Letter to International Finance Corporation: Uganda energy solutions

Friday, October 20, 2000

Peter Woicke

Executive Vice President
International Finance Corporation
2121 Pennsylvania Avenue, NW
Washington, DC 20433

Dear Mr. Woicke:

I read with interest the article about you in the October 8, 2000 edition of Business Week, in which you say that the proposed Bujagali Dam in Uganda will help the rural poor access electricity and reduce their need for fuelwood.

The notion that the Bujagali project itself will lead to widespread rural electrification seems excessively optimistic, and is not supported by World Bank analysis. (Although the Power IV project includes extension of the grid to rural areas, I assume this is not what you are referring to, as it is not actually part of the Bujagali project.) For example, the World Bank’s 1996 ESMAP report states: "No more than 7% of [Uganda’s] total population can afford unsubsidized electricity . . . It is unrealistic to think that more than a fraction of the rural population could be reached by a conventional, extend–the–grid approach. A more promising course is to rely, instead, on ’alternative’ approaches to electrification."

The 1999 ESMAP report, "Uganda: Rural Electrification Strategy Study," similarly argues against relying on the national grid for rural electrification, stating: "The prospects for UEB to significantly strengthen its national coverage to non–grid areas in the next 20 years are remote. Even if all of Uganda’s urban consumers were connected to the grid, it would still leave 75% of Ugandans without UEB grid electricity. The lack of generating capacity is not UEB’s main problem. It is poor bill collections and lack of distribution capacity. . . The basic financial and economic analysis of Uganda’s grid operations clearly suggest that there should be a major rethink of the country’s off–grid and rural electrification strategy."

Such "alternative approaches" and non–grid strategies (often called "Micropower") are gaining support from a wide variety of experts in the energy sector, as I’m sure you are aware (see, for example, The Economist, August 5, 2000). A decentralized approach to power generation would be ideally suited to Uganda, because its grid system is in poor repair and of limited scope, and the vast majority of its populace lives outside the urban center.

It seems, therefore, that large–scale, centralized power generation is not the solution to Uganda’s rural electrification. Even in places where subsidies have been used for rural electrification from large dams (for example, when some of the costs are covered as part of a mitigation package for dam–displaced villagers), the rural poor are often unable to pay for either electricity or to have their houses upgraded for electrification. To describe just one example, the Lesotho Highlands Water Project promised to bring grid–based power to 10 remote villages impacted by the project. More than a decade later, villagers have never gotten power (see attached), primarily because of high costs and the impracticality of the scheme. There are lessons for Bujagali in this, since AES has apparently made similar promises to dam–affected villagers about getting electricity from the dam, and because the project is now being touted as a rural electrification project.

In light of this, can you please clarify what you believe is a likely outcome for Uganda’s rural poor if the Bujagali Dam is built?

I would also like more information on how the project’s risks are being addressed. Because the power purchase agreement is not publicly available, it is not clear how risks have been allocated. A major concern is the dam’s hydrological risk. According to the report "Comparison of Bujagali Hydroelectric Power Project and Karuma Falls Hydro–electric Power Project" prepared by the Uganda Parliamentary Research Centre (Oct. 4, 1999), "[Bujagali] dam has a design based on a flow estimate that is 35% higher than a more conservative estimate from previous hydrological studies." The IFC’s own study (by Acres International) states, "The hydrology of the Nile since 1954 is highly variable and has not, with absolute assurance, revealed a long–term trend for assured planning for the Uganda Power System ... The contentiousness of the subject cannot be resolved." Acres also notes that AES’ choice of data for the Bujagali project design "ignores the most critical dry period of 1907–10, and the second driest period of 1921–22." Acres also reports that Bujagali planners did not take into account future water uses by other states bordering Lake Victoria, the source of water for hydro projects on the Nile.

The Bujagali PPA is reportedly written so that Uganda assumes most of these hydrological risks, forcing Uganda to buy a set amount of power even if the dam is unable to produce its full output. Since the region is expected to endure increasingly severe droughts due to climate change, and because there is major disagreement on how much flow the Nile can be reliably expected to produce, the project is considered quite risky compared to other hydro options. This imprudent approach to hydrology is one reason many dams fail to produce promised benefits, and does not bode well for Uganda’s commitment to purchase a set amount of power from Bujagali.

Mr. Woike, you were quoted in Business Week as saying, "If we cannot take risks, then development can’t happen." The Bujagali project seems to place too many risks on Uganda’s taxpayers, and not enough on project proponents. This project will result in the socialization of private risks, a situation that is skewing analysis of Uganda’s options. This project will drown a culturally important waterfall, add to the cumulative impacts of existing dams on the Nile, and damage a thriving whitewater tourism industry that local leaders feel have more to offer communities near the dam than additional dams. We ask you to take every effort to level the playing field so that better alternatives can be more fairly considered.


Lori Pottinger