Submitted December 23, 2001.
Bujagali project moving ahead, but criticism persists
By Carl Bialik
New York - With the World Bankís financial assistance secured Tuesday, AES Corp. is pushing ahead with plans to build a large-scale dam near Bujagali Falls. However, critics continue to object, saying the project is too financially risky for Uganda, that it was chosen without properly considering better alternatives, that it will drive up energy tariffs, and that it will destroy a major tourist attraction.
"Bujagali Dam is a boondoggle that will enrich a large multinational while doing little to bring electricity to poor Ugandans," said Lori Pottinger, director of the Southern Africa Program for the International Rivers Network (IRN), a United States NGO. "It is corporate welfare masquerading as poverty alleviation, and Uganda could be the poorer for it."
AES suffered a number of funding setbacks earlier this year, when European and American development banks withdrew funding from the project. But when the World Bankís executive directors voted to provide financial assistance of up to $225 million on Tuesday, they ensured the project would go forward, according to Ron Brigish, the Bankís coordinator of the country programs for Tanzania and Uganda.
"This was a preliminary measure needed for AES to get approval from commercial lenders," Brigish told The Monitor. "AES has commercial lenders lined up to fill out the rest of the debt."
The executive directorsí approval of the project means AES has secured a loan of up to $100 million from the International Finance Corporation (IFC), an arm of the Bank dealing with private-sector investment credit, and a $115 million partial risk guarantee to cover commercial banks provided by the International Development Association (IDA), the Bankís concessional lending arm.
A Bank inspection panel is currently assessing the project. The panel is examining all questions asked by IRN and Ugandan NGOs, Brigish said. The board will consider the panelís report and may take action based on it. Environmental activists in Uganda have blasted the Bank for approving the project before receiving the panelís report.
Edith Ssempala, Ugandaís ambassador to the U.S., lobbied hard for the bankís approval. She signed an indemnity agreement between the government of Uganda and the Bank on Wednesday.
"Power is at the core of every aspect of development," Ssempala told The Monitor.
While few dispute the importance of power to Ugandaís further development, proponents and opponents of the Bujagali project disagree sharply on what Ugandaís needs are, and how best to fill them. Their debate about key the project reflects broader questions about the direction Uganda should be taking on many important issues, including the environment, economic growth, tourism, and corruption.
Alternative energy sources. According to Pottinger, the Bank never gave a fair chance to other possible means of expanding Ugandaís energy capacity. "We talked to a geothermal expert who has extensive experience in Uganda, and he said the capacity is 450 megawatts (MW), and it takes two to three years to develop, with very few risks," Pottinger said. "All thatís required is a bit more testing." The Bujagali damís power capacity will be 200 MW; droughts could reduce water flow and cause the project to perform below capacity.
Brigish downplayed the potential for geothermal. "It is not at this point an alternative to Bujagali," he said. "What it is, is a possible prospective future source of energy." He estimated it would take six to ten years to develop, and he said Kenya, which relies on geothermal energy for a significant portion of its power, took that long to develop its resources.
Kengen (the Kenya Electricity Generating Company) has said studies show geothermal to be the least cost option for new power sources in the country.
Ssempala referred to geothermal as a fringe source of energy. "We needed a big power project to really move our development forward," she told The Monitor. "Some people think that for Africa itís enough to simply survive, and we are saying, no, we want to develop. We want to move forward as far as we can go."
The Bank commissioned Acres International, an energy firm, to assess alternative energy sources in Uganda. Ssempala referred to this assessment when dismissing geothermalís potential. However, Pottinger criticized the Acresí report, saying it was tainted by a deep conflict of interest and that it did not adequately study alternatives to hydropower. Acres has worked on hydropower projects along the Nile, including the Owen Falls extension.
"There were a few paragraphs on solar power in hundreds of pages in the report," Pottinger said. "Grid-based solar, windpower, microhydropower -- those things were not analyzed adequately."
Ssempala dismissed IRNís legitimacy in criticizing the project. "I donít think IRN has ever developed a project," she said. "They have no dealings in the private sector. We go out trying to attract investors."
But Pottingerís critique suggests Uganda went too far in its quest to woo AES. The terms of the contract between the government and the power company are secret, but according to those who have seen the deal, Uganda has committed to paying AES approximately $100 million annually for 30 years. AES, in turn, has made no guarantees about how much power will be generated.
A former Ugandan energy minister is under investigation by the World Bank for corruption. Brigish confirmed an investigation is ongoing, but he said he knows no details about the probe, including who is being investigated. Brigish also insisted that only the merits of the project, and not any devious dealings, have hastened its approval. "It has been robust, objective study that makes it a priority," he said.
The result of the contractís terms, according to one energy economist working in Ugandaís power sector, will be major increases in energy tariffs as the Ugandan government looks to recoup the heavily front-loaded payments.
The paradoxical outcome of steep energy price hikes resulting from the Bujagali project could be to force existing businesses to shut down and to dissuade foreign companies from investing in Uganda.
Brigish disagreed that this is a major risk. He said a recent rate hike compensated for many years of flat energy tariffs, and he said the project should not prevent Uganda from maintaining current energy prices, inflation adjusted.
Ugandaís energy needs.
Then there is the question of who will pay the price - whatever it may be - for the energy produced at Bujagali. According to Ssempala and other proponents of the project, there is a great need for more energy in Uganda.
"Everybody realizes that Uganda needs power for development," Ssempala told The Monitor. "Itís obvious that it is necessary."
While most do agree that power is necessary for development, Pottinger disputes the contention that the Bujagali project is the only answer. She points out that the Bankís own Project Assessment Document (PAD) reveals that if the Bankís prediction for Ugandan GDP growth of 6.3% through 2010 proves to be too optimistic, Bujagali could be an economic disaster for Uganda. In this scenario, reduced demand growth and fixed costs for the project may make it impossible for the government to recoup project costs simply by raising energy tariffs.
According to the PAD, "Low GDPs 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."
If demand for the project is not present domestically, "virtually all the power" will be exported to Kenya for some time, Pottinger said. She said this is a likely scenario.
This suggests that a gradual process of increasing Ugandaís capacity, perhaps through solar or geothermal sources, is more logical than the one-shot addition from Bujagali, Pottinger said. "Uganda has small energy needs right now," she said. "The government is saying, we need lots and lots of power. But you donít build it and they will come. You step up energy development as itís needed."
Pottinger also suggested that Uganda improve its current grid. The grid currently loses 30 percent of its power in transmission, which is far above standard grid losses.
Meanwhile, none dispute that the Bujagali project itself will do nothing to connect more Ugandans to the countryís power grid. Currently, 95 percent of the population is not hooked in. Brigish and Ssempala say concurrent projects will address this deficiency; on Wednesday, Ssempala signed Uganda on to a rural electrification project at the Bank.
It is clear that rafting companies which run trips near Bujagali Falls will have to shut down or relocate their business. What is unclear is what effect this will have on rafting businesses, and on Ugandan tourism as a whole.
Stephen Linaweaver, former manager of Adrift Uganda, argues that the effects will be calamitous. In a statement released through IRN, he claimed that 6,000 tourists participate in Bujagali whitewater rafting annually and spend $4 million on other activities in the country.
He also argues that with proper nurturing of the industry, whitewater rafting could become for Uganda what it has become for Zambia. Whitewater rafting was introduced on the Zambezi River in 1981, and in 1997 46,000 people rafted the Zambezi. Linaweaver suggests that Ugandaís younger rafting business could soon reach similar levels.
Raftingís growing popularity has suffered, however, because of deliberate suppression of publicity of Bujagali rafting by the Ugandan government, Linaweaver claims. As evidence, he pointed to the omission of rafting from Ugandaís official tourism brochures in 2000, even though Bujagali rafting attracted more tourists than any other activity in 1998; and Ugandaís two refusals to host the Camel Whitewater Rafting Challenge (CWWC). The Challenge is the Olympics of rafting, and films about it reach millions of people in 50 countries.
In 2000, Tony Hansen, the CWWC Director, was specifically told by a Ugandan government official that Uganda would not host the Challenge because it did not want to broadcast the popularity and success of rafting or the beauty of Bujagali Falls, for fear that it would spread opposition to the AES project, Linaweaver claims.
Brigish has said Kalagala Falls, a short distance downstream from Bujagali, is an even more beautiful tourist attraction than Bujagali. However, Pottinger said it is not nearly as well suited for mass whitewater rafting as the Bujagali site.
Ssempala is unimpressed with the rafting companiesí claims of hardship. "They just have to move," she told The Monitor. "It is very minimal." She went on to extol the virtues of the project and the positive role it will play in Ugandaís development. She concluded, "The benefits are endless. Compared to a little inconvenience, you just cannot even compare it."Copyright © 2002 Carl Bialik
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