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