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DEVELOPMENT: Multinationals Walk Out on Controversial Ugandan Dam

Emad Mekay

WASHINGTON, Jun 6 2003 (IPS) - Two European firms building the controversial Bujagali hydro-electric power plant in Uganda have stopped work on the project amid talk of financial difficulties for the main contractor, U.S. energy giant AES Corp, corruption probes and complaints from Uganda that the project is highly overvalued.

Norway’s Veidekke, a lead contractor for the proposed dam on the Nile, and its Swedish partner Skanska say they have frozen their activities because they have not been paid by AES.

The two companies also say they are highly likely to completely pull out of Bujagali.

”There have been discussions with AES but they haven’t fulfilled the agreement with us for the past year,” Peter Gimbe, press officer with Skanska, told IPS in a telephone interview from Sweden. ”It has been the same, more or less, for a year. It doesn’t seem easy.”

Veidekke’s Senior Vice President Kai Krueger Henriksen told IPS from Norway that his company is in a similar situation.

Losing hope of profiting from its Bujagali contract, Krueger said Veidekke would now focus only on the Scandinavian market.

The news means that the European funders of the project are likely to withdraw their support as well, foreshadowing even more financial troubles for AES, which had to restructure more than two billion U.S. dollars of debt to avoid bankruptcy in December, according to media reports.

Export credit guarantees that were to be provided by agencies in Norway, Sweden, Switzerland and Finland, are tied to European companies’ participation in Bujagali.

Replacing Veidekke and Skanska would require another round of international competitive bidding.

Built on the Nile 10 kilometres north of Lake Victoria, the 250-megawatt dam, 30 meters high, is said to be the largest private power project in sub-Saharan Africa. It will provide power to Ugandan industry, commerce and individuals in rural areas who can afford to pay.

AES Nile Power, the consortium that includes AES Corp, Veidekke and Skanska, planned to own, operate and construct the hydroelectric facility, a 100-kilometre transmission line and two substations.

The World Bank and African Development Bank had approved loans and guarantees of 230 million U.S. dollars towards the project’s total estimated cost of 550 million dollars, despite accusations from civil society groups and economists that the project was economically unsound and would damage the environment.

>From its onset three years ago, the Bujagali dam was beset with difficulties. Since then it has become emblematic of mega-projects fashioned by multinational corporations, the World Bank and Third World governments at the expense of local and cheaper alternatives.

Corruption allegations over improper payments helped to slow this particular plan.

In January 1999, a former manager in a UK-registered subsidiary of Veidekke gave 10,000 dollars to a Ugandan civil servant. Although this was before the creation of AES Nile Power, allegations of connections persisted and Veidekke had to fend off criticism of shady dealings.

The World Bank, the main backer of the project, is now waiting for the results of an investigation by the U.S. Justice Department – called in because project leader AES is a U.S. company – before it can release more funds. The European Union (EU) is also investigating the accusations, all of which could hamper the dam for years.

The Bujagali scheme also met fierce resistance from civil society groups, including Uganda’s National Association of Professional Environmentalists (NAPE), Greenwatch and International Rivers Network (IRN).

They say the project is greatly overpriced and that cheaper more environmentally friendly choices, including geothermal power, are available.

The World Bank says the dam is the most efficient and least costly way to ”satisfy demand for reliable and affordable electricity in Uganda”, and has defended the project on the grounds that less than three percent of Uganda’s population now has access to electricity.

It argues that the project will play a key role in reducing poverty by supporting domestic economic growth, ”thereby helping to raise the income levels of the poor and improve their quality of life”.

That may be irrelevant now that the two companies have pulled out, a development that opponents take credit for.

”There’s no doubt that the NGOs had an impact. The project got delayed because of the work of NGOs,” said Lori Pottinger of International Rivers Network (IRN), one of many groups that fought the project for economic and environmental reasons.

”The international campaign has grown to include organisations all over Europe and all over Africa,” she added.

Last year, IRN commissioned India’s Prayas Energy Group to review the project’s power purchasing agreement (PPA), which set the terms between Uganda and AES, after it obtained a copy of the confidential agreement.

The study found that the project was overpriced by as much as 280 million dollars and could cost Ugandans, among the world’s poorest people, millions of dollars in extra expenses every year for 30 years.

As a result, Ugandan officials reportedly told AES to revise the agreement, including cutting the project’s price, which was set at a whopping 550 million dollars.

Henriksen acknowledged that the new demands of the Ugandan officials were one of the reasons for the project’s troubles. Plus, the company could not afford further delays, he added.

”One has to remember that the contract was negotiated three years back,” said Henriksen. ”There has been tremendous changes and challenges since then … Nobody knows what will happen next.”

Analysts following the project say the now near definite withdrawal of the European companies is likely to add to the financial burdens of AES, one of the world’s leading power companies.

AES owns and operates more than 33 billion dollars worth of assets in 28 countries, including Brazil, Argentina, Cameroon and Bangladesh.

”This will throw project finance and construction plans into disarray,” said Pottinger of IRN.

AES has shared the travails of the energy sector in the wake of the collapse of energy giant Enron, a company found to be cooking its books and evading millions of dollars in taxes.

It has reportedly arranged to sell more than 600 million dollars in assets to help boost its cash reserves and pay back its debts since the start of 2003. AES also faces financial difficulties in Brazil, after missing payment to the national development bank on its massive debt used to purchase Eletropaulo, the nation’s largest power distributor, in 1998.

Both the World Bank and AES did not return phone calls by IPS for comment.