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FINANCE: Activists Decry Bank’s Loan Approval for Uganda Dam

Emad Mekay

WASHINGTON, Apr 27 2007 (IPS) - Brushing aside concerns from environmentalists and rights groups, the World Bank said Thursday it will support the controversial Bujagali dam in Uganda with 360 million dollars in loans and guarantees.

The decision was quickly denounced by activists, who say the dam poses grave environmental risks and that Bank ignored recent studies in justifying the measure.

The Bank said that the project will cost 799 million dollars, of which 130 million dollars in loans will go to the private company executing the project, Bujagali Energy Ltd. (BEL). Those funds will come from International Finance Corporation (IFC), the private-sector arm of the World Bank.

A risk guarantee worth 115 million dollars will come from the International Development Association (IDA) to protect loans from the project’s commercial lenders, while the Multilateral Investment Guarantee Agency (MIGA), the World Bank’s political risk mitigator, will offer 115 million dollars in investment guarantees.

The IFC, IDA and MIGA are collectively known as the World Bank Group.

Despite opposition to the large dam, the IFC is marketing the project as a source of power in Uganda, a poor nation of 26.5 million people, that will substantially reduce the African nation’s need for more costly thermal power.

The 250-megawatt Bujagali dam is located on the Nile River and would be built and operated by the U.S.-based company Sithe Global Power, LLC and Industrial Promotion Services in Kenya, which is part of the Aga Khan Fund for Economic Development.

The hydropower plant is designed to re-use water flowing from two existing upstream facilities to generate electricity.

Its proponents say that the additional electricity will increase the supply to the national power grid at the lowest cost compared to other power generation expansion options under Uganda’s energy sector strategy.

The companies behind it also contend the project will preserve the natural environment while producing large economic benefits for the poor African nation.

At 30 metres high, Bujagali is said to be the largest private power project in sub-Saharan Africa.

The government of Uganda expects to complete the dam’s construction by 2010.

In its statement announcing the decision Thursday, the World Bank said that the Bujagali Hydropower Project, as it is formally known, has undergone extensive economic, environmental, and social due diligence – an allegation hotly contested by watchdog groups that have monitored the project for years.

They say that the dam could in fact be disastrous for Lake Victoria, the world’s largest tropical lake, and contrary to the World Bank assertion, could be a drag on Uganda’s economy.

Even worse, the project’s high cost means its electricity will not be affordable to the majority of Ugandans.

A serious charge they also level at the Bank is that it chose to ignore the possible effects of global climate change on the Nile River’s flows in its analysis of the project. They cite several studies, including a 2006 study by independent hydrologist Daniel Kull, which demonstrate that two existing dams were draining Lake Victoria.

The operation of the two hydropower dams, the Nalubaale and Kiira dams, has been shown to be partly responsible for the drop in the Lake Victoria’s water levels, which are at their lowest in more than 50 years.

“The dam was a fait accompli from the start, with the Bank simply ignoring inconvenient truths about climate change and hydrology of the Nile at Lake Victoria,” said Lori Pottinger of International Rivers Network.

“This project will make Uganda completely dependent for its electricity on the flows of a short stretch of the Nile, putting the country’s economy at grave risk in a warming world,” she said.

Observers also note that the investment decision at the Bank may be faulty too. After all, the Bank says its mission is to reduce poverty and better the lives of poor around the world. This is not the case with this dam, they say. The critics note that most of Ugandans, poor and marginalized, are not even connected to the national grid.

“The financial package for Bujagali approved today dwarfs the amount the Bank has invested in energy for rural areas in Uganda,” said Nikki Reisch of Bank Information Centre (BIC) in Washington, DC.

“Today’s decision signals a continued commitment to investing big money in expensive power projects that serve industrial interests, rather than increasing support for alternatives which could provide more affordable electricity for the majority of Africans who live without it,” Reisch said.

But the World Bank’s rationale for backing the project appears to be centred, at least publicly, on boosting the local economy and assuming that poverty will be wiped out on the way.

The Washington-based lender argues that Uganda’s workforce is expected to double over the next 15 years, making the creation of jobs through expanded industry, tourism, and commercial services essential.

“These sectors are energy intensive and will therefore rely on consistent, affordable, and expanding power supply,” said Judy O’Connor, the Bank’s country director for Uganda. “Bujagali is an important step towards realising the needed level and quality of supply.”

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