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).