Internal World Bank Report Reveals Major Problems with Uganda Dam

For Immediate Release

June 10, 2002 -- The planned Bujagali Dam in Uganda violates five key World Bank policies. This is the conclusion of a confidential new report by the Inspection Panel, the World Bank's investigative body. The Panel report suggests a series of corrective measures to rectify the project's problems. International Rivers Network calls for these measures to be carried out before more funding for the project is approved by the Bank's Executive Board.

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The planned Bujagali Dam in Uganda, proposed by the US-based AES Corporation, violates the World Bank's policies on involuntary resettlement, environmental assessment, natural habitats, disclosure of information, and the economic evaluation of investment operations. This is the main conclusion of a new report by the Inspection Panel, the World Bank's independent investigative body. The confidential report was submitted to the Bank's Executive Board on 30 May.

The Panel report finds the economic analysis for Bujagali to be seriously deficient. It reveals that a mild depreciation of Uganda's currency would drive power tariffs up to 20 cents per kilowatt hour,
which the report calls "surely unaffordable". The report says that the fundamental project contract, the Power Purchase Agreement, is unfavorable to Uganda, and not always up to International Best Practice. It also reveals that the World Bank has neglected to assess potential alternatives, particularly geothermal energy, in the preparation of the project. The report raises the specter of Bujagali resulting in "very substantive stranded costs" for Uganda.

"The World Bank calls Bujagali a 'high risk' project, but has not adequately analyzed the economic risks and the viability of the project", says Lori Pottinger, director of International Rivers Network's Africa program. "If no corrective action is taken, Bujagali will become a white elephant project that will further add to Uganda's unsustainable debt burden."

The report by the Inspection Panel also finds that important measures to analyze or mitigate the social and environmental impacts of the Bujagali dam were either missing or seriously deficient. These measures include an assessment of the cumulative environmental impacts of dams in Uganda, a resettlement and a community development action plan for the affected people.

The Panel report suggests corrective action for rectifying the problems of Bujagali. The suggestions include various measures to properly assess the project's economic viability and risks, and changes to the unfavorable Power Purchase Agreement (PPA). The report says that a publication of the PPA would be "vital" for a public debate and understanding of the project's impacts.

"The corrective measures suggested by the Inspection Panel must be completed before the project is approved by the World Bank's Executive Board" says Pottinger. "It is absolutely necessary to properly analyze the economic viability of Bujagali, but doing so after the project has been approved would be an exercise in futility."

Bujagali is a 200 MW hydropower project in Uganda sponsored by the US-based AES Corporation. In December 2001, the World Bank approved $225 million in support of the dam. Several other financial institutions declined to become involved in the project. World Bank management proposes to extend a political risk guarantee of $250 million through the Bank's Multilateral Investment Guarantee Agency to rescue the project. This guarantee proposal is currently pending with the Bank's Executive Board. In July 2001, Ugandan civil society groups had filed a complaint with the Bank's Inspection Panel, claiming that Bujagali violated several World Bank policies. The new report presents the findings of an investigation into the merits of this complaint.

For further information:

• Peter Bosshard, advisor to IRN, powerfinance@irn.org, +1 510 848 1155 (on economic aspects of Bujagali)

• Lori Pottinger, director of IRN's Africa program, lori@irn.org, +1 510 848 1155 (on social and environmental aspects of Bujagali)

International Rivers Network, based in Berkeley/California, links human rights and environmental protection. www.irn.org, email: irn@irn.org

On May 14, 2002, IRN published a review of the economic viability of Bujagali. This report, "Pervasive Appraisal Optimism", is available at http://www.irn.org/programs/bujagali/wb.bujagalipaper.pdf

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• 194 World Financial Institutions