment in hydropower in Zambia was representative of the World Bank’s institutional bias. During the 1950s, economic infrastructure—transport, telecommunications and electricity— accounted for 87 percent of World Bank lending commitments in Africa. It continued to account for 69 percent of commitments in the 1960s, and 39 percent in the 1970s. During that same period, social infrastructure—education, water supply, sanitation, housing and public health—lacked financial support, accounting for 0 percent, 8 percent, and 16 percent of World Bank commitments in the 1950s, 60s and 70s, respectively.7 Zambia fit these trends: from 1953 to 1974, economic infrastructure constituted 73 percent of the World Bank’s investments in the nation, and hydropower itself accounted for three-quarters of that amount.8 Despite this massive investment, universal electrification was not a priority. Investments in Zambia’s energy provision instead served the sanctioned British colony of Rhodesia and copper extraction from Zambia.

The prioritization of hydropower reflected broader strategies pursued by the World Bank. There was a belief that hydropower could spur further economic activity, in the way that it had in the case of the Tennessee Valley Authority (TVA) in the USA, and stymie the effects of the Great Depression.

Created through congressional charter in 1933, the TVA was a federal hydropower agency that would cover more than half of Tennessee, portions of Alabama, Mississippi, and Kentucky and slivers of Georgia, North Carolina, and Virginia. By 1946, the TVA had nine large dams along a stretch of 600 miles of Tennessee River, and a further eleven on the tributaries. As well as regulating the flow of water, the dams had the capacity to generate 2 to 2.5 million kilowatts of power, ranking the TVA second among US electric systems9 and offering electricity prices were almost 60 percent lower than the national average.10 The TVA also employed thousands in construction and operations, leading to an increase in the region’s aggregate demand for services, retail, and manufacturing industries.11

For the World Bank, the TVA represented a model that could be pursued in the developing world: economic infrastructure investments could provoke structural shifts from low-productivity agriculture to higher-productivity manufacturing, increase demand for goods and services, and thereby increase government coffers from heightened tax revenues to fund “social” infrastructure.

The US was also the World Bank’s largest shareholder, and exporting a US developmental model carried political benefits.  In 1949, a New Republic article called the TVA the finest “American ‘know-how’ available for export” and the USA’s “best-known, most highly appreciated institution.”12 The historian Arthur Schlesinger called the TVA “a weapon which, if properly employed, might outbid all the social ruthlessness of the Communists.” 1314

In the initial years of the World Bank’s history, hydropower projects had seen success in Chile, Turkey, Southern Rhodesia, Yugoslavia, and therefore dams were considered sound investments. This, however, created institutional reluctance to explore alternatives. Relying on private funding by selling bonds on the private market, the Bank focused on establishing its creditworthiness in its early years.15 This resulted in an appraisal methodology in the mid-1950s of assessing need on the basis of demonstrated market demand, rather than on the basis of economic need. Its early appraisals of hydropower “rarely” investigated the “possibility of a thermal alternative.”16

### The Kariba North and Kafue hyroelectric projects

In Zambia, ZESCO compared both the Kariba North project and the Kafue hydroelectric projects against the thermal alternative, a coal-fired power plant at Maamba Collieries, during its evaluations.17 However, it considered the thermal alternative on only one criterion: lifecycle cost. ZESCO determined Maamba to be more expensive on both a capital and operational expenditures basis. But the evaluations also hugely underestimated the human and financial costs of Kariba, resulting in the bankruptcy of the British construction contractor Mitchell, and a disturbing “expectation” of fatalities in construction.18 “We expect men to be killed on hydroelectric work,” reportedly said a senior partner of the consulting engineering firm of the Kariba North Bank Company. The evaluations omitted the possibility of mass displacement, even though earlier, the Kariba dam’s construction had compulsorily displaced an estimated 57,000 BaTonga people, destroying their cultural and religious sites.19

The reports also lacked comparative study of the loss or damage of habitat. While climate resilience would not have been a relevant consideration in the 1970s, there was an awareness of anthropogenic contributions to climate change. Analysis suggests that the methane emissions from the decomposition of underlying vegetation from the Kariba dam’s reservoir may have had an emissions impact 3.5 to 8 times higher than a coal-fired power plant generating the same amount of energy. 20

Where there were resources for hydropower, the World Bank went. With the Kariba hydropower plant, the Bank even pushed through legal and political hurdles: the then chairman of Mitchell Construction recalls that the Bank “twisted” the Zambian government’s arm to make it accept the Kariba north bank power station, for the purpose of assisting the Bank in circumventing investment sanctions on Southern Rhodesia21, which was referred to in the World Bank’s earlier investment appraisal documents as “the Colony.” In 1965, the UN Security Council had condemned the unilateral declaration of independence made by a “racist [white] minority in Southern Rhodesia” and thus, in 1966, it had called for “all States to do their utmost to break off economic relations with Southern Rhodesia.”22 Mitchell Construction chair David Morrell reflects:

Dr. Goebbels was a great advocate of scale in practicing the art of deceit. The higher the deception, the less likely it was to be challenged. Thus it was with Kariba Stage 2 for, stripped of its camouflage, it was quite simply the product of sanctions-breaking on a massive scale. The incredible fact was that the Kariba north bank power station was being built for Rhodesia with international aid provided through the World Bank. The Kariba North Bank Company, though wholly owned by the Zambian government, was simply a façade. It provided a medium through which World Bank funds could be channelled in order to purchase all the imported constructional equipment and permanent installations without the Bank itself suffering direct contamination from Salisbury. The Zambians were told by a British member of the World Bank team that if they project went off smoothly, “There would be no reason to supposed that IBRD (the World Bank) would not assist Kafue Stage 2 (Kaunda’s favored solution to Zambia’s power problem) in due course.”

Yet the goal of the World Bank’s investment was not to extend power generation to ordinary Zambians. Indeed, by 2018, only a third of the population had access to on-grid energy access.23 Insofar as the Kariba hydropower dam was meant to benefit the Zambian economy at all (rather than Rhodesia), appraisal documents inferred that it “urgently” required to satiate demand from Zambia’s copper industry. “In Zambia[,] adequate supplies of power are vital to the economy of the country since the copper industry, which accounts for about 40 percent of the gross domestic product, is a very large user of power.”24

At the time, the Copperbelt accounted for 85 percent of Zambia’s electricity consumption.25 From 1966 until the 1990s, ores and metal exports represented over 96 percent of merchandise exports.26 The industry’s profits would have been retained by the government following its nationalization in 1969, in stark contrast to today when most profits are expatriated to Canadian mining corporations Barrick Gold and First Quantam Minerals, British mining corporation Glencore and Indian mining corporation Vedanta.27 Following the energy investments, manufacturing value-added contribution to GDP did increase substantially: starting at 4 percent in 1960 and rising to 10 percent in 1970, and going up to 17 percent in 1980 and 32 percent in 1992.28

Zambia’s copper mining industry also served the World Bank’s shareholders’ broader interests. Major shareholders required Zambia’s copper, raw or processed, for their own industries— Zambia’s copper output had at one point accounted for 14 percent of global output, just behind the USA and USSR.29

Still, benefits reaching the general population were limited.  As observed, two-thirds of Zambians today remain without grid electricity. Nor had investments in Zambia’s power production significantly altered employment away from agriculture. In 1968, 75 percent of Zambia’s population was assessed as being dependent on subsistence agriculture. 30 Twenty-two years later and following $1.13 billion dollars of investment into Zambia’s power generation, that proportion had fallen by just 3 percent in 1991. ### El Niño droughts and ZESCO As early as 2001, the IPCC had named the Zambezi as the “worst” of 11 major African river basins exhibiting potential effects of climate change. It expected rainfall to decrease by 10 to 20 percent, and higher temperatures to increase evaporation by 10 to 25 percent, resulting in a 26 to 40 percent reduction in average annual streamflow.31 By 2007, ZESCO’s energy supply was not far exceeding growing demand. Despite these warnings and the impending need for additional but diversified installed power generation capacity, ZESCO did not urgently pursue diversification from hydropower projects. In 2002, Harrison and Whittington sounded the alarm bells around the proposed scheme for a hydropower station at Batoka Gorge, arguing that it was susceptible to climate change impacts through the reduction of river flow. Sixteen years later, in 2018, Zambia’s system of provision continued to make preparations for the scheme, extending from the initial vision of envisioned 1,200MW in 2017 to 2,400MW for an approximate cost of$5 billion.32 As late as November 2017, ZESCO planned to commission more than 70 percent of additional installed power capacity from hydropower33, much of it from within the Zambezi River Basin, where water levels are not fed by diversified weather patterns.

At the same time, a domestically available source of climate-resilient (if not climate-friendly) baseload power was available, and, in fact, posed a threat if not used. In 2014, coal dumps, which were the by-product of mining at the Maamba collieries, were at risk of spontaneous combustion.34 Coal from Maamba, considered since 1970 an option for power generation, was finally utilized in 2017. 35

### The future of the World Bank in Zambia

In contrast to its mid-twentieth century strategy, only five of the World Bank’s twenty-six investment commitments of the past decade—or 1 percent of its total commitments—have been related to electricity. These projects have focused on solar energy and electricity access for low-income households. The Bank’s investment appraisal criteria have also evolved. Its subsidiary, the International Finance Corporation, published in 2012 “Environmental and Social Performance Standards” which include consideration of labor impacts, resource efficiency, community impacts, land resettlement, biodiversity, indigenous people, and cultural heritage.

Given these shifts, the World Bank could still play a major role in addressing Zambia’s troubled hydropower assets and power crises. The Bank’s advisory services, for example, could assist ZESCO in addressing its technical and non-technical losses, which may have been as high as almost a fifth of energy generated in 2016.36

The World Bank could also assist in the exploration of reliable alternatives to hydropower. Natural gas, imported through the Southern African Power Pool from Mozambique and Tanzania, is a mature, relatively low-carbon and climate-resilient generation source to meet Zambia’s growing electricity needs. Established alternatives are domestically-sourced coal-fired power in Zambia, which can be more harmful to the environment, and increased hydropower, which would not be resilient to further drought. The World Bank could advise ZESCO, the Energy Regulation Board, and parliament to establish ZESCO as a credible off-taker to the Mozambican and Tanzanian utilities, such as by having ZESCO charge a cost-recovery tariff to its customers.

Just as it supported hydropower investments in the 1950s, the World Bank could mobilize financing to support the African Energy Transition Bank (a partnership of the Afreximbank and the African Petroleum Producers Organization) and African Development Bank plan to develop natural gas in Tanzania and Mozambique. Coupled with this would be financing made available to minimize methane leakages and capture carbon dioxide emissions, so that natural gas can deliver climate-resilient, cheap and relatively low-carbon electricity to southern Africa. The Bank could also help structure contracts between developers, governments, and local communities to ensure that royalties, taxes and profit-sharing are distributed fairly. Finally, the Bank could play a crucial role in helping Tanzania and Mozambique manage the influx of foreign currency for their exported energy, so as not to price their nascent value-adding industries out of global markets.

To become a transformative force for international development, the World Bank must take more risk, pursue creative alternatives, and depart from its current unwavering commitment to its triple-A credit rating. In Zambia, the Bank could assist the government in exploring whether Zambia’s old large hydropower assets could credibly—from the perspective of lifecycle emissions—be used to produce green hydrogen. Through concessional loans, the Bank could promote investment into a new green hydrogen industry in Zambia. These moves would give the World Bank a new lease of life, and more importantly, offer Zambia an additional source of power to counter its intensifying predicament.

#### This essay contains excerpts from the author’s latest book, The Political Economy of Hydropower Dependant Nations: A Case Study of Zambia, published by Springer Nature and Palgrave Macmillan.

1. Imaduddin Ahmed, M. Baddeley, D. Coffman, J. Meikle, & G. Sianjase, “The cost of power outages to Zambia’s manufacturing sector.” International Growth Center (June 2019). https://doi.org/F-41408-ZMB-1

2. Imaduddin Ahmed, P. Parikh, G. Sianjase, D. Coffman, “The impact of power outages on households in Zambia,” Under Review (2022); Zesco.,“Countrywide Load-Shedding Schedule December 2019 Revised,” (2019); ZICTA, & CSO, “2018 National Survey on Access and Usage of Information and Communication Technologies by Households and Individuals – A Demand Side Assessment of Access and Usage of ICTs in Zambia,” (2019).

3. Here, “hydropower dependence” is defined as relying on hydropower for 25 percent or more of electricity grid power generation.

4. G. Wang, Cai, W., Gan, B., Wu, L., Santoso, A., Lin, X., Chen, Z., & M.J. McPhaden, “Continued increase of extreme El Niño frequency long after 1.5◦C warming stabilization.” Nature Climate Change 7, 8 (2017), 568–572. https://doi.org/10.1038/NCLIMATE3351

5. D. Moyo, Winner Take All: China’s Race For Resources and What It Means For Us. (Penguin, 2013); Zesco Ltd.,“Integrated Report,” (2018).

6. Energy Regulation Board of Zambia (2015): 4–7.

7. Imaduddin Ahmed, The Political Economy of Hydropower Dependent Nations – A Case Study of Zambia (Palgrave Macmillan, 2021).

8. Ahmed, The Political Economy of Hydropower Dependent Nations; IBRD,“Technical Report on the Southern Rhodesian Power Expansion Project,” (1952); IBRD, & IDA,“Appraisal of Kariba North Hydroelectric Project Zambia,”(1970): http://documents.worldbank.org/curated/en/917071468334477402/pdf/multi-page.pdf.

9. J. Huxley, TVA: Adventure in planning (The Architectural Press, 1946).

10. H. Finer,The T.V.A.: Lessons for International Application (Da Capo Press,1972).

11. Employing thousands, in construction and operations, the TVA helped create greater aggregate demand which led to greater output and output per capita, and this was particularly pronounced in the TVA’s catchment area. Per capita output increased by 84 percent from 1933–40 in Alabama, Mississippi and Tennessee, compared with 57 percent for the USA, while nominal retail and service receipts increased by 87 percent, creating an increase of 17,000 jobs in the trade sector in the TVA power area from 1930–1940. Value-added by manufacturing increased by 39 percent from 1935-1939 in the TVA public power area (compared with 31 percent across the United States), and manufacturing wages increased by 35 percent (compared with 25 percent across the United States). The textiles, food products and chemicals manufacturing sectors increased employment by 17,000 from 1930 to 1940. In turn, the expansion of these sectors explains the increase in employment of the construction industry by 16,000 for the same period.

12. M.L. Cooke, “Down to Earth with Point Four,” New Republic, July 11, 1949; D. Ekbladh, “ ‘Mr. TVA:’ Grass-Roots Development , David Lilienthal, and the Rise and Fall of the Tennessee Valley Authority as a Symbol for U.S. Overseas Development, 1933-1973,” Diplomatic History 26, 3 (2002): 335–374. https://doi.org/https://doi.org/10.1111/1467-7709.00315.

13. Ekbladh, “Mr. TVA”; A. J. Schlesinger, The Vital Center: The Politics of Freedom (Houghton Mifflin, 1949).

14. Even a member of the judiciary was recorded making overtly political statements about the Tennessee Valley Authority. “The word “Tennessee” is well known all the way across from the Mediterranean to the Paciﬁc,” said US Supreme Court Justice William Douglas in 1951. “They know about Tennessee because they have heard of the Tennessee Valley Authority […] that ﬁts their needs and will solve many of their basic problems.

15. Sharma, P. A. (2017). Robert McNamara’s Other War – The World Bank and International Development. University of Pennsylvania Press.

16. E. S. Mason & R.E. Asher, “The World Bank since Bretton Woods.” The Brookings Institution (1973).

17. IBRD & IDA

18. D. Morrell, Indictment: Power and Politics in the Construction Industry (Faber and Faber Ltd, 1987).

19. J. Matanzima, “Thayer Scudder’s Four Stage Framework, water resources dispossession and appropriation: the Kariba case,” International Journal of Water Resources Development 00, (2021): 1–24. https://doi.org/10.1080/07900627.2020.1866505

20. Analysis emailed by Ocko to author on March 18, 2021 following a review of: I.B. Ocko & S.P. Hamburg, “Climate Impacts of Hydropower: Enormous Differences among Facilities and over Time,” Environmental Science and Technology 53, 23 (2019):14070–14082. https://doi.org/10.1021/acs.est.9b05083; L. Scherer, & S. Pfister, “Hydropower’s biogenic carbon footprint,” PLoS ONE 11, 9 (2016):1–12. https://doi.org/10.1371/journal.pone.0161947

21. Morrell

22. UN Security Council, Resolution 216, (1965) https://documents-dds-ny.un.org/doc/RESOLUTION/GEN/NR0/222/87/PDF/NR022287.pdf?OpenElement; UN Security Council. Resolution 232. (1966) https://www.sipri.org/sites/default/files/2016-03/232.pdf.

23. ZICTA & CSO

24. IBRD, & IDA, “Appraisal of Kariba North Hydroelectric Project Zambia,” (1970) http://documents.worldbank.org/curated/en/917071468334477402/pdf/multi-page.pdf

25. IBRD, & IDA

26. World Bank, “Zambia World Development Indicators,” (2020).

27. Ahmed; S. J. Barton, Policy signals and market responses:a 50 year history of Zambia’s relationship with foreign capital (Palgrave MacMillan, 2015).

28. World Bank.

29. Barton.

30. S.F. Park, Basic Data on the Economy of Zambia (1968).

31. IPCC, “Climate Change 2001: Impacts, Adaptation, and Vulnerability,” (2001): figs. 10–1.

32. Energy Regulation Board of Zambia. (2019). Energy Sector Report 2018.

33. Zesco Ltd., “Zesco’s planned additional energy generation,” (2017).

34. African Energy, “Zambia: Maamba plant delayed by transmission hold-up.” African Energy Newsletter, May 30, 2014.

35. The plant had been in the Ministry of Energy and Water Development’s Power System Development Master Plan since 2008, with the expectation of delivery by 2014. But ZESCO and the independent power project could not agree on the tariff. ZESCO had not acquired new power-generation assets in over a generation, and they continued to rely on the power-generation of fully amortized assets constructed over forty years ago without charging system-sustainable tariffs to their customers. The Government of Zambia ultimately “imposed” an agreement for the plant to move forward. Even so, the reported timeline of negotiations and financing arrangements suggest that Maamba Collieries could have delivered power to ZESCO’s grid before the 2015 power outages had ZESCO delivered the transmission infrastructure on time to make use of power plant’s output.

36. Ahmed.

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