Pros and cons of the Bujagali scheme

In this month's column, Neil Ford re-examines the controversial Bujagali HEP scheme in light of Uganda's chronic shortage of power.

As reported in African Business last month, Uganda's long awaited Bujagali hydroelectric scheme is finally to be developed with the support of the World Bank. There are certainly a number of social and environmental considerations to be taken into account when examining the worth of the venture, but there is no doubt that it could prove a valuable addition to the nation's generation mix.

Although Uganda is often mooted as a potentially important power supplier to the entire East African region, relatively few people within the country itself have access to electricity and power rationing is common. Bujagali may provide part of the answer, particularly by generating much needed export revenues; but sustained investment in transmission and distribution infrastructure will be needed over the next decade if a large scale electrification campaign is to prove successful.

Uganda is already heavily dependent on its hydro resources to generate electricity. The main sources of production are the 180MW Nalubaale scheme, previously named Owen Falls, and the 12OM W Kiira dam project, completed as recently as 1999. The generating capacity of the latter could be expanded by up to 8OMW if required but the 250MW Bujagali scheme has long represented the most likely source of providing a step increase in national electricity production.

Bujagali will be located slightly downstream of Nalubaale and Kiira on the River Nile as it flows through Uganda from Lake Victoria towards the Sudanese border.

The development of the scheme has been opposed by environmentalists and also some tourist companies in the region which rely on white water rafting on the Nile. In addition, there have been some delays because of difficulties in securing funding for the venture.

A spokesperson for the Ugandan National Association of Professional Environmentalists said: "The flooding will change all the characteristics of the water body here and it will disrupt the whole eco-system. The microclimate will change and we don't know what the impact of that will be."

More than just symbolic support

The World Bank took a long time to complete its "extensive economic, environmental, and social due diligence" but revealed in April that it had decided to back the project. World Bank support for major energy sector projects in Africa has often been symbolic. On the Chad-Cameroon oil pipeline scheme, for instance, it provided only 5% of the total development costs, but its participation can be vital in that its environmental and social impact assessments provide a level of legitimacy. This can be vital in persuading other financial institutions to provide their own financial support.

In the case of Bujagali, however, the World Bank's financial support is far more substantial. Of total development costs of $799m, $360m will be provided by various World Bank institutions: the International Finance Corporation is providing a $130m loan to the company developing Bujagali, Bujagali Energy Limited (BEL); the International Development Association is providing $115m for the benefit of the project's commercial lenders; and an investment guarantee of up to $115m is to be supplied by the World Bank's political risk mitigator, the Multilateral Investment Guarantee Agency. Other multilaterals are supplying most of the rest of the development costs: $135m will come from the European Investment Bank and a $110m loan from the African Development Bank.

BEL is a joint venture that has been set up by US power company Sithe Global Power and Industrial Promotion Services (Kenya), which is an industrial development offshoot of the Aga Khan Fund for Economic Development.

BEL argues that the social and economic benefits of the scheme will be massive, while the environmental impact will be fairly limited, given that it will employ run of river technology, which removes the need to construct a large reservoir. This approach will certainly have helped to secure support from the various international financial organisations involved in funding construction. According to Ugandan energy minister, Daudi Migereko, the Uganda Electricity Transmission Company Limited (UETCL) will also provide a $90m loan to ensure that the engineering, procurement and construction (EPC) contract awarded to Italian firm Salini Costruttori remains valid. He said: "In order for Salini to extend the validity of its bid, and therefore the negotiated price for the EPC contract to 25 May 2007, it was necessary that BEL entered into an EPC Related Services Limited Notice to Proceed Agreement (LNTP) with Salini and the government of Uganda."

Salini seems to be establishing itself as a major player in the African hydro market. It has already secured a contract to develop the 435MW scheme in Ethiopia, which is due for completion by the start of 2009.

Important step in power chain

The World Bank appears to regard greater power generating capacity as vital for the continued development of the Ugandan economy. The economy has rebounded strongly over the past 15 years but Uganda remains one of the poorest countries in Africa.