Proposed Uganda Dam is Drowning in Difficulties

Stephen Linaweaver
Thursday, April 1, 1999

The proposed Bujagali Falls hydropower project in Uganda has suffered serious setbacks in recent months. In January the Uganda Electricity Board, Uganda's state–run utility, refused to sign the Power Purchase Agreement (PPA) proposed by project developer AES, Inc. A month later the Uganda Parliament refused to approve the project, based on problems with the PPA.

In February, the World Bank, which has been brought in to review the power agreements, slapped a one–year suspension on the signing of the PPA, according to the Uganda Monitor, Uganda's leading daily. Then on March 16, a local environmental organization filed an injunction to stop AES from reaching an agreement with the government before the project's environmental impact assessment is approved.

The US–based AES, Inc.– the largest independent power–producer in the world – proposes to build a 290–megawatt hydroelectric plant with a 30–meter–high dam on the Nile River, 50 miles east of Uganda's capital city of Kampala. The project is the first private power project in East Africa. According to the Uganda Monitor, Uganda's leading newspaper, the dam's $523 million price tag is greater than 16 percent of the gross domestic product of Uganda.

The proposed dam would flood a 10–mile swath of the Nile corridor, including the Bujagali Falls, a spectacular series of rapids which are a popular retreat for tourists and whitewater rafters. It is also likely to harm water quality, increase water–borne illnesses, increase water hyacinth infestations and harm fisheries. Almost 200 hectares of productive agricultural land will also be lost to the project, amounting to an annual loss of US$675,000 at current prices, according to project documents. Potential resettlers have complained that their lands have been undervalued
in project appraisals.

The Victoria Nile is already dammed by the Owens Falls Dam, built in 1954, and the Owens Falls Extension Project, currently under construction. Both of these projects are within 10 miles of the proposed Bujagali Falls Dam.
Leaders of the Busoga Kingdom, some of whose people would be displaced if the dam were built, have publicly condemned the project, stating that the Bujagali Falls themselves are of "great social and cultural significance" to their society. Moreover, the Busoga argued that the societal costs of the dam – which would displace hundreds of families and affect an additional 6,000 people – far outweigh its benefits. Many have raised concerns about the loss of the thriving ecotourism industry, a business which brings in as much as $600,000 per year in tourism dollars to local towns, mostly from whitewater rafting expeditions.

The project's most organized opposition has been the "Save Bujagali Crusaders," a coalition of locals residents and environmentalists formed in early 1998 by Martin Musumba, a former District Chairman. The Crusaders have argued that the falls are one of Uganda's great national treasures, and that the dam is unnecessary. Current demand for power in Uganda will be met when the 200 MW Owens Falls Extension Project is completed in the year 2000. The Save Bujagali Crusaders have been a thorn in the side of the AES Corporation, constantly informing the public of the project's impacts and stating their case before the Ugandan Parliament.

Unfair Power Agreements

In the past few months, however, AES has run across far more serious stumbling blocks. On January 20, the Uganda Electricity Board refused to sign the Power Purchase Agreement with AES. The UEB was especially concerned by a clause that stated they would have to buy all the potential power produced by AES at a set price, regardless of whether or not the power was actually produced. Such a deal, while often sought by hydropower companies, can be crippling to a developing nation such as Uganda.

On February 18, the Parliament refused to approve the construction of the dam, citing several problems with the controversial Power Purchase Agreement. The PPA states that the Uganda government must buy the power produced by AES if the Uganda Electricity Board fails to do so. Isaac Musumba, the Chairman of the Parliamentary Committee on the National Economy, stated Parliament's concerns publicly in the Ugandan press, sparking debate and arousing suspicion about the project among citizens.

Parliament's greatest concern was the hydrological guarantee of the PPA. This clause states that the UEB, or alternatively the Uganda Government, must pay for the full capacity of the Bujagali Falls Dam, not necessarily the actual power produced. If Lake Victoria drops significantly and the flow of the Nile decreases, Uganda will still be forced to pay for power that is no longer being produced. Other major concerns of Musumba and the Parliament revolve around the need for external markets to make the project feasible. According to the Parliamentary Committee on National Economy, 265 of the 290 MW produced by the Bujagali Falls Dam would have to be sold to neighboring countries to cover the cost of the project. Furthermore, the Committee fears that once transmission and distribution costs are added,

the majority of Ugandans will be unable to afford the power. More than 90 percent of Ugandans live in rural areas with no access to a power grid.
Finally, Parliament raised the crucial point that the loss of tourist revenue from Bujagali Falls, as well as the loss of the aesthetic value of the Falls themselves, has not been included in factoring the cost of the power. With these figures included, building a dam at Bujagali Falls would make the effective cost of power even higher.

Although all parties involved say they will re–assess the Power Purchase Agreements, AES faces yet another hurdle. The project's environmental impact statement (EIS), released in February 1999, still must be approved by Uganda's National Environmental Management Authority (NEMA).
In mid–March, the locally based National Association of Professional Environmentalists went to court to postpone negotiations on the project's power purchase agreement until NEMA has acted. According to the Ugandan newspaper New Vision, the group has requested a temporary injunction
against AES from executing an agreement until NEMA has approved the EIS.

The group's lawyers said the approval of the project by Parliament before the approval by NEMA is illegal. The lawyers argued that members of the public need to know whether AES has addressed all environmental issues before the government commits itself to buy the project's electricity.

Meanwhile, a February 11 article in the London–based Financial Times reports that the project's future is even "further clouded by another project" which is more economical, more flexible and with fewer environmental impacts. The Norwegian–proposed Karuma Falls hydro facility would use underground sluices rather than a dam, and would produce 200 megawatts at less than 5.5 cents per kilowatt/hour. The Uganda Parliament was recently presented with a full project proposal, according to a March 18 article in New Vision. The project development team told the newspaper their sources of financing were only waiting for a go–ahead from the Uganda government.