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Bujagali Hydroelectric Project, Uganda

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Bujagali Hydroelectric Project, Uganda

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  •  Date: 02 July 2007
The Project

The Bujagali Hydroelectric Project aims at constructing and operating a dam and hydropower station of 250 MW capacity on the Nile, 10 km from the outflow of Lake Victoria, downstream of the existing Nalubaale and Kiira dams. Bujagali will provide power from an indigenous and renewable resource with low CO2 emissions, re-utilising water that has already been used for power generation at the upstream dams. Uganda has one of the lowest rates of electrification in the world and currently faces a serious energy crisis due to the lack of generating facilities capable of producing electricity at affordable prices.

The project is being undertaken as a Public Private Partnership between the Government of Uganda and the State owned transmission company UETCL on the one hand, and private sponsors on the other. The latter are a consortium selected upon competitive international bidding, comprising the Aga Khan group and World Power Holdings, an affiliate of Sithe Global Power, LLC, a private developer of power plants in the US and in emerging markets, majority owned by the Blackstone Group. They formed Bujagali Energy Ltd. (BEL), a special purpose company incorporated in Uganda, to build and operate the Project. BEL will make available generating capacity and sell power to UETCL under a Power Purchase Agreement. This Agreement is available for consultation by the public in Kampala at the offices of the Ugandan Electricity Regulator http://www.era.or.ug.

The Bujagali Hydroelectric Project underwent economic analysis by an international consulting firm including investigation ofalternative options for the development of power generation in Uganda. The study indicates that the Project is the least-cost option. It will be needed to meet the current electricity shortfall and the growing future demand. This is in spite of the significant loss reduction programme currently undertaken which by the time Bujagali comes on stream will have increased the volume of power distributed to the consumers. The analysis has been published on the World Bank Group’s Bujagali website (http://www.worldbank.org/bujagali). It integrates information from the full historical record of hydrological data on Lake Victoria. The Project was also made the object of an Environmental and Social Impact Assessment (ESIA, see below).

EIB's decision for the financing of the project

The EIB’s Board of Directors has approved a loan of up to USD 130 m, stipulating that the Bank’s first disbursement will be subject to the closing of the financing plan and to the final environmental and social analysis satisfactory to the Bank. The Board also stated that EIB disbursement should occur in line with those of the other co-financiers, in particular the World Bank Group, in order to ensure a coherent approach to any recommendations the World Bank’s Inspection Panel (see below) may express in the future and their full consideration in the project.

EIB’s lending will be from the Investment Facility managed by the Bank under the Cotonou Partnership Agreement between the ACP States and the EU, the resources of which are provided by the EU Member States through the European Development Fund. This financing is part of a co-financing structure with the World Bank’s IFC and IDA, the African Development Bank, Proparco (France), FMO (the Netherlands), DEG and KfW (Germany) and commercial banks.

Uganda's Interest

Given the high cost of fuel imports to landlocked Uganda and the absence of other sources of energy of sufficient size, Uganda’s electricity generation relies almost entirely on the Nile taking its water from Lake Victoria. The current power generation capacity is limited and a prolonged period of low water flow has resulted in load shedding, causing severe disruptions to Uganda’s economic activities, and forced reliance on expensive oil fired emergency generators. By providing substantial additional capacity, Bujagali addresses a national policy priority and improves the framework for private sector activities and economic growth in line with the objectives of the Cotonou Agreement. Replacing polluting and expensive thermal power production by reliance on an indigenous, renewable resource with low emissions of greenhouse gases, Bujagali also supports sustainable development.

By implementing the Bujagali Hydroelectric Project as a Public Private Partnership, Uganda avoids an increase of the country’s debt burden.

Environmental and social issues

An Environmental and Social Impact Assessment (ESIA) for the project has been prepared by an international group of environmental and social experts and monitored by experts from the participating International Finance Institutions  including the EIB. This process included a 3-day workshop for discussion of the draft report. Moreover, the entire process was monitored by an NGO, InterAid Africa, and was based on extensive consultations with local community members, national stakeholders and NGOs pursuant to a rights-based approach.

The project will contribute to counteract the trend to over-release water from Lake Victoria. The Bujagali Hydroelectric Project is down-stream from the Nalubaale-Kiira dam on the river Nile and it is that dam-system that controls the water outflow of the lake. The Bujagali dam will use the water flowing through the Nalubaale-Kiira dams once more and thus reduce the need for water release by half. Given Uganda’s command of the lake outflow through the existing dams, the Government of Uganda will commit to operate all dams on the Nile such as to ensure a sustainable use of the water of Lake Victoria in line with international agreements, which will prevent any possible overuse of Lake Victoria waters.

The 28 m high dam and the small reservoir size corresponding to one day of power production will result in limited land take through inundation. The location of the Project entails the least possible environmental and social footprint compared to alternative sites.

The ESIA identified 5,158 project-affected persons, of which 634, a total of 85 households, had to be resettled. The Bujagali Falls (rapids) will be lost to inundation and tourism companies have to move their activities 8 km further downstream to a similar site. To avoid cumulative negative effects on the natural environment the Government of Uganda will undertake to protect Kalagala, a downstream area with scenic rapids, from the negative impacts of hydropower developments.

The Bank is satisfied that the project has been developed in the spirit of the recommendations of the World Commission on Dams (WCD) and complies with the seven strategic priorities identified by the WCD to a very high degree. This is based in particular on the conduct of the ESIA, the extensive stakeholder consultations, equitable compensation measures duly taking into account the rights of all affected persons, access of the public to key documents – ESIA, economic study and Power Purchase Agreement – and the high public acceptance of the project. The least cost nature of the project by comparison to all possible alternative sources of electric energy has been reliably demonstrated under various scenarios including permanently low water flows.

The World Bank’s Inspection Panel’s recommendations

In March 2007 a group of NGOs in Uganda registered a complaint over the project with the World Bank’s Inspection Panel, questioning amongst other issues the sustainability and affordability of the project under low hydrology conditions, the impact on Lake Victoria and on the aquatic fauna, the alternative options assessment and the transparency of the project. Details can be found on the Panel’s website www.worldbank.org/inspectionpanel. The Panel decided to examine the issues raised by the NGOs and the results of this examination are expected within the next few months. Any recommendations that might be identified as a result of this exercise would be taken into account in specific action plans.


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