Monday, March 24, 2003

Kyoto Forum: Lack of Democracy Killed Bujagali

By DAVID KAIZA , The East African

IN KYOTO

UGANDA'S controversial Bujagali dam project reared its head at the
Third World Water Forum held in Japan last week with an expert on
hydropower saying lack of democracy was at the heart of the project's
failure to attract ready funding.

Prof Raymond Lafitte, president of the International Hydropower
Association (IHA) added that finding investment for large hydropower
projects was always difficult, especially where the political future
was uncertain.

Prof Lafitte told the forum which was aimed at finding ways of making
water available to the majority of poor people in the world who are
also the most water stressed. "The greatest risk is political. Nobody
will come into a country if they are unsure what will happen in the
next 10 years," he said.

Bujagali, which has become one of Africa's most controversial
hydropower projects in the past few years, is already seven years
behind schedule. The dam has stalled for seven years now following
charges that its environmental assessments were faulty, and that
Uganda had given too much away when it negotiated a power purchase
agreement (PPA) with the American company AES.

An analysis by the anti-dam group, International Rivers Network, said
that the agreement with the American corporation contained "unusual
requirements that are detrimental to Uganda."

The US Department of Justice and the Inspector General of Government
in Kampala are investigating claims of corruption. AES offices in
Kampala as well as the Ministry of Energy say that the allegations of
corruption do not touch the company itself, but that some of the
companies it has contracted are tainted.

The allegations have already forced the resignation of Richard
Kaijuka as Minister for Energy over the unclear transfer of $10,000.
The Uganda government's insistence that the PPA was not for public
viewing, a position overturned by the court, further added to
suspicions of corruption, especially following the revelation that
the power production costs were twice international rates.

When the goevrnment was forced to open the PPA forced open by a court
order in 2002, it showed that Uganda would make a yearly payment of
$111 million, although independent analysts had estimated $132
million. The PPA also showed that power would cost 10.06 US cents per
kilowatt-hour, up from the current 7.9 US cents. The World Bank
estimates the total cost of the project at around $580 million, 80
per cent of which is debt.

If the $550 million needed for the project were to be released, it
would be the largest single investment in this part of Africa. But
before the money can be released and construction start, the World
Bank Group, through the Multilateral Investment Guarantee Agency and
its board, must put up $250 million.

Prof Lafitte said that the high costs, which some commentators
attribute to corruption and poor negotiation, were actually due to
difficulty in attracting money to a country lacking democratic
practices.

"To have private funding, you need guarantees so that the risk for a
banker is zero. But the greatest risk is political. Some governments
have no democracy. Some governments are corrupt. Some are unstable.
So who will give you the money?" Prof Lafitte asked.

He said that, in future, governments should try funding large
projects themselves rather than rely on private money, which demands
too much as risk coverage. Prof Lafitte said hydropower remained the
cheapest option, although it accounted for only 20 per cent of power
output and consumption in the world today - the same as nuclear
power, also at 20 per cent, well is behind fossil power at 60 per
cent.

Speaking at the same forum, State Minister for Power Daudi Migereko
said that AES was in talks with some of its contractors to adjust
financial agreements downwards.

At the same forum, the International Hydropower Association launched
a new set of criteria which it expects governments to follow when
planning large dams. The criteria, published in the Sustainability
Guidelines, come too late for Bujagali, but Mr Migereko said that
some of its provisions could still be followed.

The Sustainability Guidelines present a wide range of
recommendations, key among which are that governments strive to
embrace options that: have a higher energy payback and do not lead to
overwhelming resource depletion; are economically viable over the
life of the facility; are efficient; are appropriate and reduce
poverty and have less effect on land, among other.

Should the agreement with AES be adjusted to what is referred to as
"international best practices," it would reduce Uganda's yearly
payment obligations for Bujagali by about $40 million initially, and
by an average $20 million over the lifetime of the project.

In his defense of the PPA, Mr Migereko stressed that the deal was
made at a time when Uganda was a less attractive investment
destination and the government was forced to do a one-to-one deal
with AES Corporation.

There are two ways of getting a contract. You can either use
international bidding if the country is a competitive investment
destination. Or you can make a memorandum of understanding. We opted
for a memorandum of understanding because it was not easy to get an
investor.

According to the minister, the World Bank and the government of
Uganda keen to see the project through with or without AES. He also
said that, in future, Uganda would fund such projects through its own
resources, or through agreements with sovereign partners to avoid the
hassles and profiteering of private companies.

The writer won a trip to the 3rd World Water Forum in Kyoto after
coming second in a writing competion organised by the World Water
Council to promote understanding and debate on water.

Ryan Hoover
Africa Program
International Rivers Network
1847 Berkeley Way
Berkeley, CA 94703
USA
Phone: (510) 848-1155 Fax: (510) 848-1008
www.irn.org