Dam-project down the drain?
By Pia A. Gaarder
The power-plant in Bujagali seemed to be all settled after the World Bank approved the dam project. But then, the Swedes said no. Thereafter, the builder, the American energy giant AES Corp, delayed the start of the construction because of difficulties financing. AES Corp is itself in an financial decline, and has since the beginning of the year lost over 70 percent of it's value(see following article).
After a long assessment the World Bank decided before Christmas to support the disputed Bujagali-project, which will deliver 200 mW annually to Uganda. The project is part of the policy of privatising the electrical supply in one of the poorest countries in the world, where only three percent of the population has access to electricity.
Bujagali will cost around 580 million USD and will be run by American company AES Nile Power, which is owned by AES Corp. Entrepenouring will be done by a consortium lead by Norwegian Veidekke together with Swedish and swiss companies. (NorWatch 11/2000).
When the Swedish export guarantee institute, EKN said no to the project in january, the decision came as a blow to the face for the political and economic sponsors of the project. The Swedes would not support a project they meant was too large for Uganda's economy. The risks of loss was therefore too high for the Swedish state. All according to a reasoning given to NorWatch from Eva Björklund of EKN.
The project did not only loose it's export-guarantees of 100 million dollars. What was to be an example of sustainable and poverty reducing investment in the third world suddenly got a serious scratch.
The Swedish decline strengthens opposition arguments that the project is too risky and in no way beneficial to Uganda's economy. The decision also stands in strong contrast to the World Bank and NORADs assessment of the project as "contributing to development."
This difference in assessment does not come from environmental organizations on one side and the institutional aid-organizations on the others, but on the contruary from the heart of the "official" side of the aid apparatus.
The Swedish decision was made partially on the grounds of an economic consequense-report worked out by the International River Network(IRN) that has brought out the negative impacts of the project.In Norway, it is the Association of international water- and forest studies (FIVAS) who have followed the matter closely, also towards Norwegian aid departments.
Several independent experts warn that Bujagali could be a financial trap for Uganda.
- The problem is the financing of the Bujagali-project. Few countries are today willing to sign this type of contracts, which implies that the country itself guarantees to the private sector instead of the private investors taking the risk on their own, says Mark Davis from the centre for economical analysis, ECON, to NorWatch. He works in ECONs Oslo office, and is project leader for several reports on energy issues that ECON has done on for Uganda authorities.
Large parts of the agreement is being held secret, something which two local organizations, NPE(National Association of Professional Enviromentalists) and Save Bujagali Crusade, has complained to the ombudsman in the World Bank subsidiary IFC. They have got precedence that it is hard - if not impossible to have a useful discussion on the economical consequences of Bujagali without access to the written agreement.
It is now known that Uganda, for receiving power from Bujagali, will pay around 100 million dollars to AES Nile Power each year, for ten years. The payment is to be done either the power plant produce power or not, for example when drought could make the upper part of the Nile low in current. Thereafter the price will gradually be reduced. After 30 years the power-plant is to be transferred to Uganda authorities.
The agreement shall in addition contain several mechanisms that automatically transfers risk and increased costs to the power price, that means the consumers in Uganda. This is the reason why the deal has been portraied as a golden affair for the American project company.
The expansion of the power grid must also be financed through prices, and Uganda risks in that way that the prices of power will get so high that the countrys economy could stagnate. Average income in Uganda is today 310 dollars a year, and power prices are already higher then in Norway.
Everybody agrees that Uganda needs power. The disagreement is whether to put the stakes on Bujagali or on geothermic energy, such as Kenya is on it's way to do.
Revert the Swedish decision
The Swedish decision has been creating more problems for the Bujagali-project then previously assumed. The American builder got 175 million dollars in financing from the World Bank in December. The company had counted on the export guarantee institutes in Sweden, Norway, Finland and Switzerland to guarantee loans of 250 million dollars from among others German and Australian banks. So far only the Swiss guarantee institute has said yes. And now the building date has been postponed because of the problems of getting the financing in order.
Must have guarantees
Worries are notable in the circles around the companies that have gotten contracts in Bujagali. For Veidekke, the contract on the amount of 1 billion NOK is the largest ever. NorWatch has asked director of information in Veidekke, Kai Krger Henriksen, about the consequences of the Swedish no for the project. According to their own press-release from November 2000, a building start will depend on financing guarantees from the suppliers guarantee institutes.
- Everybody works to come to a solution. Maybe the decision can be reverted. EKN has at least said itself willing to evaluate new information relevant to the case. World Bank and IFC has approved of the project. The Swiss guarantee institute has also approved. On these grounds, authorities in Sweden, SIDA and EKN are coming together to see the details. The problem is to get a clear picture of the objective figures. The evaluations has been made on different grounds, says Krger Henriksen.
GIEK under pressure
All attention is now directed to the Norwegian guarantee institute for export credits (GIEK) who will soon give an answer to the application from the Norwegian export group on a guarantee for 70 million dollars.
Norwatch Newsletter 03-04/02