African Press International (API)

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Uganda Dam Slammed by World Bank Appeals Body

Posted by African Press International on December 4, 2008

Bujagali deal full of risk for one of world’s poorest countries

The benefits of the Bujagali Dam project, now being built by private companies on the Nile River in Uganda, have been overstated and its risks understated, according to a 17-month investigation by the World Bank Inspection Panel.
Worse, most of these risks fall on Uganda — one of the world’s poorest countries — rather than
the project developers. The result could be a project that fails to fulfill the Bank’s “broad objective of sustainable development and poverty reduction embodied in Bank policy,” the Panel states.

Graham Hadley, the Panel’s economic consultant on the Bujagali case, notes that “the greatest share
of economic risks lies with the power purchaser S In effect, the lenders especially but also the
investors are held harmless against all or most eventualities.” He states that the World Bank did
not address a “crisis of non-affordability in Uganda such as might be produced by currency devaluation or very low hydrology. Personally, I would have preferred S to see terms more favorable to the purchaser.”

Project costs have risen dramatically since the deal was sealed, and the Panel worries about the
costly dam’s impact on tariffs in a nation where only a small percent of the population can afford
electricity.

Hydrological risks — including the potential for the dam to harm Lake Victoria, as existing
upstream dams have done, and for its electricity output to be diminished by climate change —
compound the project’s economic risks. The Panel says that the Bank has not properly addressed the
effects of climate change and the cumulative effects of multiple dams on the Nile.

Groups monitoring the project say the deal must be reworked to take some of the risk off Uganda.
Frank Muramuzi, Executive Director of the National Association of Professional Environmentalists (NAPE), said: “The Panel has ably reported that this dam could cost Uganda more than it’s worth. The power purchase agreement between our government and the project developer will drain the national treasury and take away important resources for other social and economic services, making the citizens poorer than they already are.” NAPE filed the claim with the Inspection Panel that resulted in this report.

NAPE is calling for a more balanced allocation of risk; a high-quality plan for addressing
economic, environmental, compensation and resettlement problems, and an open and transparent process for protecting Lake Victoria from excessive outflows. The project developer should also be required to take out climate-risk insurance, the group says.

Lori Pottinger of International Rivers said: “This project is a bit like the recent bailout for Wall Street – golden parachutes for the dam developers while Ugandan taxpayers will have to shoulder the costs for problems it causes. In its zeal to build this flawed dam, the World Bank is undermining its mission to alleviate poverty, and gambling with Uganda’s future.”

The Panel’s report is to be discussed by the Bank’s Executive Board on December 4; only after that will it (and management’s response to it) be made public. But those who have seen both documents report that Bank management dismisses virtually all of the Panel’s findings, proposing an “action plan” which lists no actions the Bank was not already planning on taking. The Board will have to decide whether to demand a more conscientious response from Bank staff to the Panel’s report, or to join the staff and
management in dismissing the highly respected Panel and the roster of experts it employed specifically for this investigation.

SAMPLE QUOTES FROM THE REPORT*:
– “As it stands, the net benefits of the project could be substantially less than Bank Management
has claimed.”
– “The Panel observes that the high allocation of risk [to the Government of Uganda] increases the
possibility that the project may not achieve the broad objective of sustainable development and
poverty reduction embodied in Bank Operational Policies.”
– “The Panel did not find evidence … of any estimates of the economic impact of the Project
on low-income households… It might be argued that a smaller, lower-risk infrastructure project
would have been a better place to start.”
– “The effects of climate change and the cumulative effects” of multiple dams on the Nile “have not been properly addressed” in project documents.
– The project “is facing substantial problems in measuring, monitoring and mitigating livelihood
risks, especially among vulnerable peoples. The Panel finds that the Project is in non-compliance
with the mandate of Bank Policy on Involuntary resettlement to improve, or at least restore, the
livelihoods and standards of living of the people displaced by the project.”
– “In a country where only 5% of the population is connected to the grid and there is widespread
poverty, it would be reasonable to expect attention be paid to small and/or distributed generation options (not only hydro) which might in theory more directly address local and rural poverty.”
– “The winning bid price was significantly lower than the next best, but between the time the
contract was awarded and the formal price was fixed, there was an increase of 28%.”
————————————-

Background on Bujagali
The dam is being developed by Bujagali Energy Limited (BEL), a consortium between Industrial
Promotion Services (IPS) of Kenya (a division of the Aga Khan Fund for Economic Development), and
Sithe Global, a US power company now 80% owned by the Blackstone Group. The dam is being built by
Italian firm Salini. The project is expected to take up to 44 months to construct.

Project financing: Of total development costs, the AfDB is lending $110m. Another $360m will be
provided by the World Bank Group (the International Finance Corporation is providing a $130m loan to BEL; the International Development Association is providing $115m for the project’s commercial lenders; and an investment guarantee of up to $115m is to be supplied by the Multilateral Investment Guarantee Agency). The European Investment Bank will lend $135m.

:
A post by Lori Pottinger, International Rivers, California:

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