Profiling Problem Projects
Uganda’s Bujagali Dam: A Case Study in Corporate Welfare
By Lori Pottinger, September 2000 International Rivers Network
Introduction Uganda is one of the world's poorest IFC sponsorship of the dam project is countries, and its poverty is a key reason expected to demonstrate the viability of why less than 5% of the population has hydropower on the Nile in Uganda, which access to electricity. A World Bank study could open up the river for sale to the states, “No more than 7% of the total highest bidder in a plan to build as many as population [in Uganda] can afford 6 dams and export the power. Project unsubsidized electricity… It is unrealistic to documents claim this dam will be relatively think that more than a fraction of the rural benign, but there is inadequate information population could be reached by a about cumulative impacts (Bujagali Dam conventional, extend-the-grid approach. A would be the third dam on one short stretch more promising course is to rely instead on of the river; the two previous dams did not 'alternative,' 'non-conventional' approaches have environmental impact assessments). to electrification."1 And yet, the IFC is now evaluating a 250 megawatt hydropower Finally, this case highlights a potential project,2 the Bujagali Dam on Uganda’s conflict of interest between the Bank's White Nile, whose electricity would be out public and private lending operations. The of reach to the vast majority of Uganda’s World Bank’s public sector arm is citizens. The project will almost double pressuring the Ugandan government to Uganda’s grid-based electricity supply, at a restructure its energy sector to ensure the time when energy experts are questioning smooth functioning of the private sector. reliance on national grids. The IFC is supporting a major project that stands to directly benefit from World Bank- This project is a good example of how the sponsored reforms. The Bank's zeal to IFC’s evaluation process is often skewed support the private sector is translating into toward predetermined outcomes that favor projects that meet the needs of multinational large corporations over the poor. Thus far in corporations rather than the citizens of the its evaluation, it appears that the IFC has not countries it is supposed to help. evaluated how Bujagali will improve the lives of the poor. Project Background Making the Case for Change
The U.S.-based AES corporation, the largest electricity to neighboring countries.”5 The independent power producer in the world PID also says the project will improve with assets of US$11 billion, proposes to Uganda’s inequitable access to energy, and construct $530-million dam near Bujagali that demand for electricity is growing Falls on the Nile. AES enjoys a close rapidly. relationship with the IFC. In an interview in the Ugandan daily New Vision, Dennis Bakke, President and CEO of AES Project Impacts Corporation, says: "We [AES] are the The dam would be built 8 miles below two biggest private users of World Bank money other large dams, the existing Owen Falls through the IFC."3 One of AES’ directors is Dam and the Owen Falls Extension Project, John McArthur, described in AES materials now under construction. Environmental as “a senior advisor to the president of the harm goes beyond that of these three dams, World Bank.” Another director is Hazel since, according to the PID, the project is O'Leary, former US Secretary of Energy. expected to “catalyze” further hydro development along the Nile. The Ugandan government has plans to build up to six IFC Involvement more dams on the Nile. The cumulative The IFC is currently evaluating whether or impacts of the existing dams is unknown, not, and under what conditions, it will since there was never a full EIA for either of financially support the project. AES is in the Owen Falls projects, and no post- line to receive a $70m partial-risk guarantee construction monitoring. from the World Bank, and $85m from the IFC. Other funds would come from various Social Impacts: Descriptions of the export credit agencies ($225m),4 project’s social impacts are inconsistent in commercial loans, the African Development AES documents. According to AES' “draft Bank and the company itself. The IFC final” environmental impact assessment appraisal is expected to be complete by the (1999), Bujagali Dam would permanently end of 2000, at which time the IFC could displace 820 people, and affect an additional begin to negotiate terms of a loan for the 6,000 (more recent information from the project with the Ugandan government. The company shows a much lower number of Board date is tentatively scheduled for April people to be displaced). Replacement land is 2001. practically non-existent in the area. The record of large dams worldwide, and The Project Information Document (PID), a especially in Africa, indicates that those project summary jointly issued by the World displaced will be left permanently poorer as Bank and the IFC, states that the project a result of the project. objective is “to promote increased growth through the provision of adequate, reliable The project will permanently submerge and affordable power in line with Uganda's highly productive agricultural land as well comparative advantage. The project would as islands supporting valuable natural help catalyze private investment to develop habitats. The changes to the river could the country's significant hydroelectric permanently harm fisheries. The area around potential, and potentially increase export of Bujagali Falls supports a substantial number
2 Uganda’s Bujagali Dam: A Case Study in Corporate Welfare Profiling Problem Projects
of subsistence and commercial fisherman, amount of power even if the dam is unable who depend on the resource for both food to produce its full output. Since the region is and income. expected to endure increasingly severe Thus far, AES' record in planning for project droughts due to climate change, and because resettlement has been fraught with problems there is major disagreement on how much and misinformation. According to the flow the Nile reliably can be expected to Uganda Parliamentary Research Centre, produce, the project is considered quite risky "The developer has handled the issue of compared to other hydro options. This same resettlement and compensation very lightly problem has dramatically affected another in the case of the Bujagali hydropower World Bank-funded dam, Pak Mun in project …The resettlement plan was not Thailand. Pak Mun Dam was supposed to available and there was no program for it."6 generate 136MW of electricity, but barely generates 40 MW in high-demand months Tourism: The project will also drown due to insufficient water to turn the turbines Bujagali Falls, a national treasure. The in the dry season.8 "Source of the Nile" corridor is one of the most spectacular river stretches in the world, Another serious risk for the project is that say rafting experts. Whitewater rafting is the primary customer for its power, the already the biggest draw for foreign tourists Uganda Energy Board (UEB), has a poor in Uganda. Tourism is the second largest record for collecting payments and its source of foreign exchange in Uganda, performance after World Bank-instigated earning the country over $90 million in privatization remains an unknown. The IFC 1996. According to rafting companies in notes, “While the proposed Bujagali PPA Uganda, over 6,000 people raft the Nile each presently contemplates UEB as the power year near Bujagali, spending nearly $4 off-taker, a fully privatized sector in which million a year in Uganda on activities not ideally multiple distribution companies will related to rafting, much of which goes act as off-takers is crucial to the directly to local communities. NGOs have sustainability of the project.”9 However, written, “The opportunity cost in terms of such a private sector does not currently revenue from tourism that will be lost to a exist. dam at Bujagali was essentially ignored in the Bujagali planning documents. … How The possibility that electricity demand will the IFC and World Bank evaluate the projections are exaggerated is another risk. lost revenue from a thriving tourism industry In more than 100 national demand forecasts in the Jinja area?”7 used by the World Bank, actual demand seven years after the forecasts were made Risk: A major concern is the dam’s was on average one-fifth lower than had hydrological risk. The project design is been projected.10 In a confidential report on based on optimistic flow assumptions, which the glut of electricity caused by building too means the projected electricity output may many dams in Colombia, the World Bank’s be overstated. The project's power purchase Operations Evaluation Department agreement (PPA) reportedly is written so concluded that the high cost of overcapacity that Uganda assumes most of the risks of highlights “the vital importance of having reduced flow, forcing Uganda to buy a set more flexible investment programs” with
By Lori Pottinger, IRN 3 Making the Case for Change smaller projects to ensure “better responses There is some confusion over whether the to the vicissitudes of demand project is even intended for Ugandans (AES uncertainties.”11 says it is, but the IFC mentions exports). If Concerns about Grid Expansion: Energy the project is primarily for export, there is a research jointly carried out by the World risk that Kenya will negotiate for a price that Bank and UNDP argue that Uganda cannot does not cover Uganda’s costs (there are no reach most of its population with the grid: advance contracts with Kenya for the "The prospects for UEB to significantly project’s power at this time, but Uganda has strengthen its national coverage to non-grid already agreed to a price for its power). areas in the next 20 years are remote. Even Kenya has also started negotiating to import if all of Uganda's urban consumers were power from Tanzania. Kenya may also look connected to the grid, it would still leave to projects that will increase its internal 75% of Ugandans without UEB grid energy security and reduce the need for electricity. The lack of generating capacity imports. is not UEB's main problem. It is poor bill collections and lack of distribution Participation and Transparency: The capacity."12 A report prepared for project has been characterized by political Parliament states, "Transmission pressure, both from the Ugandan President arrangements from the Bujagali project are and the US Government, both of which being directed toward export … with few favor the project. While Parliament was still new additions of lines to benefit the local in the process of evaluating the project last population."13 year (having already rejected it several times), the US government added to the While Uganda considers adding large, already intense political pressure coming inflexible power projects to fuel its from the President of Uganda. Local inefficent national grid, energy experts are newspaper accounts reveal that both the US promoting a decentralized approach to Ambassador in Uganda and another power generation, using technologies such prominent government official contacted the as fuel cells, microturbines and solar Ugandan President on the project, and stated roofing. According to a new report by that US-Uganda relations could suffer if the Worldwatch Institute,14 this approach avoids dam were not approved quickly. Shortly costly investments in new power plants and thereafter, Parliament approved the project. grid systems, reduces price fluctuations, can be brought online more quickly, is more A recent field visit revealed that many reliable, easier to scale up as the economy government officials still have doubts that requires it, and more efficient than this project is the best way to meet Uganda’s extending existing transmission lines. needs at this time. One official, who asked "[Developing] nations have a golden to remain anonymous, said, “[The] opportunity to get the rules right the first Government should have first done a time, and set up markets that support power strategic assessment of Uganda's power systems suitable for the 21st century,” the needs, and of all the dams proposed and report notes. their impacts. It should also have tendered each site for competitive bidding. This type of analysis would have led to Uganda
4 Uganda’s Bujagali Dam: A Case Study in Corporate Welfare Profiling Problem Projects
making a more informed decision. Instead, yet there has been inadequate public we were told that the Bujagali project was discussion about this issue. the preferred option, and so now all we can do is mitigate."
Public participation has been driven by AES, with the IFC relying on the The Wrong Project for Uganda? corporation to document how informed and Local NGOs also say the project will not meaningful its consultations were with local help solve Uganda's biggest problem: communities. In the project area especially, poverty. Save the Bujagali activist Martin political pressure to favor the project has Musumba says, "The real issue in Uganda is kept discussions about the dam at the level not electricity but poverty. Currently the of a popularity contest. Those who have majority of Ugandans have no money for ventured to speak out have been threatened electricity. Production of more electricity with arrest, and in some cases told their will not reduce the use of fuelwood and businesses would be shut down if they charcoal until deliberate programs are continued to raise concerns about the dam. evolved to reduce poverty and the cost of One expatriate was arrested and told to leave power." The Uganda Parliamentary the country for talking to project-affected Research Centre estimates the maximum people about the dam. consumer tariff for Bujagali electricty to be “12 US cents in current dollar terms. The Talks with citizens in Uganda revealed that cost of transmission lines is not clearly many people still have concerns about the stipulated in the available information on the project but are too intimidated to raise them project."15 publicly, due to intense pressure from the President to support the dam. Major The benefits of Bujagali will not, NGOs concerns heard repeatedly include the believe, trickle down to Uganda’s poor following: majority. Nor does the project appear to • There was no competitive bidding for meet key goals in the World Bank’s 1997 the project, and corruption rumors are Uganda Country Assistance Strategy (CAS). rampant. For example, the CAS states: "The Poverty • The destruction of Bujagali Falls is a Eradication Plan (PEAP) is designed to serious cultural loss that cannot be ensure that growth is sustained and that its mitigated. benefits are spread more widely … • The lost potential revenue from river- [Participants in the CAS indicated] a strong based tourism does not appear to be desire for redirecting public investment factored into the choice of Bujagali over towards the poorer and remoter districts and other dam sites. Some local leaders felt to redouble efforts to ensure that poor that tourism had a much greater potential people benefit from government programs." to address the needs of local Yet the Bujagali Dam will benefit urban communities than this dam. areas – primarily industry, and likely • The project appears to expose Ugandan Kenyan industry. citizens to significant economic risks;
By Lori Pottinger, IRN 5 Making the Case for Change
On ecosystem protections, the CAS is clear: households get their electricity from the sun “The costs of reckless natural resources than from the national grid, according to management in the 1970s and early '80s are "The Economist." Some 50 local companies often borne by the rural poor who are now manufacture or assemble PV systems in dependent on these resources for their Kenya. Unlike the region's big hydro livelihoods… There seems to be a strong projects, Kenya's solar industry has link between environmental degradation and developed without significant aid, subsidies poverty ... The 1994 National Environmental or government support, according to Action Plan (NEAP) calls for alignment of renewable energy experts working in the sectoral strategies to address priority region. It has also created longterm concerns relating to land degradation, employment opportunities which the deforestation, loss of wetlands and construction of large dams does not. dwindling fish stocks." NGOs note that large dams like Bujagali will degrade land and Project proponents have downplayed solar forests, wetlands and fisheries, and will for Uganda, stating that it is not financially certainly harm the rural poor who are viable, but regional energy experts believe dependent on rivers for the resources they Uganda is favorably endowed for solar, and provide. would like to see lenders help break down financial barriers that are in part responsible for the resistance to this decentralized Alternatives technology. Instead, the IFC commissioned Activists working on this issue are pressing Acres International, an engineering firm for a national energy plan that takes into with a major focus on hydropower, to assess account the needs of the poor and grid-based electricity generating options. emphasizes true renewables like solar, The report primarily compares a number of micro-hydro and biomass. They believe a large dam options. Renewables like solar commitment to big hydropower now will were dismissed in a few short paragraphs, come at the expense of the rural poor and and decentralized generation approaches may preclude Uganda from pursuing better were similarly dismissed. options. There is also a belief that this project is too Solar does not require connection to the big and inflexible to meet Uganda’s energy national grid, which in Uganda has very needs. Large dams are frequently criticized limited reach and is expensive to expand. for being inflexible (because they take so While solar energy may not be able to power long to build, their economic viability large-scale industry, a widespread use of depends on longterm power projections solar roofing materials, for example, could which often prove to be overestimations) more than offset Uganda’s “energy deficit,” and “lumpy” (which means they bring a thus eliminating the need for large hydro at large amount of power online at once, as this time. Emphasizing solar would also opposed to smaller power generators which open up opportunities to collaborate with bring power online incrementally, as the Kenya, whose highly regarded private-sector economy requires it). Bujagali suffers from photovoltaic (PV) industry has caught the both of these flaws. eye of the world. In Kenya, more
6 Uganda’s Bujagali Dam: A Case Study in Corporate Welfare Profiling Problem Projects
Uganda has less risky options that could environmental, social, public consultation carry it through its immediate energy and siting issues. The panel of experts crunch, and buy time to evaluate the best include: Lee Talbott, former Director course for the nation’s development. The General of IUCN; Jason Clay, Senior Fellow national distribution system currently loses at the World Wildlife Fund (the chair of 20-30% of its electricity through "technical AES' board of directors is Roger Sant, who losses" which could be recovered through also chairs WWF's board); and William improvements in the utility grid. There are Jobin of Blue Nile Associates."18 also a number of companies using biomass to create electricity, which could be sold back to the grid.16 The country also has 400- Conclusions and Recommendations 500 MW of small-hydro potential, and up to The World Bank’s 1996 Energy Sector 450MW of unexplored geothermal reserves. Management Assistance Programme An August 17, 2000 letter from Ugandan (ESMAP) report called for better analysis of students to the IFC states, “Small dams are energy options that meet Uganda’s needs: not only affordable, environmentally "It is therefore suggested that all previous friendly and socio-culturally acceptable, but energy projects and activities be reviewed, also spread national development." inventoried, and analyzed in an in-depth study. Stock should be taken of all activities in the traditional and renewable sector to IFC Response to NGO Concerns rank results and their outputs. The objective Poverty Alleviation: On concerns that the of this exercise should be to establish some project does not adequately address World objectively verifiable indicators to help form Bank goals on poverty alleviation, the IFC a rational base for future activities by responds that the dam will boost the ranking and prioritizing projects and economy generally, thus reducing poverty. investments, on which basis donor support The PID states: “Recent surveys indicate can be channeled. The study should compare that the quality and adequacy of power in-country projects and programs to similar supply is the most binding constraint to studies and projects already enjoying private investment … Current electricity regional success." Such analysis should be shortages are estimated to cost Uganda required now. annual economic losses in the order of $100 million.”17 Before the IFC proceeds with funding for this project, local NGOs believe, there Project impacts: IFC believes that project should be a national dialogue in Uganda on monitoring by a company-appointed panel the proposed course of hydropower of experts will resolve outstanding development on the Nile, a public forum on environmental and social problems before the nation's energy needs and a full they get out of hand, but NGOs believe the assessment of all available alternatives. process of appointing the panel was faulty Students at Uganda's Makarere University and prevents it from being independent. wrote in an August 2000 letter to the World According to the IFC, "We required AES to Bank, "A study of alternative energy appoint an independent panel of experts for sources, in the context of an overall energy an objective viewpoint with regard to assessment for Uganda, should be mounted
By Lori Pottinger, IRN 7 Making the Case for Change as a matter of urgency." The students also Fax: (703) 538.4510 state that "The Bujagali Dam should not be rushed ahead of results of the work the AES Bujagali World Commission on Dams (WCD). We Project Director: Bob Chestnutt think the debate in the energy sector in E-mail: [email protected] Uganda will gain immensely from WCD AES web site: http://www.aesc.com work since this has the potential to move Project-specific web site: www.bujagali.com Uganda towards a new paradigm of energy and water management." (The WCD will IFC Bujagali project contacts: launch its final report in November 2000.) Ronald B. Anderson Other citizens have asked for a "sectoral International Finance Corporation environmental impact assessment" for the Principal Environmental Specialist river, given the number of dams planned. Eml:
The World Bank Group should consider Haran Sivam financing demand-management and energy International Finance Corporation conservation measures in Uganda before it Investment Officer evaluates major energy projects like large Eml:
8 Uganda’s Bujagali Dam: A Case Study in Corporate Welfare Profiling Problem Projects
15 "Comparison of Bujagali Hydroelectric Power Project and Karuma Falls Hydroelectric Power Project." 16 The World Bank estimates that at least 20 MW could be produced by this method (Uganda: Rural Electrification Strategy Study," ESMAP 1999). 17 PID. 18 Personal correspondence, April 4, 2000
By Lori Pottinger, IRN 9