FINANCE: Lenders Cooked the Books on Uganda Dam, Critics Charge

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, May 16 2002 (IPS) - The World Bank tampered with economic feasibility studies to justify millions of dollars in funding for a large dam in Uganda, said an anti-dam group.

“Contrary to Bank management claims, official documents show that the dam is not the cheapest option for generating electricity in Uganda,” said International Rivers Network (IRN) in a 26-page report, “Pervasive Appraisal Optimism”.

The lending agency’s project manager did not respond to numerous requests for comment. The dam in question is the subject of an internal Bank investigation.

At issue is the 250-megawatt Bujagali dam, located on the Nile River and being built and operated by U.S.-based AES Corporation. IRN alleged that Bank staff manipulated figures to win project approval from the lender’s executive board.

“Funding big projects is what they know and what they are used to,” Peter Bosshard, the report’s author, told IPS. “It seems that the project has a symbolic importance for the Bank that they can still fund big bulky projects that give them power and enhance their role.”

The IRN report reaffirmed a long-held and oft-expressed view among critics and some analysts of the World Bank, namely that staff at the institution perceive project appraisals as marketing devices to secure loan approvals, based on which staff’s fitness for promotion is judged. The report described this as an “approval culture in which appraisal becomes advocacy”.

“The most pressing question is why the Bank did not look at other energy options in an unbiased way,” Bosshard said. “There is a bias towards large infrastructure projects and away from smaller but more effective technologies like geothermal energy.”

Bujagali, at 30 metres high, is said to be the largest private power project in sub-Saharan Africa. The World Bank and African Development Bank approved loans and guarantees of 280 million dollars towards the project’s total estimated cost of 550 million dollars, according to the report.

Next month, the Bank’s Multilateral Investment Guarantee Agency is scheduled to consider offering 215 million dollars worth of political risk insurance to induce outside investment in the project.

The rest of the money was due to come from government export credit agencies, but so far only Switzerland’s Export Risk Guarantee (ERG) has approved a conditional guarantee for the project. IRN said it regards this as a sign that other agencies do not share the Bank’s overly optimistic assessment of the project.

Agencies that have declined involvement in the project include the U.S. Overseas Private Investment Corporation and Britain’s Export Credit Guarantee Department, said IRN.

The group faulted the Bank for forecasting that Uganda’s economy would grow by 6.3 percent per year until 2010, generating proportional growth in electricity demand. Slumping commodity prices slowed economic growth to four percent in 2000 and 4.9 percent in 2001, IRN said.

“Even if staggering growth rates can be achieved from 2003 onwards, Uganda’s annual economic growth will therefore be slightly below the rate of 6.3 percent,” insufficient to guarantee enough demand for power from Bujagali, the report said.

It accused the Bank of ignoring geothermal alternatives in Uganda even as it touted their cost-effectiveness in neighbouring Kenya and in Nicaragua.

And it highlighted what it termed staggering discrepancies in figures cited in different Bank documents.

For example, while the Bank’s Uganda Fourth Power Project of June 8, 2001, projected the number of billed electricity consumers in Uganda would reach 264,000 in 2006, Bujagali project documents said there would be 396,000 subscribers.

“In every case where discrepancies occurred, the assumptions used in the project documents were those which favoured Bujagali the most,” said the report.

The IRN assessment relied on the 2000 findings of the World Commission on Dams (WCD), that many dams are built not on the basis vested interests, not objective assessments of technical, financial and economic criteria.

Bank documents, however, said the project complies with WCD guidelines and is less contentious than other dams under construction.

IRN joined Friends of the Earth and Ugandan communities in opposing the project when it was first proposed in 2000. They said smaller scale renewable energy projects, including wind, geothermal and solar power, could be more useful to the East African nation’s rural poor.

Ugandans affected by the project alleged violations of World Bank policy at Bujagali, in a July 2001 complaint to the Bank’s Inspection Panel. The investigative unit is expected to release a report of its findings later this year.

Meanwhile, IRN said, prospective project backers should hold fire. It urged the Bank to take into account Uganda’s economic downturn and reconsider geothermal alternatives.