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Some Notes and
Recommendations Introduction: The World Bank Board of Directors discussed the Inspection Panel Report on the Bujagali Hydropower Project in Uganda, and Management’s Response to this report, on June 17, 2002. The Board accepted the Action Plan which Management had put forward. On the same day, the Bank released the Report and the Management Response to the public (see worldbank.org). A review of the Panel Report by International Rivers Network is available at www.irn.org. At the core of the Management Response is an Action Plan which consists of nine measures (see pp. 7ff. of the Plan). Most of the measures proposed in the Action Plan address social and environmental problems. They do not bring the project in compliance with the World Bank’s Operational Policies. Only two of the measures deal with the fundamental economic issues which the Inspection Panel Report had raised. As will be elaborated, they do so in an extremely vague and unspecific way. Economic issues: The most fundamental issues raised by the Inspection Panel Report relate to the questionable economic viability of Bujagali. The Report found the economic and financial analysis of the project to be deficient in important aspects. It also found that the Power Purchase Agreement (PPA) was unfavorable to Uganda in important aspects, and not always up to international best practice. The Management Response refutes the claim that the economic analysis was deficient. The arguments which Management puts forward cannot be verified because the Bank refuses to release the project’s Economic Review (see below). The Inspection Panel found that costs associated with the Bujagali project may force electricity tariffs to rise beyond the ability of Ugandan consumers to pay. The Panel also found that electricity demand may not increase at a sufficient rate to absorb the power generated by the project. These two issues threaten to undermine the economic viability of the project. The Inspection Panel recommended specific changes in order to address these problems. The Action Plan proposed by Management rejects the idea of making changes to the PPA. Instead, Management proposes to take other measures related to the affordability of, and demand for electricity. Unfortunately, the measures proposed by Management are so vague that they appear to be only token efforts to address the Inspection Panel’s findings. For instance, measure (4) of the Action Plan addresses the projections for electricity demand (the so–called load–forecast scenarios). According to the Plan, Management intends to ‘closely monitor electricity demand growth, billing and collection management, and tariff levels’. The Bank will also provide technical assistance to the Government on financial issues related to the power sector. The Plan states that ‘these actions will help to develop an early warning system on the Project and power sector such that financial and other issues can be identified at an early stage, and measures can be undertaken appropriate to circumstances’. This is an empty statement that does not seem to imply any discernible commitments. To say that ‘measures can be undertaken appropriate to circumstances’ does not contribute to a credible Action Plan to address the fundamental economic risks documented by the Panel Report. Measure (5) of the Action Plan relates to institutional, tariff and affordability risks of Bujagali. According to the Plan, Management will "monitor the exchange rate and the affordability of electricity" and the development of the power distribution system, "to ascertain whether ‘remedial measures’ are warranted". Again, Management does not clarify at all what "remedial measures’ would be considered. Measure (5) does not constitute a credible element of an Action Plan. While Management promises to monitor the development of Uganda’s power sector, it continues to portray a rosy picture of the privatization process in its Comments on the Panel Report (p. 21). As it has done for many months, it claims that the privatization of the distribution system is imminent, and that there will be "ample time and opportunity" for a private investor to improve the efficiency of power distribution. Management does not inform the Board that privatization has been successively delayed, that repeated strikes related to privatization issues have marred Uganda’s power sector in the last few weeks, and that a political conflict about the continuation of tariff subsidies has still not been resolved. Management further neglects that according to IFC’s Summary of Economic Due Diligence (p. 29), the economic viability of the Bujagali project depends on $252 million in private investment to modernize Uganda’s power distribution system. Delays in the reform process will make it increasingly more difficult to raise this large amount of private investment. In conclusion, the so–called Action Plan does not propose any changes to the flawed PPA, and is void of substance in the measures which it does propose. It does not specify what remedial measures can still be taken once the project is initiated. Any remedial action would need to address the problems of the PPA to be effective. Yet this will not be possible once the project has been approved. Once the problems arise, the only remedies available will consist of further grants or debt relief to subsidize the power tariffs. If this happens, even more foreign aid will be required to subsidize expensive power from an unviable "private" project, at the expense of primary social services. Recommendations:
Power generation alternatives: The Inspection Panel report and NGOs have argued that the World Bank has neglected the assessment of alternatives such as geothermal energy. Measure (6) of the Action Plan seems to address these concerns by promising to include funds for geothermal exploration and drilling in a Bujagali technical assistance project in FY 2003. The problem is that even with the Bank management’s optimistic demand projections, the full capacity of Bujagali will initially not be needed. If as suspected, demand grows more slowly than projected by the Bank, there is no need for alternative options on top of Bujagali for many years to come. In order to make sense, alternative options should be thoroughly considered before Bujagali is approved by the Board, so that they can be promoted as an alternative if they are found to be more economic. Recommendation:
Environmental compliance: (a) Sectoral Environmental Assessment: The Panel notes that "[w]hen the project is likely to have sectoral or regional impacts, sectoral or regional EA is required. Management’s failure to ensure that the SEA was carried out has led directly to many of the concerns related to the Bujagali Project." The Panel calls the related issue of cumulative impact assessment ‘of real significance’ and ‘deserving of greater attention’. The lack of an SEA is a violation of OP 4.01. In its Response, Management does not propose a Sectoral Environmental Assessment (SEA) that addresses the proposed and existing dams, and their impact on the electricity sector and the environment. Instead, Management proposes an SEA "as part of the strategic planning for the the Nile Equatorial Lakes Subsidiary Action Program" (NELSAP). This SEA, Management notes, "would address future regional power options’ and "also would be a prerequisite to IDA investments in selected power generation facilities under NELSAP". Management does not address the Panel’s statement that there should be a sectoral assessment that takes into account Bujagali and the Owen Falls projects, not at some later stage in preparation for future dam projects. Cumulative impacts are also treated as a task for the future, as part of the Nile Basin Initiative, rather than something that should be addressed now, as part of the planning process for Bujagali. Recommendation:
(b) The Kalagala Offset Agreement: Measure (3) of the Management’s Action Plan addresses the so–called Kalagala Offset Agreement. In a new letter to the World Bank, Uganda’s Government confirms that it will "set aside Kalagala exclusively to protect its natural habitat, environmental and spiritual values and for tourism development, and not subject the site to hydropower development, as required by OP/BP 4.04 on Natural Habitats". Management presents this new letter as a major improvement, meant to bring the project in compliance with OP 4.04. Yet a closer look at the legal document, the so–called Indemnity Agreement, qualifies this concession. The agreement clarifies that the Government "will not develop the site for power generation, without the Agreement of the Association" [i.e., IDA, emphasis added]. Since both IDA and Uganda’s Government are interested in promoting dams on the Nile, this Agreement does not provide any guarantees of protection to the Kalagala site, and does not bring Bujagali in compliance with OP 4.04. Recommendation:
Social Compliance: The Panel found the Community Development Action Plan (CDAP) to be "weak and sketchy in the extreme; it focuses almost entirely on short–term exercises; its targets are poorly laid out; and it makes no significant or systematic effort at achieving long–term poverty alleviation". As NGOs had pointed out, the Panel found that the program was excessively directed toward "short–term construction projects rather than institution building or social fundamentals". The Panel also stated that the program was under–funded for the length of time it would cover (i.e. 35 years). Its report says, "AESNP states that its proposed role in Community Development is to support long–term sustainable development initiatives, not to generate them. It is therefore unclear where these initiatives will originate and who will determine what will be supported." The Panel concludes that the CDAP is not in compliance with IDA’s policy on Involuntary Resettlement. The Panel also notes that the Bank has failed to provide compensation and rehabilitation for those losing their livelihoods in the whitewater tourism industry. Management’s Action Plan states only that it will ask AES "to carry out focused surveys, during the construction phase, to support design, implementation and monitoring of relevant components of the CDAP " IDA will continue supervision to ensure that required RAP actions are met and that the best practice objectives of the CDAP are achieved." Management contradicts the Panel’s assessment of policy violations, stating that the CDAP is "not required" by the policy on involuntary resettlement. It further notes that the Panel found that "most of the people resettled ended up not worse off, but better off". What Management fails to note here is that these comments by the Panel are specific to resettlement, not to rehabilitation. The Panel notes that replacement housing and other infrastructure in the "model resettlement community" are superior to what the resettlers had before. But this has nothing to do with the restoration of livelihoods, a key component of successful rehabilitation of displaced people who lose land and other resources to large dams. The Panel states that the project is not in compliance with Bank policy regarding the restoration of livelihoods. Management’s unfocused response to the weaknesses of the CDAP will not solve the major design flaws in this critical program. Surveys and supervision are not likely to ensure that this meager CDAP effectively restores livelihoods for those displaced by the dam. As for the loss of jobs in the whitewater tourism industry, Management states that AES "will give first priority to the employment of economically displaced individuals’. Such promises have been made before, on many World Bank projects, with little to show on the ground as a result of the good intentions. Recommendation:
Disclosure of information: The Panel report finds that the World Bank violates its Disclosure Policy (BP 17.50) by not releasing the Economic Review of Bujagali prepared by Acres International to the public. It further says that the release of the Power Purchase Agreement would be "vital" for a public understanding of the project’s risks, even if the Bank’s disclosure policy is silent on this issue. In spite of these findings, the Bank’s so–called Action Plan does not contain any measures to improve access to information. In its Comment on the Panel Report (p. 24), Bank Management insists that according to its disclosure policy, IFC does not release factual technical documents which are "confidential" or could "compromise government/Bank interactions’. Accordingly, IFC entered into an agreement with AES according to which information on project appraisal would not be disclosed. On June 3, 2002, AES reaffirmed that this information – including the Acres Economic Review – should not be disclosed. Reportedly, Management agreed at the Board meeting of June 17 to selectively disclose some parts of the Economic Review, or information about it, to the public. An economic review is a factual technical document which according to IFC’s and IDA’s disclosure policies must be disclosed. Management therefore had no basis for entering a confidentiality agreement regarding this document with AES. AES’ insistence that the document not be released reinforces the suspicion that the economic analysis of Bujagali was flawed, and that the figures which are presented to the public are misleading and inaccurate. Since Management has misrepresented technical reports on Bujagali in the past, an aggregated or selective release of information will not suffice to restore public confidence. The Board should only take further action on Bujagali if AES agrees to waive its confidentiality agreement with IFC, and to release the Economic Review of Bujagali. And even if the Bank’s disclosure policy is silent on the issue, the Board is free to request that AES and the government agree to the public release of the PPA as a precondition for any further action on Bujagali. Rumors regarding corruption in Bujagali have resurfaced in the last few days, and will quite likely continue to haunt the project. The World Bank cannot credibly claim to combat corruption if it continues to protect the secretiveness of a high–profile project in an extremely corrupt environment. The Bank’s secretiveness is even less justified when vital public interests are at stake (such as in the case of PPA), and when no legitimate commercial interests need to be protected (such as in the case of the Economic Review). Recommendation:
Conclusion: The decision–making process and the economic analysis of the Bujagali project have been fundamentally flawed. The Management Response does not adequately address the problems which were identified by the Inspection Panel. The measures of the Action Plan in some instances appear to be mere token efforts. If the Board of Directors approves a MIGA guarantee for Bujagali at this stage, it will sanction a project which continues to violate important World Bank policies. Many World Bank Executive Directors acknowledge that the project, and the decision–making process on which it is based, is flawed. Yet they seem to believe that at this point in time, no alternatives to approving MIGA’s guarantee for the project are available. It is worth pointing out that based on earlier studies, Uganda’s geothermal potential could be explored quickly, and that once specific sites have been explored, geothermal power plants can be built much faster than large dams. The Inspection Panel and other experts found that the World Bank’s assessment of the timeframe of geothermal power in Uganda is pessimistic. Even if no alternatives existed, or if a balanced assessment of the available options showed that Bujagali was indeed a least–cost project, the social and environmental problems should be resolved and the flawed Power Purchase Agreement should be amended before the project goes ahead. The experience with earlier World Bank projects, for example the Yacyreta Dam in Argentina/Paraguay, demonstrates that the Bank cannot be trusted to adequately implement Action Plans that it has prepared in response to Inspection Panel reports. In order for the Yacyreta scenario not being repeated in the Bujagali project, the Board of Directors should insist that the policy violations be addressed before, and not after the project is approved. Even on the grounds of sound financial policy, it makes more sense to properly apportion the risks of Bujagali between the Government and the private sponsor from the start than to spend more public resources in the form of mitigative measures once the problems arise. NGOs will continue to monitor Bujagali, and the institutional, economic, social and environmental problems of the project will continue to haunt the World Bank unless they are addressed in time. Additional Information
For further information, please contact: Lori Pottinger, International Rivers Network |
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