Rethinking Bujagali
This letter from NGOs to World Bank President Wolfensohn urges a full and fair assessment of energy options as the Bank and Government of Uganda look for new investors in the stalled project.
James Wolfensohn
President
The World Bank
1818 H St., N.W.
Washington, DC 20433
Re: Bujagali Hydropower Project
Dear President
Wolfensohn:
It is our understanding that the World Bank Group has recently affirmed its
commitment to revive the Bujagali Hydropower project in Uganda following the
withdrawal of the project’s sponsor, AES. Immediately after AES withdrew from
the project, the World Bank stated that "Bujagali remains the long–term, least–cost
electricity supply option for Uganda and that it is in the best interests of
the country to develop the project at the earliest opportunity." We believe
that this response was premature.
The departure of the private developer provides a chance for the Government
of Uganda and the World Bank to reconsider the most appropriate options for
the development of the country’s power sector and whether the assumptions on
which the Bujagali project is based are still valid. We are writing to urge
that the following issues be addressed as the Bank and Government of Uganda
examine next steps for meeting Uganda’s energy needs.
The recent publication of Stakeholder Involvement in Options Assessment (prepared
by ESMAP) signals the World Bank’s commitment to improving its energy project
selection and preparation processes. In this report, the Bank clearly identified
the importance of stakeholder participation in an open and systematic assessment
of options in project planning and policy formulation. Public scrutiny of the
Bujagali project revealed the inadequacy of past attention to other energy
options. Committing to resurrect Bujagali before undertaking a comprehensive
options assessment would be premature and contrary to the principles outlined
in the OA sourcebook.
Prior to AES’s withdrawal, the Bujagali project was criticized for corrupt
practices and lacking accountability, for the high cost of its energy, and
for the failure of proponents to seriously consider alternatives to the dam.
The potential for developing Uganda’s large geothermal power reserves was not
fully analyzed as part of the Bujagali assessment process. Recent news articles
about the bribery of public officials to secure support for rival hydropower
projects in Uganda expose fundamental flaws in the selection process for energy
investments. A fair and comprehensive options assessment is needed to ensure
that the selection of the next energy project in Uganda is based on well–founded
analyses of energy demand and supply options.
It is our understanding that the Bank intends to do a limited "rapid update" of
key studies in order to resurrect Bujagali quickly. However, simply updating
those studies will not address omissions and structural flaws in the original
assessments. Furthermore, a rapid update of the economic analysis and options
assessment, such as that already commissioned by the Bank, is inadequate to
thoroughly reevaluate the economics of the project in light of new information.
Rather than take the construction of Bujagali as a foregone conclusion and
simply confirm its selection as the project to pursue, new economic and needs
assessments should treat all options in a balanced manner. Other energy developments
should not be stalled or suspended pending attempts to revive Bujagali.
Comprehensive, balanced options assessment
We believe that all options for the further development of Uganda’s power sector
need to be assessed in a comprehensive, participatory and transparent manner.
Until now, other energy options have been neglected. The World Bank has thus
far refused to give serious consideration to Uganda’s promising geothermal
potential. Geothermal experts with knowledge of Uganda are convinced that the
Bank’s claim that geothermal will take "up to 10 years" to explore and develop
is wildly exaggerated.
The Karuma Hydropower Project is another option that seems to have been sidelined
in favor of Bujagali. Karuma appears to have fewer costs and more benefits
than Bujagali. It will inundate much less land, has potential to bring development
to the long–neglected North, and will not hurt Uganda’s river–based tourism
industry. In addition, Karuma appears to be less economically risky than Bujagali,
and can be brought online more quickly and incrementally. The different hydropower
options that were considered in the Acres assessment, and the economic, environmental
and hydrological assumptions on which they were based, should be reconsidered
in a rigorous manner.
A new assessment of the options for Uganda’s power sector should be carried
out in accordance with the useful principles advanced in the July 2003 ESMAP
Sourcebook. A new options assessment could profit from the information that
was collected by earlier assessments, and could thus be carried out relatively
quickly. However, in order to avoid conflict of interests, it should not be
carried out by Acres International, who has a vested interest in confirming
the outcome of their own earlier studies. Furthermore, Acres International
is seriously tainted by corruption and is being considered for debarment by
the World Bank.
Economic Viability
When the Bujagali project was approved in 2001, many of the macroeconomic forecasts
and sector–specific assumptions upon which it was based –– including Uganda’s
economic growth, the implementation of power sector reforms, and the willingness
of consumers to pay higher tariffs –– appeared to be highly optimistic. The
investigation by the Inspection Panel in 2002 confirmed this impression. We
understand that Eskom, the concession holder for Uganda’s distribution system,
is also concerned about the impact that power tariff hikes stemming from Bujagali
will have on its ability to expand the customer base. Two years after the Board
decision, the economic viability of the Bujagali project should be rigorously
reexamined as part of an overall assessment of the best options for Uganda’s
power sector.
We understand that the World Bank has already commissioned a rapid economic
re–assessment of the Bujagali project. However, the Bank’s statement that Bujagali
is still Uganda’s "least–cost electricity supply option" calls into question
the value of this exercise. An economic reassessment should be carried out
by a new contractor, as part of an overall options assessment, and without
any foregone conclusions.
Transparency and accountability
The preparation and implementation of the Bujagali project was seriously hampered
by a lack of transparency and accountability. Key project documents such as
the economic analysis and the Power Purchase Agreement (PPA) were withheld
from public scrutiny. The Inspection Panel found that in the case of the economic
analysis, this was in violation of IDA’s information disclosure policy. An
independent analysis that was commissioned by International Rivers
found that the Bujagali PPA was not up to international standards, and would
have forced Uganda’s Government to make excessive payments of an average of
$20 million per year over the lifetime of the contract. We understand that
Uganda’s Government requested a re–negotiation of the Agreement based on this
analysis.
All further steps in the development of Uganda’s power sector should be carried
out with utmost transparency and accountability. This should include public
participation in the options assessment, as proposed in the ESMAP Sourcebook,
and public access to the economic re–assessment of Bujagali and to Power Purchase
Agreements for any future power projects developed by private investors. Given
the recent history of corruption related to Uganda’s energy sector, civil society
should be involved in the creation and operation of an oversight mechanism
to monitor procurement processes in future energy projects.
Conclusion
The next steps on the Bujagali project will signal whether the Bank has learned
lessons from its past experience with private power projects and particularly
on Bujagali. Undertaking a new, comprehensive needs and options assessment
is critical at this stage, in light of problems revealed with previous studies,
new information about energy options, and the strategic opportunity provided
by the collapse of Bujagali’s investment structure.
The undersigned organizations stand ready to support efforts that prioritize
Uganda’s needs for affordable and sustainable electricity.
Thank you for your interest. We look forward to your response.
Sincerely,
Lori Pottinger
International Rivers, US
Frank Muramuzi
National Association of Professional Environmentalists (NAPE), Uganda
Soren Ambrose
50 Years Is Enough: US Network for Global Economic Justice
Christine Eberlein
Berne Declaration
Sebastien Godinot
Friends of the Earth France
Nick Hildyard
The Cornerhouse, UK
Shannon Lawrence
Environmental Defense, US
Heffa Schuecking
Urgewald, Germany
Antonio Tricarico
Campagna per la Riforma della Banca Mondiale, Italy
Carol Welch
Friends of the Earth " US
Wiert Wiertsema
Both ENDS, The Netherlands