Power Giant AES Withdraws From Uganda Dam Project

ARLINGTON, Virginia, August 13, 2003 (ENS) - Multi-national power producer AES Corporation, based in Virginia, has decided to discontinue the construction and development of the controversial Bujagali dam on the Nile River in southeastern Uganda.

In December 2001, AES Nile Power received final approval to begin construction of a $580 million, 200 megawatt hydroelectric facility at a site 10 kilometers north of the source of the Nile River in Lake Victoria.

Local Ugandan and U.S. environmental groups have opposed the project, saying that the dam would submerge the pristine, unique Bujagali Falls, impact Nile River fisheries, and destroy a fledgling whitewater rafting business that attracts tourists to the region.

AES Nile Power expected to develop, construct, operate, and maintain the Bujagali hydropower plant and sell electricity to the Uganda Electricity Transmission Company Limited under a 30 year power purchase agreement. The construction of the dam was scheduled for completion in 2005.


Bujagali Falls on the River Nile (Photo by Johnny Hinzen courtesy Zirkuli Expeditions)
Only about five percent of Uganda's population now receives electricity, and the Bujagali project was to expand that group to about 15 percent of the population and attract industry to one of the world's poorest nations, supporters of the dam said.

But local people say there is no guarantee that they will get electricity from the new dam at an affordable price. The National Association of Professional Environmentalists (NAPE), a nongovernmental group based in Uganda, said that the electricity generated at Bujagali would be too costly for most Ugandans to purchase. They are more interested in developing renewable energy in Uganda, particularly geothermal power.

Lori Pottinger of International Rivers Network, a U.S. nongovernmental organization, said today, "AES maintained that Bujagali Dam would help pull Uganda out of poverty, but in reality it is a costly white elephant that would increase the nation's debt load, and produce electricity that few Ugandans could afford. The bloated project has stifled the development of viable renewable energy options such as geothermal."

In its quarterly filing to the Securities and Exchange Commission today, AES said the company will write off its investment in Bujagali of approximately $75 million before income taxes in the third quarter of 2003.

The company said it is working in conjunction with the government of Uganda, the World Bank and the International Finance Corporation to evaluate ways to ensure an orderly transition for the project to continue without the company’s participation.

AES says it is pulling out for economic reasons. The project has experienced construction delays and will produce less profit for the company with a greater degree of risk than originally forecast.

The construction of the Bujagali hydropower plant was suspended and World Bank Group financing withheld from mid-2002 to April 2003 pending the outcome of corruption investigations by the U.S. Justice Department and the World Bank Fraud and Corruption Unit.

The Justice Department is still probing allegations that persons and/or entities involved with the project have made or have agreed to make improper payments in violation of the U.S. Foreign Corrupt Practices Act.


Fishermen on the Nile at the city of Jinja, Uganda near the location of the Bujagali dam project. (Photo courtesy Galen Frysinger)
The World Bank's private sector investment branch, the International Finance Corporation, was to provide loans of $110 million for the dam project, and another branch of the World Bank was about to fund a $115 million partial risk guarantee for Bujagali. The bank has not commented on the AES withdrawal.

The company says the construction delays and its withdrawal from the project are not connected with the corruption investigation. AES said in its filing document, "The company has been conducting its own internal investigation and has been cooperating with the Department of Justice in this investigation."

The Bujagali dam controversy was fueled by the lack of competitive bidding for the project, and by the refusal of both parties to disclose the terms of the contract between the company and the Ugandan government.

Legal action by Ugandan nongovernmental organizations forced the Ugandan government to make public its contract with AES in 2002. The Ugandan High Court handed down a ruling on November 12, 2002, declaring the contract a public document.

An review of the contract showed that Ugandans would have paid hundreds of millions of dollars in excessive power payments if the Bujagali dam was built according to plan, said the International Rivers Network (IRN).

IRN, which has been campaigning against the dam since 1999, says that the livelihoods of about 6,800 people would be affected, and the reservoir is expected to increase water borne diseases like malaria and schistosomiasis.

The project would submerge productive agricultural land on the river's banks as well as islands sheltering a diverse population of animals and plants. "Displaced peoples will increase the stress on land near the reservoir," IRN said, "resulting in further watershed degradation and deforestation and a loss in soil productivity."

The project would drown Bujagali Falls, a spectacular series of cascading rapids which Ugandans consider a national treasure, both IRN and NAPE say.

In a written objection to the project sent May 29, 2001 to Franco Passacantando, executive director of the World Bank Group, a coalition of 20 environmental organizations from 10 countries warned that the Bujagali dam "is likely to set off a wave of dam building on the Nile which will take Uganda down a path of hydro-development that is inflexible, uneconomic and damages the environment and communities."

The publicly traded AES Corporation owns and operates over $33 billion of assets in 28 countries on five continents, including 158 power generation facilities that provide over 55 gigawatts of generating capacity.