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ALERT: OPPOSE FINANCING FOR BUJAGALI DAM IN UGANDA Below are two recent bulletins and a Financial Times article on the disastrous Bujagali dam project in Uganda. Please call your Executive Director at the World Bank by the end of Monday (5 pm US Eastern time) to urge her/him to oppose approval of a Multilateral Investment Guarantee Agency (MIGA, the fourth wing of the Bank, which provides political risk insurance to corporation on big projects, ostensibly to lure investors to the South who might not otherwise invest) policy for Bujagali. The reasons are numous! Although the World Bank has reduced its role in large dams, Bujagali is a clear indication that it is not done yet, and that it is not interested in following the recommendations of the World Commission on Dams (which the Bank participated in). MIGA would be the third part of the Bank to be involved in this project (after the IBRD -- the main part -- and the International Finance Corp, the private-sector division). MIGA is being brought in at the last minute because AES, the Virginia-based lead contractor, has hit hard times, with its stock price plummeting by something like two-thirds its value in the last few months -- at least in part because it engaged in some of the same questionable practices as its fellow energy firm, Enron. The devastating Inspection Panel report referenced below will be discussed by the World Bank Board and the Panel on Monday; a decision on the MIGA policy is expected at a regular board meeting on Tuesday. Activists in Washington are planning a demonstration. Your calls are vital. PLEASE CALL your Executive Director by 5 pm Eastern time on Monday! U.S. Executive Director: Tel: 202-458-0110; Fax: 202-477-2967
Internal World Bank Report Reveals Major Problems with Uganda Dam 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 * * * 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.
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
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 "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.
Dear all, As you may have heard, the report of the Inspection Panel on the Bujagali project will be discussed by the World Bank Board of Directors on Monday, June 17. A vote to approve the project may take place as soon as Tuesday, June 18. Apart from the Panel report, an issue which is creating a lot of debate among Executive Directors is the extremely high interest rate which Uganda's government will have to pay under Bujagali's Power Purchase Agreement. For good reasons: Uganda had to commit to the IMF not to take up any further debt or other liabilities on non-concessional terms. Yet under the PPA, Uganda has to pay the project sponsor an interest rate of 13%, which a financial analyst working with IRN called "near usurious". It would be shocking if the IMF could stop Uganda from increasing its health budget, but could not stop MIGA from guaranteeing payments on near-usurious terms. Below is a letter on this issue which we just sent to the Executive Directors. Since this is a contentious issue among EDs already, any support to raise this issue with your governments, EDs, or media could be critical. Thank you for your efforts!
June 12, 2002 Dear Executive Director, We believe that the terms of the Power Purchase Agreement (PPA)
for the Bujagali Hydropower Project contradict and undermine the
debt policies of the International Monetary Fund and of donor
governments in Uganda. We urge you to amend the terms of the PPA
before MIGA's pending political risk guarantee for Bujagali is
approved by the Under the PPA for the Bujagali project, the Government of Uganda and the AES Corporation have agreed to limit each year's Capacity Payments to a certain threshold. This threshold will amount to $81 million in 2006, will peak at $111 million in years 2010 through 2015, and will decline thereafter. Payments above the threshold can be deferred to a later date, and will accrue at an interest rate of 13% per annum. The terms of this agreement raise serious questions: Under the IMF's 1998-2001 Poverty Reduction and Growth Facility (PRGF) arrangement, Uganda's Government committed to not borrowing any more funds on non-concessional terms. Further, the Government stated in its Letter of Intent to the IMF of March 9, 2001: "In line with its prudent debt-management strategy, the government will strictly adhere to its commitment not to contract any new nonconcessional external liabilities." The IMF's PRGF arrangement with Uganda expired in 2001. Yet Uganda's debt situation has sharply deteriorated since the Government signed its Letter of Intent in March 2001. In April 2002, the IMF and the World Bank expressed concern that Uganda was now "facing very high debt indicators primarily as a result of sharply lower exports" (IMF/IDA, The Enhanced HIPC Initiative and the Achievement of Long-Term External Debt Sustainability, April 15, 2002). The terms of the Bujagali PPA, with an interest rate of 13% for the deferred Capacity Payments, clearly contradict the Government's "commitment not to contract any new nonconcessional liabilities" as part of a "prudent debt-management strategy". If the Board of Directors approves a political risk guarantee for the Capacity Payments on these terms, it undermines the more prudent debt policies which the IMF and donor governments have agreed on with Uganda's Government. The Bujagali project will only go ahead if MIGA provides a political risk insurance to guarantee the Capacity Payments by Uganda's Government to the project sponsor. This raises two further questions: Why should the sponsor charge interest rates that an independent financial analyst has called "near-usurious" on liabilities which are guaranteed by MIGA? And what is the value of a MIGA guarantee if a government still needs to pay an interest rate of 13% on the guaranteed payments? The Inspection Panel report on the Bujagali project does not discuss the interest rate at which the deferred Capacity Payments will accrue. It does find that the Bujagali PPA is not always up to international best practice, and suggests amendments to make the Agreement less unfavorable to Uganda (paras. 185ff. and particularly paras. 198ff. of the Panel report). We hope that the Board of Directors will ensure that before MIGA approves the project, the terms of the PPA are renegotiated accordingly. We encourage you to request that the interest rates on the deferred Capacity Payments be renegotiated when the PPA is amended. The World Bank's Board of Directors should not undermine the more prudent debt policies of the IMF and donor governments in Uganda. AES should not be charging interest rates of 13% on payments which are guaranteed by MIGA. And Uganda's government is not in a position where it can afford new long-term l liabilities at such high interest rates. Thank you for your consideration of these concerns. Sincerely, Peter Bosshard
A controversial hydro-electric dam in Uganda backed by the World Bank could damage the environment and lead to unfeasibly high electricity prices, according to the bank's own inspectors. The proposed $550m (ý582m, ý377m) Bujagali dam, which would be east Africa's largest single foreign direct investment project, has pitted domestic and international environmental campaigners against Yoweri Museveni, Uganda's president, and the World Bank for several years. The report is likely to prove an embarrassment for the bank, further questioning its ability to fund large infrastructure projects in poor countries. The bank's management has proposed backing the construction of the dam - to be undertaken by the US company AES - with $250m in political risk insurance from the Multilateral Investment Guarantee Agency, its private risk mitigation arm. A planned recent meeting of the bank's board to consider this was postponed until next week. The bank has already authorised $115m in partial risk guarantees for the project. But the confidential independent inspection panel report, seen by the Financial Times, says bank staff have failed to assess sufficiently the viability of the project, its likely impact on the environment and the possibility of alternatives. The report praised the technical competence of the bank's proposal, but said that several key elements were missing. Alternatives, including geothermal power, had not been adequately considered. It said the projections for electricity generation had failed to account for potential problems with Uganda's power distribution system. Macroeconomic shocks such as acurrency depreciation could also jeopardise affordable power and endanger the project's viability. "A mild depreciation . . . could double the electricity tariff to Uganda consumers over seven years, raising major questions," the report said. The cumulative environmental impact of the Bujagali dam on top of other projects on the Nile in Uganda should also have been assessed. Disclosure of the confidential power purchase agreement already signed by the Ugandan government and AES "was vital if the intent is to place the public in a position to analyse, understand and participate in informed discussion about viability of the project." But it admitted that the World Bank itself was not required to publish the agreement. A bank spokesman said yesterday: "The bank takes all concerns about its projects very seriously, but it is premature to comment before the board discusses this report next week." Campaigners yesterday seized on the report - undertaken in response to complaints from Ugandan non-governmental organisations - as vindication of their views that the project had been badly designed and hastily pushed through. "The World Bank admits that Bujagali is a high-risk project, but it has not adequately analysed its economic risks and its viability," said Lori Pottinger at the International Rivers Network, an environmental campaign group. The missing elements must be addressed before the bank's board could consider the project, she said. The bank has gradually withdrawn from direct involvement in large infrastructure projects, both because of a growing feeling that they are best handled by the private sector and because of concerns about environmental damage.
France Tel: 202-623-6505; Fax: 202-623-4951 Japan Tel: 202-458-0098; Fax: 202-522-1581 Germany Tel: 202-458-1046; Fax: 202-477-7849 Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Philippines, Suriname, Trinidad & Tobago Tel: 202-458-0096; Fax: 202-522-1551 Kuwait, Bahrain, Arab Republic of Egypt, Jordan, Lebanon, Libya, Maldives, Oman, Qatar, Syrian Arab Republic, United Arab Emirates, Republic of Yemen Tel: 202-458-1030; Fax: 202-477-3537 Saudi Arabia Tel: 202-458-0191; Fax: 202-477-1759 Austria, Belarus, Belgium, Czech Republic, Hungary, Kazakhstan, Luxembourg, Slovak Republic, Slovenia, Turkey Tel: 202-458-4661; Fax: 202-522-3453 Russian Federation Tel: 202-458-7080; Fax: 202-477-4274 Spain, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Venezuela Tel: 202-458-2090; Fax: 202-522-1575 Namibia, Angola, Botswana, Burundi, Eritrea, The Gambia, Kenya, Lesotho, Liberia, Malawi, Mozambique, Nigeria, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Tel: 202-458-2107; Fax: 202-522-1549 Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay Tel: 202-458-2066; Fax: 202-477-3786 Pakistan, Algeria, Ghana, Islamic Republic of Iran, Morocco, Tunisia Tel: 202-458-1084; Fax: 202-477-9052 Indonesia, Brunei Darussalam, Fiji, Lao People's Democratic Republic, Malaysia, Myanmar, Nepal., Singapore, Thailand, Tonga, Vietnam Tel: 202-458-1197; Fax: 202-477-4116 Australia, Cambodia, Kiribati, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Republic of Palau (informally), Papua New Guinea, Samoa, Solomon Islands, Vanuatu Tel: 202-458-1018; Fax: 202-477-2007 Switzerland; Azerbaijan, Kyrgyz Republic, Poland, Tajikistan, Turkmenistan, Uzbekistan Tel: 202-458-7050; Fax: 202-477-9110 Finland, Denmark, Estonia, Iceland, Latvia, Lithuania, Norway,
Sweden Tel: 202-458-1081 Italy, Albania, Greece, Malta, Portugal Tel: 202-458-1169; Fax: 202-477-3735 India, Bangladesh, Bhutan, Sri Lanka Tel: 202-458-1046; Fax: 202-522-1553 Netherlands, Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Former Yugoslav Republic of Macedonia, Moldova, Romania, Ukraine Tel: 202-458-2052; Fax: 202-522-1572 Mali, Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Cote d'Ivoire, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Republic of Congo, Rwanda, Sao Tome and Principe, Senegal, Somalia (informally), Togo Tel: 202-458-7126; Fax: 202-522-1585 China Tel: 202-458-0058; Fax: 202-522-1579 |
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