World Bank Approves Bujagali Dam Despite Major Economic Risks

Friday, December 28, 2001

The World Bank today approved a large dam in Uganda that could prove to be a white elephant for that nation’s citizens, while enriching the US–based AES Corp., the largest independent power producer in the world.

Key criticisms of the project by NGOs include:

  • The dam is a bad economic deal for Uganda. It will not bring electricity to the majority of Ugandans (95% of whom are not connected to the national grid, and most of whom could not currently afford grid power), and will drive up tariffs for those already connected to the grid;

  • Alternative sources of electricity have not been seriously analyzed;

  • The dam will destroy Bujagali Falls, a culturally significant natural heritage site (a slightly more expensive alternative dam design would spare the falls).

Said International Rivers’s Lori Pottinger:

"Just one year after the World Commission on Dams’ report described a better way to plan for energy needs, it is deeply frustrating that the World Bank would choose to support another environmentally destructive, economically risky dam that is likely to fail its development goals."

NGOs have been pressing for an energy options assessment that would fully explore all available options for electricity generation. Uganda has some 450MW of geothermal reserves, which the Bank dismisses as "speculative." Yet geothermal experts with extensive experience in Uganda believe the country has a number of sites that could be developed in as little as 2–3 years, at a competitive price . The only studies on alternatives were undertaken by the hydro–industry firm Acres International, which is already building dams on the Nile.

The $520 million Bujagali Dam will destroy the culturally significant Bujagali Falls – a national treasure which also supports a growing whitewater tourism industry – and possibly lead to the extinction of rare fish in the Nile. Thousands of people will lose land and access to river resources. The dam will also lead to significant increases in Ugandans’ electricity bills.

Says Frank Muramuzi of Uganda’s National Association of Professional Environmentalists:

"The World Bank predicts that Bujagali will cause the price of electricity to rise to 10.5 cents US per KWh, and go as high as 12.5 cents in the early years of operation. This is an extremely high rate where the average per capita income is approximately US$300 per year. It is not obvious how supplying electricity at these extraordinarily high rates in such a poor country will contribute to poverty reduction, or for that matter, even to economic growth."

The World Bank’s own Project Assessment Document (PAD) indicates how economically risky the project is. It reveals that if the Bank’s very optimistic prediction for Ugandan GDP growth of 6.3% through 2010 does not pan out, Bujagali could prove to be an economic disaster for Uganda. A slowing economy could result in reduced demand growth, but the Uganda government may not be able to raise tariffs enough to cover project costs. The PAD states:

"Low GDP ... would translate into the low electricity demand forecast used in the project analysis. The consequence of the low demand forecast occurring is that, with hindsight, it would have been better to delay Bujagali by 2–4 years. If demand growth were below the base case, even higher tariffs would be needed to meet satisfactory financial performance criteria for the sector. It is not clear, however, that much higher tariffs could be charged."

The Bank approved the dam although there has been no public disclosure of the outcome of an ongoing corruption investigation at the Bank, and despite the fact that there are ongoing internal investigations into the project’s compliance with Bank policy. In September, the IFC’s Ombudsman issued a report supporting NGOs’ concerns. The World Bank Inspection Panel is also in the midst of an ongoing investigation.

While the Bank and AES are eager to add another dam to the headwaters of the Nile, a number of funders have rejected Bujagali as too economically or environmentally risky. Development banks in Germany (DEG), France (Proparco) and England (ECGD) all dropped Bujagali in the past year. In October, the US agency OPIC pulled out (it was to lend $100 million). And in November, Swedish SIDA said it would not fund the project. SIDA spokesman Stefan Jansson called Bujagali "a complex project with huge impacts on Uganda." The African Development Bank approved a loan for the project on December 17.

The Ugandan government’s contract with AES commits Uganda to pay AES about $100 million in US dollars annually for 30 years no matter how much power is actually produced. Scientists believe East Africa could be hit with more severe droughts due to global climate change, thus increasing the project’s already significant "hydrological risk" (the risk that there will not be enough flow in the Nile to generate the predicted amount of power). AES has essentially passed the project’s hydrological risk onto Uganda, according to sources who have seen the contract.

The secrecy of this contract has been a bone of contention for Ugandan citizens, who believe the document is key to understanding the risks they are shouldering. An independent review team from the Dutch government, which reviewed the Bujagali EIA with permission of Uganda, agrees with this assessment. The team wrote:

"During its stay in Uganda, the Commission observed that there is much mistrust around the project mainly due to the fact that the project was not subject to competitive bidding. Also the Power Purchase Agreement between the Government of Uganda and the project developer is not open to the public. Piecemeal disclosure of information was given afterwards in response to critical remarks of NGOs and stakeholders. The commission is of the opinion that full disclosure of available documents will facilitate the decision–making process and help to improve the credibility of the developer."

Says Lori Pottinger:

"Bujagali Dam is a boondoggle that will enrich a large multinational while doing little to bring electricity to poor Ugandans. It is corporate welfare masquerading as poverty alleviation, and Uganda could be the poorer for it."

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