World Bank approves Bujagali dam project

The World Bank on Tuesday announced its approval of financial assistance totalling up to US $225 million to support the building of a large-scale dam near Bujagali Falls on the River Nile near Jinja, southeastern Uganda. The Bujagali hydropower project would consist of a 200-MW hydropower station and would be a "key investment" in poverty reduction in a country where less than 3 percent of the population has access to the national grid, the World Bank said in a statement. "The project will provide an efficient, low-cost, and well-managed electricity generation facility that promises substantial economic benefits to Uganda," said Peter Woicke, Executive President of the International Finance Corporation (IFC), an arm of the World Bank dealing with private sector investment credit. "It will reduce the need for public investment in the power sector, enabling the government to deploy more funds to address critical social needs in other areas," Woicke added. The project has been widely criticised by environmental groups, who say the dam could cause irreversible social and environmental damage to the area. According to the US-based NGO International Rivers Network (IRN), the hydropower plant would create a "socially and environmentally destructive reservoir, and would drown the spectacular Bujagali Falls." The project would submerge highly productive agricultural land, increasing stress on land near the reservoir, resulting in "further watershed degradation and deforestation and a loss in soil productivity," IRN said. It would also do little to improve the livelihoods of the vast majority of Uganda's population not connected to the national electricity grid. "Activists believe a commitment to big hydropower now may preclude Uganda from pursuing such a [sustainable energy] path, and are convinced it will come at the expense of the rural poor," IRN said on its web site. According to the World Bank, however, a community development action plan included in the project will help to "ensure that the people affected by the project will reap tangible benefits in terms of improved living standards and access to better services". Formal complaints from a local campaign group, the National Association of Professional Environmentalists (NAPE), recently led the World Bank to undertake a further evaluation of the proposed project. The subsequent delay incurred during the World Bank's re-evaluation prompted AES, a US-based construction company, to threaten to pull out of the project, and Ugandan President Yoweri Museveni to write to the World Bank urging approval of the plan, the Monitor newspaper reported on 20 November. "The AES-sponsored Bujagali project is likely to fail following a lengthy investigation unless the project loan is approved by the board in parallel to the investigation," the Monitor newspaper reported Museveni as saying in a letter to the World Bank in October. NAPE had claimed in July that the original environmental impact assessment had failed to adequately account for the cumulative effect on the environment of the proposed Bujagali dam and the extension of the nearby Owens Falls dam. The two dams may result in social, economic and environmental harm to the local population, including increases in electricity tariffs, negative effects on tourism, and serious impacts on fisheries, the World Bank cited NAPE as saying in its complaint. The World Bank's subsequent economic analysis concluded, however, that the Bujagali project was the "least cost generation option to satisfy expected demand for electricity in Uganda". After considering alternative options, including small- and medium-sized hydropower projects, geothermal power, and other large-scale hydropower sites, Bujagali was found to be the preferred location due to its "relatively favourable cost profile and comparatively lower social and environmental impacts", the World Bank said. According to the World Bank, the total project cost would be financed through a combination of $115 million in equity provided by AES; $468 million in debt facilities, including up to $100 million in loans from the IFC; and a $115 million partial risk guarantee to cover commercial banks provided by the International Development Association (IDA), the World Bank's concessional lending arm. Construction of the plant is expected to take 44 months, after which it will be owned and operated by AES Nile Power Limited (AESNP), a subsidiary of the AES Corporation. AESNP would maintain the Bujagali hydropower plant and sell electricity to the Uganda Electricity Transmission Company under a 30-year power purchase agreement, the World Bank said. "Lack of electricity has severely impeded development in Uganda. This is a first class development project," World Bank President James Wolfensohn said in the statement.