17 July 2001
World Bank Group - Second International Forum on the Proposed Bujagali Hydropower Project
Final Meeting Summary

Note: This summary is lengthy. In order to accurately capture the depth and complexity in which a number of the issues in this forum were discussed, it was necessary to describe the dialogue in detail. Furthermore, some issues related to this project received new clarification. We hope readers will appreciate and find helpful the depth of information provided in this summary.

Facilitators

Catherine Allen, Marasco Newton Group
Mary Margaret Golten, CDR Associates

Participants

A final participant list is provided in Appendix 1.

Forum Purpose

The World Bank Group (WBG) convened and hosted the one and a half day forum. The purpose of the forum was to hear and discuss questions and comments regarding the Bujagali Hydropower Project Environmental Impact Assessment (EIA) prepared by the project proponents, AES Nile Power (AESNP), and other project-related issues.

DAY 1: Tuesday, July 17, 2001 (1:00 – 5:00pm)

Welcome and Introductions

The facilitators opened the forum by introducing themselves and welcomed all the participants, particularly those who traveled long distances (from Uganda, Europe and throughout the United States) to attend the forum. Catherine Allen then asked participants to introduce themselves and state the organization that they represent and its location.

Overview of the Program

Mary Margaret Golten explained that this was the second international forum organized by the WBG and the project sponsor, AES Corporation, to hear and discuss comments and questions about the Bujagali hydropower project. The first international forum was held in Washington on June 27, 2000 following the release of the draft Environmental Impact Assessment (EIA). Following the release of the final EIA on April 30, 2001, a public forum was held in Jinja, Uganda, close to the project site. A more detailed overview of the Jinja Forum was provided later in the program.

Ms. Golten reiterated that the goal of the meeting was to hold public discussion of the EIA with stakeholders. She emphasized that the meeting was not intended to be an opportunity for negotiation or decision making, that no voting would take place, and that the number of participants either in favor of or in opposition to the project was not relevant to the discussions.

Role of Facilitators

Mary Margaret Golten outlined the role the facilitators would play at the meeting—namely, to act as neutral parties in managing the discussion and information exchange and to develop the meeting summary.

Meeting Guidelines

Acknowledging that many in attendance had spent a great deal of time and effort working on the issues under discussion and that strong opinions about the project would be presented during the discussions, Ms. Golten outlined a set of meeting guidelines, which she asked that all participants adhere to in an effort to keep the discussion on target and productive. For the sake of time, the facilitators asked that participants not read prepared statements, but urged everyone to pick up official project documents and prepared written statements, which were made available as handouts.

The meeting guidelines presented were as follows:
 Listen carefully and respectfully to ALL viewpoints
 One person at a time – allow others to speak before speaking again
 Check out and challenge your understanding and avoid making assumptions
 Keep comments/questions brief and to the point
 Avoid repeating other’s points, comments
 Stay on agenda – Allow facilitators to “bin” issues for later discussion
 Press – Ask for comments/clarification at breaks
 Cell phones – Park them, turn to vibration or OFF

Review of Two-Day Agenda

Catherine Allen explained that the forum agenda and format was the result of an eight-week consultative process with interested parties, which began just prior to the release of the EIA in the World Bank Info Shop on April 30, 2001. She noted that the main issues that were raised in these consultations fell into two primary categories: (1) economics and (2) environmental and social issues. The agenda for this forum was structured according to this basic division, with economic issues being discussed during the first day and the environmental and social issues being covered on the second.

The full meeting agenda is provided in Appendix 2. However, for convenience, the structure of the agenda is as follows:

July 17, 2001 (1:00-5:00pm)
 Welcome and Introductions
 Overview of the Program
 Bujagali Hydro Project Review Process
 Report on Uganda Stakeholder Meeting in Jinja, Uganda --- June 12, 2001
 Key Issues Discussion: Economic Analysis of the Project
- Power Demand
- Alternative Energy Sources and Least Cost Alternative
- Impact on Economy of Uganda
- Availability and Affordability of Electricity in Uganda
- Power Purchase Agreement
- Competitive Bidding
- Export Potential for Ugandan Electricity
- Rural Electrification

July 18, 2001 (8:30am-5:00pm)
 Welcome, Review of Day One
 Key Issues Discussion, continued:
- Cumulative Impacts, Kalagala and Karuma
- Fisheries Report
- Hydrological Risk Issue
- Resettlement, Compensation and Benefits Package
- Cultural Impact
- Impacts on Tourism
- Transmission Line EIA, Process and Impacts
- Accountability Process
- Owens Falls Extension EIA
- World Commission on Dams Report and Relevance to Bujagali
 Meeting Wrap Up
 Adjournment

After reviewing the agenda, Ms. Allen explained that each issue would be discussed with all points of view recognized. She noted that some issues would require more discussion than others, but the goal in having a facilitated discussion was to ensure that a balance of various views and voices would be heard at the meeting. Ms. Allen emphasized that she and Ms. Golten would be “fierce but flexible” in guiding the agenda and asked that participants in return be patient and flexible as well.

WBG Review of the Bujagali Hydro Project

Ron Anderson, Senior Environmental Advisor at the IFC and WBG team lead on the environmental and social review for the Bujagali project, gave an overview of the WBG’s review process of the Bujagali EIA and provided a description of the future steps that the WBG will take in regard to their review. The review process began over five years ago when the WBG was approached by AESNP to consider participating in financing the Bujagali hydropower project. In January 1998, the WBG’s environmental and social review team began their appraisal of the project, examining its environmental and social implications. Approval by the environmental and social review team is required as part of the overall project appraisal and consideration for approval by the boards of the IFC and the World Bank.
This review consisted of a pre-screening of existing least-cost studies in the energy sector, such as the Acres “Assessment of Generation Alternatives – Uganda 2000.” The primary determinations made as a result of the pre-screening process were that:

 Developing hydropower on the Nile river in Uganda was the least cost energy alternative;
 Three potential locations for developing hydropower exist (i.e., at Bujagali, Kalagala, and Karuma), and an EIA needed to be completed for each to demonstrate compliance for lending consideration by the WBG; and
 Each of the three potential hydropower locations, in combination with other hydropower facilities on the Nile, have both minor and major negative cumulative impacts (e.g., in regard to environmental esthetics and recreation on the Nile).

Mr. Anderson then shared the WBG’s current activities with respect to the review of this proposed project, which include:

 Ongoing public review of the EIA for the project, which was released locally and internationally through the World Bank InfoShop on April 30, 2001;
 Continuing discussions between the government of Uganda (GOU) and the WBG in an effort to establish a post-Bujagali plan for appropriate development, encouraging tourism and protecting the ecosystem at Kalagala; and
 An ongoing needs assessment/affordability analysis of the project, conducted by the IFC’s power sector department as a condition of the power sector reform.

He observed that obligations are required of the various stakeholders in the process. AESNP will need to comply with any findings of the WBG’s environmental and social review team. Further, as a part of the WBG financial conditions, the GOU must agree not to develop hydropower at the Kalagala site. Instead it will invest in the economic development of the site’s potential tourism and cultural resources.

Mr. Anderson concluded his introduction by reiterating Ms. Golten’s point that this forum is not an event to determine approval of this project. From the WBG’s perspective, the goals of the two-day session involve more than mere information exchange. The meeting is an opportunity to clear up concerns presented by the stakeholders and to better focus and define stakeholders’ questions. During the remaining project review period, the review team would endeavor to address the issues related to this proposed project. Further, the questions and answers resulting from the meeting would be posted on the Internet by the WBG. Mr. Anderson assured the group that the review process is working as it should and that the WBG Board would be apprised of all issues and concerns raised at the forum. He also said that IFC believes, at this point, that the EIA meets the WBG safeguard policies, which is why it was released.

Report on Uganda Stakeholder Meeting in Jinja, Uganda---June 12, 2001

Ms. Golten provided a brief description of the stakeholder meeting, convened by the WBG and held in Jinja, Uganda on June 12, 2001. She explained that she co-facilitated this meeting with Ugandan facilitator and mediator, Ms.Stella Sibiiti, founder and executive director of the Center for Conflict Resolution in Kampala, Uganda. To prepare for the meeting, Ms. Sibitti and Ms. Golten met with a number of stakeholder representatives including NGOs; AES staff; InterAid, the witness NGO; legal counsel for affected parties; and community members from the project-affected area to identify questions and concerns for discussion at the meeting. The meeting was held at a hotel in Jinja with 198 people in attendance.

The topics discussed at the Jinja forum included:

 The World Commission on Dams report;
 The social and environmental impacts of the project;
 The Kalagala offset agreement;
 Resettlement and compensation;
 The community benefits package;
 The accessibility of available electricity; and
 Cultural impacts resulting from the project.

Copies of the meeting notes from the Jinja meeting were made available to participants at the Washington, DC forum.

Following Ms. Golten’s presentation, Frank Muramuzi of the National Association for Professional Environmentalists (NAPE) in Uganda expressed concern that in conversations that he had with project affected community members following the Jinja meeting, it appeared that many community members had been unaware of the Jinja forum and added that the Association for International Water and Forest Studies (FIVAS-Norway) report (which was made available at the meeting) indicated similar concerns. In response to Mr. Muramuzi’s statement, Ms. Golten responded that the meeting was publicly announced by the World Bank Group in three languages in the local newspapers and on the radio. Christian Wright of AES confirmed that AESNP (as project proponent) assisted IFC/World Bank Group in informing the public of the meeting three weeks prior to the Jinja Forum (as soon as they had agreement from the WBG on the date).

Joyce Muzale, a representative of the Mukono District, a project-affected district in Uganda, provided her perspective on the Jinja meeting. She reiterated that various public announcements were made in advance of the meeting. She added that, when public meetings are held in Uganda, it is customary that free public transportation is available to the public to attend. She noted that there had been some complaints by community members that such transport had not been made available for the Jinja meeting, but added that in spite of this fact the Jinja forum was well attended by community members. Ms. Golten added that the World Bank Group had provided travel reimbursement for participants who came from the Jinja area as well as those who came from Kampala.


Key Issues Discussion

Economic Analysis of the Project

Before beginning the discussion, Ms. Allen reiterated the discussion ground rules, namely, that a variety of comments and opinions regarding each issue would be solicited and discussed in its entirety in order ensure a balanced discussion of topics before moving on to the next topic. The appropriate WBG and/or AESNP representatives would respond to each issue raised.


Approach to Economic Analysis of Project

Mark Segal, WBG Principal Economist from the IFC Power Department, led the discussion on the WBG’s economic analysis of the Bujagali project. He focused on the methodology and approach taken with regard to the economic analysis underway as part of the needs study. Mr. Segal provided an overview of how the WBG approached the analysis of the following economic issues: power demand, alternative energy sources and least cost alternatives, impact on the Ugandan economy, availability and affordability of electricity and export potential.

Mr. Segal began by explaining that the IFC’s primary goal when considering whether to finance a project is to ensure that the project in question is sustainable and that it is in the economic interest of the country. This rationale focuses on funding projects that provide the least cost option for meeting a country’s needs and as much as possible, that those needs can be met in an affordable way. He noted that within this process, often the most crucial element in finding the least cost alternative is the timing of the project. He also noted that IFC is part way through the economic analysis of this project.

Mr. Segal explained that in the case of hydropower projects the issue of timing involves power demand. He spoke of the comprehensive analysis that goes into determining power demand for a given area and described the general procedure utilized by the IFC when determining demand. He explained the IFC’s economic analysis involves a process loop, whereby prices, incomes, and energy demand are analyzed and least cost options that are developed to meet the demand are then analyzed. Each alternative must be costed to determine the least cost option. Finally, a determination is made as to whether the revenue requirement developed is consistent with the initial tariff data used in the demand forecast.

Mr. Segal discussed where WBG stands in respect to this analysis scheme. He described the WBG’s load forecasting process. An energy demand forecast was prepared in 1998 and reviewed in 2000. Because of uncertainty about the key factors determining electricity demand, ranges of values were included to assess their impact on demand. Three energy market categories were developed: (1) residential (with subcategories for income level and urban versus rural residents); (2) commercial (e.g., hotels, shops, and offices); and (3) industrial uses. The demand factors for each group were then analyzed (e.g., prototypical consumption levels by income category, income growth, connection rates, impact of price change, etc.). The starting point was adjusted to take recent estimates of load shedding into account. He stated that the new rate of new connections is currently 10,000-15,000 a year.

Mr. Segal explained that the result of the IFC’s economic analysis indicates that, given the load forecast, the least cost solution for Uganda’s electric power supply requirements is to expand the national power grid. However, for isolated areas that cannot be reached by means of a power grid, alternative smaller-scale energy sources, such as wind, solar, battery, and mini-hydropower should be considered, depending on cost. The Bujagali project would serve the demand expected to occur on the expanded grid and is the least cost energy option. He also said that “forcasting is the bane of economics professionals”: you never really get it exactly right.” He noted that GDP is growing at 5-6% a year, and that demand for electricity in countries at early stages of electrification usually grows at a higher rate than GDP. Because of load forecast uncertainty, the robustness of the investment decision is subjected to considerable risk analysis testing for a range of load growth conditions

Next, Mr. Segal addressed the recent increases in energy tariffs by the GOU, which he acknowledged were of concern to many in Uganda. He explained the reason for the increase by indicating that energy tariffs had not been increased since 1993 and that, as a result, the real price that Ugandans have been paying for energy had fallen in real terms by 50%, due to increased background inflation and devaluation of the Shilling. He described the tariff increase as being necessary to bring energy prices back in line with real costs. He stated that, “we built into the demand forecast a major price increase, and factored it into the load forecast.

Mr. Segal then discussed alternate power demand in Uganda. He explained that, contrary to the situation of countries rich in natural gas, Uganda does not possess cheap energy resources. In the case of hydropower, the cost of harnessing water to generate power is costly. As a part of its due diligence, the WBG commissioned the Acres study, which, while still being completed, has developed a fairly complete set of alternative power supply options for Uganda and examined the comparative costs and optimal timing of these options. Mr. Segal outlined a few of the options presented in the report, which included geothermal, diesel, solar, and wind power as well as mini-hydropower alternatives. He discussed how several of these options do not fit into the least cost profile. In regard to geothermal power, sufficient geothermal studies have not been done to adequately delineate supply in order to meet Uganda’s immediate need for power. Mini-hydropower projects were described as satisfying only small amounts of energy demand, and often located in areas remote from the major demand centers, but where local needs could be met from such schemes. He stated that we don’t agree that a decentralized approach is the least cost.

Mr. Segal said that, “we will look at Bujagali coming online in various years”. On risk analysis he stated, “hydrological and load-forecast are two serious risks.” Then he concluded, by saying that once our analysis is done, we’ll go back to load forecast and see whether the costs arising from the preferred approach to system expansion are consistent with the tariffs assumed in the load forecast.

Concluding his overview remarks, Mr. Segal discussed the issue of power export. He explained that the primary goal of the Bujagali project is to meet domestic energy requirements, noting that the supply: demand balance in Uganda has been precarious, as evidenced by load shedding. He explained that expanding the Owens Falls project would help alleviate the problem. He noted that in the first few years from commissioning of a large project such as Bujagali it is likely that supply will exceed domestic demand to a decreasing extent year by year. Also, there is variability of supply from hydro projects, (sometimes greater, sometimes less than needed for the domestic market). As a result, there will be periodic surpluses of energy available for export at virtually no incremental cost. Uganda will consider exporting this excess supply, as the transmission lines and capacity will be in place to handle possible excesses.

Graham Saul of the Bank Information Center then noted that Mr. Segal’s presentation focused on the methodologies associated with preparing a least cost analysis and did not provide details as to the conclusions reached by the WBG. He asked that the WBG provide a timeline for concluding their economic study of the Bujagali project. In response, Mr. Segal apologized for not being able to provide definitive conclusions at the Washington, DC meeting, noting that the WBG review is ongoing and should be completed within the next few weeks. He explained that following this analytic process WBG senior management would be briefed, as would the primary benefactor for the project, namely, the government of Uganda, prior to making information available to the general public.

On the issue of IFC’s risk analysis, Lorri Pottinger asked Mr. Segal to clarify for whom is the risk being assessed? She noted that the demand projections show there isn't enough demand domestically for the first years, and not enough potential to export the power at its full cost. There is also a risk that demand will drop from the huge price increases, both from privatization and from Bujagali, which is expected to lead to a doubling of the recently raised tariffs." I may have also explained here that IRN's analysis shows the marginal cost of Bujagali to be 18cents per kilowatt/hour, at least for the first few years. I believe I also said that like all large dams, Bujagali will bring a large load of power online all at once--what power analysts call "lumpy" supply, and that this could be a serious risk to taxpayers, who are likely to be the ones to shoulder the bill for Bujagali.)

Then Mr. Segal responded: "Our risk analysis looks at the risk to the whole power sector. We look at the risk of the project not being the least-cost. It's true it will be built all at once, and won't be incremental like demand. And for the first few years the cost per kilowatt/hour is high. But the dam is expected to have a 50-year lifecycle, and that's what we look at--the lifecycle costs and of doing the project at the right time. Least cost should have the least damaging impact on tariffs, but in the early years we will have a bump-up effect. Countering that, on a large base-load, the marginal cost is close to zero. But there's no question that there will be an early year tariff impact." He then discussed tariff structures and how to "blend" tariffs to reduce costs to the poor, and noted that the cost of electricity is not the most important factor for the poor--the connection costs are. "This is one of the main constraints."


General Discussion

Land Act and AESNP Title to project site land

Moses Isooba, of the Uganda Wildlife Society initiated the next discussion around the question of land acquisition by AESNP under the Land Act in Uganda. He expressed concern that some stakeholders have suggested that Uganda’s Land Act is being amended through an expedited process that circumvents the Constitution as a result of the Bujagali project, with allegations being made that government can use the Act to force residents out of the river-bank area where the dam is to be constructed. He added that some also have made allegations that AESNP is getting rights to the land without receiving proper licensing or permitting. Mr. Segal responded to the question from an economic perspective stating while the project takes away some of the land uses at the site, AESNP has developed compensation and resettlement plans to compensate for these losses. Henry Kikoyo of AESNP echoed this sentiment, saying that AESNP has and will continue to abide by all laws of Uganda and do what is legally necessary to acquire land at the Bujagali site.



Mr. Segal responded to the question from an economic perspective stating, while the project takes away some of the land uses at the site, AESNP has developed compensation and resettlement plans to compensate for these losses. Henry Kikoyo of AESNP echoed this sentiment, saying that AESNP has and will continue to abide by all laws of Uganda and will do what is legally necessary to acquire land at the Bujagali site.


Affordability (Public Risk)

Lori Pottinger of International Rivers Network (IRN) commented on the issue of risk analysis with respect to the Bujagali project and its implication to Ugandans. She expressed concern that while AESNP was responsible for a certain degree of risk related to the Bujagali project, the Power Purchase Agreement (PPA) developed by AESNP and the GOU appears to place a substantial amount of risk on the people of Uganda. In response to her statements, Mr. Segal stressed that the risk was not simply to AESNP, WBG, or Uganda, but to the whole power sector, and that this risk is mitigated by ensuring that the project is the least cost solution.

Maggie Kigozi of the Uganda Investment Authority (UIA) noted that demand for electricity was not lacking in Uganda. She indicated that in the past year $1.4 billion had been licensed to companies by the UIA, all with high-energy demand requirements. She noted that for Uganda to expand its industry and mining operations, steady and reliable energy resources would be necessary. In response to comments raised regarding the inability of rural communities to pay for power, she added that rural communities were not necessarily poor. She noted that many individuals in rural areas own their own homes and grow their own food and have available monetary resources to afford some amount of power.

Mr. Segal agreed with Ms. Kigozi’s statement that considerable numbers of people in rural communities would likely have the ability to afford modest amounts of power, noting that the most intensely poor are often located in urban areas as well. In regard to the previous mention of risk, he stressed that risk is inherent in such investments and that particular care needs to be taken when forecasting demand, to examine the underlying uncertainties and look at the range of possible outcomes to protect against unpleasant surprises. [see above for more elaborate response to this issue.]

As a point of clarification on power use in rural communities, Godfrey Turyahikayo, Commissioner of Energy in the Uganda Ministry of Energy and Mineral Development, cited a 1999 ESMAP report noting that the majority of people in rural areas with access to power used alternative power sources apart from the power grid, such as batteries, solar sources, etc. These alternative sources are more expensive than power derived from the grid, making the point that energy demand in such communities exists.

Christine Eberlein of the Berne Declaration, noting that the GOU has a tariff structure based upon a range of income levels, questioned how the government defined income levels when defining the “poor.” In addition she asked that a representative of the government discuss how tariffs and tax incentives to foreign countries investing in Uganda would be implemented. David Bizimana of Interaid Uganda, a witness non-governmental organization (NGO), echoed her questioning regarding how the GOU measures the number of poor, given that the number of poor, as defined by the GOU, has decreased in the last 10 years from around 55 percent to 42 percent.

Responding to their questions, Mr. Turyahikayo began by noting that the best way to improve the situation of the poor in Uganda is through the development of its resources in an effort to create more employment. He added that when structuring the energy tariff, the government examined the various income levels existing in Ugandan society and looked at energy affordability by income level. The results of this study indicated that around 6.5 percent of all income levels, rich or poor, were spent on services.

Mr. Isooba questioned the reasoning that because rural villages can afford alternative sources of energy, they will be able to afford power from the grid. He also spoke of the Acres study and questioned the impartiality of such a study, given that the study was commissioned by the GOU and Acres is an engineering firm that builds hydro projects.

Mr. Segal refuted the notion that there was a conflict of interest regarding the Acres study, noting that the consulting firm conducting the study has been in the business since the 1920s is highly qualified and well respected in its field. HE added that this study is not a GOU study, but part of the WBG’s due diligence. He added that it was customary for many clients to hire firms like Acres to conduct such studies.

Given that Uganda possesses a substantial need in regard to underserved energy demand, Bob Chestnutt of AES discussed the issue of unserved energy, noting that if Bujagali is the least cost solution to the energy demand in Uganda, the cost of not doing the project should be considered as well (i.e. using more expensive power or not producing any power). He added that the uncertainty to be considered is the uncertain energy demand. Citing an ESMAP study, Mr. Segal noted that the cost of unserved energy (that is, the value of the consequences to the country of not having the power) is a main consideration in determining the optimal timing of a project, The ESMAP study determines this to be 19 U.S. cents/KW/hr. Therefore, the incremental cost of supply is compared with this value to see which is greater. Mr. Segal added that commercial and industrial development in Uganda requires adequate power supply. Power supply is also necessary to address the country’s social needs (e.g., improve services at schools and health clinics). He underscored the point that developing energy resources will lead to a higher economic growth potential in Uganda.

Mr. Muramuzi returned the discussion to the increase in energy tariffs and expressed concern that, regardless of what the studies have determined, the poor will not be able to afford such increases. He said even those who were not very poor, like himself, could not afford electricity in their homes. He expressed concern that the government’s plan for the power may lie mainly in an export capacity, and he noted further that there exists a perception by some that the increase in tariff structure is directly linked to the development of the Bujagali project. He asked, “if we are seeing these kinds of tariffs increases now, what will Bujagali do to our tariffs?”

Mr. Segal responded by empathizing with the Ugandan public over the sudden increase in energy tariffs, noting that energy users had become accustomed to a price that was much lower than the actual cost of the energy. He stated that, the “free lunch” out of Lake Victoria is over with. The country was coasting but it has reached its limit – now it needs new projects. And the existing tariff wasn’t high enough to supply new power. The pricing system was eight years out of date and there had not been a tariff increase since 1993. He added that in such a case where the real price has become removed from the actual price charged, there are two choices—either the GOU is to pay the difference or the system needs to become self-financing, which is the option that has been chosen. The Government cannot afford large-scale subsidies to power consumers. He added that the country has just about reached the limit of its energy supply from the Owens Falls dam and that additional investments are necessary to increase the energy supply to meet growing demand. He added that household surveys conducted across all income groups have been conducted from which it can be seen how much of household income is allocated to purchasing of energy. The Electricite de France (EdF) study indicates it is reasonable to expect that roughly 6.5 percent of income could be allocated to purchasing electricity. Issues arise because the increase in tariffs affects each income category differently. The EdF study indicated that “middle income” consumers are the most affected by tariff increases because the very poor are already near or at this threshold and the very rich are well below it. Mr. Segal added that it is not unusual to address the affordability problem by maintaining a “life-line” tariff that is low enough to allow low-income people to consume modest amounts of electricity for lighting, radios and fans. Tariffs on larger amounts of electricity consumed by more affluent people are adjusted to recover the cost of this subsidy, which is usually quite low.

Mr. Saul asked when the WBG’s economic analysis will be publicly released in regards to the 120 day public comment period, noting that it will be loaded with assumptions that will take some time to unpack.

In response, Haran Sivam, the IFC investment officer leading the WBG’s financial review of the Bujagali project, stated that IFC does not have a plan for the release of the economic analysis, but are mindful that people have asked for the information. The economic due diligence is not complete yet.

Power Purchase Agreement (PPA)

Mr. Saul questioned whether the WBG household surveys in question factored in the upfront cost of purchasing poles and connectivity costs associated with the initial installation if electricity, which is a prohibitive cost for bringing power to households. He also questioned what kind of opportunity stakeholders would have to review and comment on the studies in question. He indicated that a key concern relates to the Power Purchase Agreement (PPA) between the GOU and AESNP, which is considered proprietary and unavailable for public review and comment. Mr. Saul stated that any real discussion of the risk to Uganda from the Bujagali project remains difficult without full knowledge of the terms of the PPA. Mr. Sivam responded that the PPA between AESNP and the Government of Uganda, as with any contract, historically is not released for public review. However, he noted that the PPA was placed before Parliament for full public discussion for about a year, before both the Committee on Natural Resources and the Committee on Economics. The PPA was discussed in detail with several Ugandan NGOs, including NAPE, during this time. Mr. Sivam added that after much discussion, the spirit and intent of the document was found to be correct by Parliament, which is a representative body of the people of Uganda, and was passed by them.

Christian Wright of AESNP added that such contracts are commonly considered proprietary in order not to undermine the government’s future dealings with other contractors in regard to future power provider agreements and export sales. He indicated that a summary explaining what is in a typical PPA, its nature and intent, is provided on AESNP’s Web site (www.bujagali.com) as are answers to specific questions regarding the PPA that resulted from the June 2000 stakeholder meeting in Washington, DC.

Additional concerns were expressed in respect to the PPA. Ms. Eberlein, in response to Mr. Segal’s previous comments, expressed concern that the PPA agreement, which provides a fixed price for the power, would become problematic as a result of the devaluation of Ugandan currency. Wolfgang Thome of the Uganda Tourism Association (UTA) added that in light of concerns over allegations of preferential treatment for this project as part of Uganda and US government relations, he suggested that it would be wise to submit the PPA for public review because it would help to allay these concerns.

Mr. Isooba returned to the argument that it was impossible to have a useful discussion regarding the economic implications of the Bujagali project without having access to the PPA. Responding to the discussion, Mr. Thome repeated his desire that parts of the PPA be disclosed in an effort to allay public concerns regarding the agreement.

Mr. Turyahikayo reiterated that issues brought by community groups dealing with the PPA had been vetted fully by Parliament. The Parliamentary procedures regarding the discussion are available to the public in the Hansard, a publication containing a verbatim recording of Parliamentary activities. It also was noted that the Parliamentary discussion had been presented fully in the media. In response, Mr. Muramuzi expressed his dissatisfaction at having continually raised the issue of public access to the PPA without having the PPA released publicly.

On the issue of the confidentiality of the PPA, Leslie Eden of HCI Publications noted that such measures were not unusual. In her experience in the field, such agreements are always confidential and that as the deregulation of electrical utilities has become common, it has become much more difficult to get information from private producers.

Debby Stone of the U.S. Hydropower Council commented that this particular project has been subjected to a high degree of scrutiny that has lasted five to seven years. She questioned whether this was due to the fact that the project deals with hydropower and whether this was indicative of things to come in the industry. In response, Mr. Anderson recognized that not all projects are subject to this level of scrutiny. However this project is on the leading edge and, therefore, it comes with issues that must be addressed before the WBG can determine whether to move ahead with hydropower in the region. For instance, the project will become a benchmark for tying poverty alleviation and social programs into a major energy program. In addition, the project will define how the WBG will move forward as a funder in such situations.

Mr. Saul interjected that, given that the Bujagali project will receive public funds from the WBG and possibly the US Government’s Overseas Private Investment Corporation (OPIC), it cannot be considered a private project, and that more public information was warranted. If AES wants to maintain a degree of secrecy consistent with an average private sector project, then public institutions should not be asked to subsidize the enterprise. Accepting public subsidies/financing, brings with it additional responsibilities. He added that 20 years ago less transparency from the public and private sectors was expected, but increasingly, the public sector is being held to the same standards as the private sector. He said that if the WBG is treating this project as being cutting edge, it is important that the issue of transparency of information be moved forward, as the WBG is a public institution.

Lori Pottinger added that the PPA has huge implications for Ugandans and, therefore, the WBG should be urged to provide some basic details regarding the agreement to the public. She noted that Ugandans are already shocked by the increase in energy tariffs, and that to allay their concerns about future increases resulting from the Bujagali project, details of the PPA should be publicly released.

Project Review Time-line

Mr. Thome, of the Ugandan Tourism Association (UTA) brought up the concern and question over whether the WBG will consider itself bound by its 120-day public comment deadline. This led to a discussion on IFC’s and WBG’s disclosure policy.

Mr. Anderson indicated that the IFC and the WBG will consider the project when:

 IFC and the WBG are satisfied that a project proponent (e.g., AESNP) has addressed all issues raised in, as well as after release of the EIA;
 Affordability is addressed as a part of WBG’s due diligence;

He noted that affordability and environment issues should be treated simultaneously. He added that the review period only ends when all questions raised during the WBG review regarding the EIA have been answered satisfactorily and that information and meeting notes from this Forum will be made available on the IFC and WBG Web site.

Mr. Thome commented that he hoped that the WBG Board would allow sufficient time to review all information thoroughly and not be rigidly bound to the 120-day deadline.
Motoko Aizawa of the WBG noted that determinations such as whether to disclose supplemental studies (such as the Bujagali economic analysis) for public information would be made on a case-by-case basis. Mr. Anderson reiterated that the review period for this project would remain in effect until all questions had been answered adequately, as determined by senior management, adding that it would be foolish to take the project to the Board without completing an exhaustive review.

Access to Power by Sector

Julia Cerenzia of the U.S. Department of Commerce asked whether a methodology had been developed by the GOU whereby certain sectors would receive power supplies before others (i.e., industry before commerce before residences) and whether certain sectors would receive transmission line (T-line) connections before others (i.e., commercial business before residences). Mr. Segal responded that the issue of one sector receiving power before another was immaterial, as power is sold as a block to a utility to distribute to all sector users at one time. As to the issue of T-line connections, he indicated that the GOU has established a T-line plan for all categories of suppliers and users. He added that the need exists for having revenue-paying customers from all sectors to purchase power.

WBG Investment in Ugandan’s Power Sector, including Rural Electrification

Keith Kozloff of the U.S. Department of Treasury asked that the WBG’s overall Ugandan investment plan for the power sector be addressed, with discussion of how the WBG plan addresses and links energy reform, privatization, rural electrification, upgrading efforts, and loss reduction.

In response, Arun Sanghvi a specialist on rural electrification at the World Bank, provided an overview of the WBG’s plan for investing in the power sector in Uganda. He began by noting that there are two main goals of the WBG’s development plan in Uganda: (1) creating affordable power and (2) linking the proposed Bujagali project to the larger power sector. The driver for the WBG plan is poverty reduction, which drives the WBG’s plans for macro-level economic development in Uganda. As a part of this macro-level plan, the initial steps have been taken supporting projects to stabilize the Ugandan economy through infrastructure-oriented programs. Mr. Sanghvi noted that macroeconomic stabilization is underway in the region, as the country is sustaining an economic growth rate of 8-10 percent. Following infrastructure stabilization, the plan calls for an increase in private sector investment through public-private partnerships.

Mr. Sanghvi focused on the WBG’s energy strategy in Uganda, noting that a large portion of Ugandan’s poverty eradication plan involves energy development. Portions of this program include: sector reform, development of the proposed Bujagali project, the Power 3 and 4 initiatives, and rural electrification programs, which are part of a separate 10-year GOU program for rural energy transformation that is being negotiated and will be reviewed by the WBG Board in October, 2001.

Mr. Sanghvi provided an overview of the GOU’s Rural Energy Transformation plan currently before the WBG and explained how the plan ties into the Bujagali project and fits into Uganda’s energy plan as a whole. The target for this RET plan is to bring power to 10 percent of the Ugandan public within the next 10 years. While the proposed Bujagali project would bring an additional 300,000 power users on the power grid, an additional 150,000 rural Ugandans far from the grid are targeted by the GOU through other alternative power options. The RET would lead to these new grid connections, and that these users would supply the load for Bujagali. Various energy alternatives are being considered as a part of the plan. Remote and relatively concentrated areas would be targeted through the use of mini-grids from 5-Megawatt mini-hydropower facilities. Additionally, as a part of this plan, power is to be made available to 15,000 health clinics in 10 districts as well as school facilities throughout the country. In addition, within four years, every sub-county in Uganda will have access to public phone service, 3,000-5,000 communities will have phone access within a 3-5 kilometer area and 14 district capitals will be provided Internet dialup access. The program also calls for the creation of pilot programs to develop multi-purpose telecenters bringing telephone service, Internet access, and telebroadcasting to deep rural areas. Mr. Sanghvi emphasized that access to power would extend beyond the projected 10 percent in affected population areas, through indirect services, access through health and education facilities, and the proposed telecenters.

Mr. Sanghvi described the financing of the system, which consists of IDA credits, “smart subsidies” offered to pay down the initial capital costs of the improvements, and private investment, in order to make the entire system affordable.

Martin Weil of ABB asked what the cost of the power from these rural energy options would be without the “smart” subsidies and how this compared to the cost of large hydropower production rates. In response, Mr. Sanghvi explained that the costs varied due to project site, location, and site density. He indicated that the cost of power from small hydropower facilities, depending on load, can run 15-20 U.S. cents normally, while with the subsidy, retail may run around 9 U.S. cents.

Providing a community member perspective on Uganda’s proposed power plan, Joyce Muzale noted that people in the rural communities understand that they may not receive direct benefits from the power derived from the proposed Bujagali project. However, many understand that without such new power sources, Uganda will never be able to fully develop its resources. Many also understand that they will receive indirect benefits from the power generating facility through the creation of new economic and employment opportunities. She likened the changes needed to develop new power sources to labor pains that must be accepted in order to gain access to new opportunities (i.e., the baby!).

Mr. Saul noted that the WBG was preparing to finance projects in the energy sector worth somewhere between $700 million to $1 billion (amounting to about 15 percent of Uganda's GDP). He also noted that even under the WBG's most optimistic scenario, 90 percent of the population would still not have direct access to electricity ten years from now. This demonstrated that in ten years, as today, fuel wood will continue to be the single most important source of energy for the vast majority of Ugandans, especially the poorest and most marginalized sectors of society. Mr. Saul asked Mr. Sanghvi how much of the hundreds of millions of dollars that the Bank is helping to direct towards the energy sector will be directed towards fuel wood related issues.

In response, Mr. Sanghvi reiterated that while 90 percent of the population would be without direct connection to power, it is estimated that 70 to 90 percent of the population will receive indirect coverage through health clinics, schools, etc. Acknowledging that the only a small portion of WBG resources from the energy sector are being directed toward fuel wood issues, Mr. Sanghvi suggested that fuel wood issues warrants further study. He also noted that only a small fraction of the GOU’s rural energy transformation plan are targeted for pilot programs addressing fuel wood issues as well as indoor air pollution concerns.

Ms. Kigozi added that international support on fuel wood issues is provided to Uganda’s forest authority primarily through European Union donors. Much of these funds are targeted for reforestation efforts. In addition, there are campaigns established to encourage the general public, which owns a large portion of land in Uganda, to keep at least one acre of land under forest to alleviate deforestation in the area.

This concluded discussions on Day 1. The participants agreed that the issue of competitive bidding would be addressed the next morning, concluding the focused discussion of economic issues.

A reception followed, for participants to continue dialogue informally.







DAY 2: Wednesday July 18, 2001

Welcome, Review of Day One

Ms. Allen began the second day of the meeting by introducing new attendees joining day 2 of the forum. She provided a brief recap of the first day of meetings and noted that there were two issues from the first day of meetings that still needed to be discussed.

Key Issues Discussion (continued)

Economic Analysis of the Project: Competitive Bidding

Bob Chestnutt of AES began discussion of the issue of competitive bidding by providing background regarding the initialization of the Bujagali project. He explained that in 1994 the electricity sector in Uganda was a “mess”. There was no private investment in an energy plan and little in the way of interest by private companies in investing in Ugandan utilities. President Museveni traveled abroad asking private companies to invest in the development of Uganda, particularly in respect to hydropower. When the AESNP first approached the GOU about the project, at the request of the GOU for investment by foreign utilities, there was no project. From the outset, AESNP and GOU entered into a completely open door process regarding hydropower development, with AESNP accepting a large equity risk, which it has maintained for the past seven years. Mr. Chestnutt stressed that the process between AESNP and the GOU was entered into and maintained as an open door process.

Mr. Turyahikayo gave the GOU’s perspective. From the early 1990s, the President of Uganda has been developing a plan to advance the country from a pre-industrial to an industrial nation. Part and parcel of this was a plan for providing for adequate and appropriate energy resources in the form of electricity. The President worked in conjunction with the Ugandan Ministry of Energy to advance power and oil exploration in Uganda. As the country began developing its energy plan, it became apparent that adequate information was not available to even submit out bids for work. It was at this point that the GOU decided that it would be necessary to bring in outside development companies to study the potential for oil exploration, mining, hydropower and other forms of energy development.

The President then initiated tours looking for interested investors. In 1994 when the effort began, there was not a great deal of interest from outside companies in developing new investments. AESNP was the first company to demonstrate interest, invest money, and generate feasibility studies for hydropower resources in Uganda.

Mr. Turyahikayo described the process that AESNP has entered into with the GOU as an open process between AESNP, the GOU, and the WBG. Historically, as evidenced by the country’s precedent with mining corporations, the GOU has entered into agreements with foreign companies in order to develop resources in the country without benefit of a competitive bidding process. This is only done if they believe that the company involved is credible, capable, and willing to take the risk of developing feasibility studies. He emphasized that all provisions of the AESNP process over the past six years have had to be negotiated fully to ensure all parties involved are comfortable with the arrangement.

Ms. Pottinger responded that she agreed with Mr. Turyahikayo that it is a risky and it was probably hard to get companies to want to come in and build a large dam. She expressed concern that the risk has not been explained fully, and noting that according to the World Commission on Dams (WCD) guidelines, the risks involved is the first thing that should be discussed with the Ugandan people. She continued that the problem with no competitive bidding is the stench of corruption. As the officials of the ECGD in the UK note, there should be a clear, open and transparent process with many people bidding for the project. This didn’t happen and that is the problem.

Mr. Thome stressed that the Ugandan Investment Authority’s primary concerns should be both providing for additional energy resources as well as ensuring reasonable pricing. He stressed the need to reconcile these two concerns as the country moves toward industrialization. He again expressed concern that the PPA was being held as proprietary information and echoed the concern that because the PPA is proprietary, the perception will be that there was no competitive bidding process and that the allegations made will persist.

In response to Ms. Pottinger’s comment, Mr. Chestnutt agreed that in an ideal world competitive bidding is the best model. But he said it was deeply unfair to conclude that because there has been a negotiated deal that therefore defacto there must be corruption. Ms. Pottinger clarified that she was making a general point about competitive bidding and not any specific allegation.

Ms. Kigozi clarified that the Ugandan Investment Authority believe that to encourage outside investment in Uganda, it is more crucial to provide consistent and reliable power supply. She added that Uganda’s power costs are competitive with other countries in the region.

Mr. Turyahikayo returned to issue of rural energy tariffs, which some felt were too high. He noted that the energy tariff in rural towns is now lower (5.8 U.S. cents per KW/hr) than it had been in 1993 (8 U.S. cents per KW/hr). He indicated that the reduction in rural energy tariffs was being offered as an incentive to industrial investors and underscores the goal of the GOU to encourage outside industrial investment through the creation of new power sources.

Mr. Wright noted that this issue of finding the best least cost option for developing power in Uganda is at the core of the debate on this project. He said that everyone agrees that Uganda needs power. And no one disagrees that power is integral to alleviating poverty and developing the nation. The question is what does Uganda do without a least cost option? He noted that in previous discussions, WBG had indicated that the Bujagali project was the least cost option for Uganda. He further noted that the cost to the country in un-served power has been identified as 19 U.S. cents KW/hr, which is far above the existing tariff. He asked the IRN and NAPE representatives what does Uganda do without a least cost alternative; one that fits the load. Can Uganda afford not to move forward without any option or with the alternatives that are being suggested? Mr. Wright concluded by suggesting these questions need to be addressed in the forum.

To respond to Mr. Wright’s comment, Ms. Pottinger noted that she did not think it was a good idea to ask NGOs to find alternatives for Uganda. She said that NGOs asked the IFC to look into alternatives and the Acres study was the response, though NGOs found it inadequate. We did not think it was a good idea to ask a company with a vested interest in hydro- power on the Nile to do the analysis. She noted that the study only devoted a few paragraphs to alternatives and mainly focused on six large dams. She agrees that Uganda needs power, but noted that timing is so critical for deciding when a project is viable. She acknowledged that we don’t know the answers and haven’t done a full analysis; noting that it’s not really within our abilities as an NGO. However, ramping up options with smaller scale alternatives is probably more along the lines of meeting Uganda’s needs in ways that keep costs down and meet demand as they arise. Ms. Pottinger concluded that this is what is missing in the alternatives analysis.

Mr. Saul questioned whether the Bujagali project really can be considered the least cost option, noting that the economic analysis of the project is still on going, particularly in respect to its environmental impacts and its impacts on tourism. He questioned whether Karuma would be a better alternative, particularly in respect to tourism. He said that the question of least cost option is still very contentious and it is not fair to suggest this has been decided because cost comes in a number of different guises.

Mr. Saul also noted that accusations of corruption have been made over how the Bujagali project was selected and approved and stated that such accusations have been filed with the Fraud and Corruption Unit of the World Bank. He added that the perceived lack of competitive bidding and existence of previously stated transparency issues have contributed to these accusations.

Bob Chestnutt acknowledged that allegations of corruption have been made, but added that it is commonplace to make allegations against virtually all entities in Uganda. Allegations made against AES under the U.S. Foreign Corrupt Practices Act were fully investigated and found to be without foundation. He stressed that AESNP is dedicated to integrity and proud of how they have run the project. Mr. Chestnutt asked that if anyone has evidence that corrupt practices haven taken place to please let him know.

Mr. Saul stated that he would be interested to know on what basis of fact that allegations have been thoroughly investigated and found wanting with relation to the Fraud and Investigation Unit. He noted that he wasn’t aware that the Unit has released anything publicly about the investigation and invited Mr. Chestnutt to share any information about those conclusions.

In response to the question by Mr. Saul regarding whether information involving a through investigation of these allegations has been released publicly, Mr. Turyahikayo noted that the publication whose allegations of corruption were the basis for most of the public allegations against the Bujagali project is not credible.

Energy Alternatives, Least Cost and Affordability

Responding to the previous comment by Ms. Pottinger, Mr. Turyahikayo noted that various World Bank studies have been conducted demonstrating that such smaller-scale power alternatives were not a substitute for a large hydropower project. He added that the results of these studies were available through his office.

Ms. Kigozi discussed the need to address the issue of electrification and its impact on the women of Uganda. She explained that women often spend inordinate amounts of time collecting firewood as a fuel source and noted the particular importance that hydropower could play for the women of Uganda. In response to Ms. Kigozi’s statements, Mr. Muramuzi questioned whether rural communities would be able to purchase or afford power in the future, noting that even after Bujagali is built, the majority of women in these communities will have to continue to collect fuel wood.

Mr. Saul echoed Mr. Muramuzi’s statements, stressing the need to develop affordable power for rural communities. He observed that under Uganda’s power plan, 90 percent of the country will remain without power after 10 years, and he encouraged the World Bank to develop more initiatives to address the fuel wood issue. He noted that while hundreds of millions of dollars are being spent to develop hydropower in the country much less is being spent to address fuel wood issues, such as developing more efficient fuel wood burners.

In response to Mr. Saul’s statement, Dennis McCandless of the Hydropower Association noted that the energy problem in Uganda has three main components:
 Improving and extending the energy grid in Uganda;
 Electrifying rural areas where the energy grid does not extend; and
 Improving upon traditional rural energy sources.

He acknowledged that while all three components need to be addressed, the Bujagali project is meant only to address the first. He added that while this does not eliminate the need to discuss and fully address the other two needs, they do not have a place in a discussion regarding the Bujagali project, which, in itself, is addressing a serious energy concern in Uganda.

Ms. Muzale, responding to the previous discussion regarding the effect of new power initiatives on women living in rural Uganda, noted that while women may be unable to purchase power for all of their needs, such as cooking, many understand and support the new opportunities that power would bring. She suggested that it was high time Ugandans started thinking about how to pay for power. The availability of new power will make us work hard in order to pay for the power bills. She added that the new power sources will bring fundamental changes, particularly to rural areas, and that people will work hard to be able to pay for such opportunities.

In returning to the broader discussion of the need for new sources of energy in Uganda, Gwen Anderson of Chemonics noted that without investing in energy, Uganda would be unable to take advantage of small and large economic enterprises. She stated that electricity supply issues have already become a problem in the country, as demonstrated by brownouts and blackouts.

Mr. Saul agreed, saying that the question under discussion was not whether Uganda needs additional sources of energy. The question hinges on whether the Bujagali project is the best and least cost solution to Uganda’s energy needs. Mr. Saul’s concerns were several. He questioned whether the Karuma site had been considered adequately as a possible best choice alternative. He noted that the Bujagali project did not address the fuel wood issue, adding that in 10 years only 10 percent of the population would have direct access to power. He also questioned whether future hydropower projects would be held to similarly high standards, as had the Bujagali project. His concern lay in Bujagali becoming a catalyst for the GOU to create a cascade of dams along the Nile. While he acknowledged that AESNP has been held hostage in this process to determine whether they are submitting the best project, he noted that such scrutiny was warranted as the World Bank Group is a public institution.

Land Act and AESNP title to the project site

Following Mr. Saul’s comments, the discussion returned to the issue of the Land Act and Mr. Isooba’s question regarding whether the World Bank would be willing to provide financing to the Bujagali project without AESNP having a clear title to the land.

Haran Sivam, noted that the lenders had indicated no requirements for how the land would be acquired for the Bujagali project. He added that AESNP could acquire the land from the GOU through purchase, lease, license, permit or other legal means.

David Bizimana noted that two issues have been raised as a result of the Land Act and asked that they be addressed:

 Allegations have been made that the Land Act is being changed as a result of AESNP and the Bujagali project; and
 Concern has been expressed that energy tariffs will again be raised as a result of AESNP developing the Bujgagli project.

Mr. Isooba and Mr. Saul brought up allegations that in the case of the Bujagali project, the GOU (executive branch) is seeking a special case exemption rather than going through its usual process in approving the purchase of public lands. Mr. Saul noted that if such allegations are true, this would undermine the checks and balances of Ugandan law and would circumvent Parliamentary processes. Mr. Isooba noted that the Land Act could greatly impact the poor, for whom natural resources are their most important resource. He also noted that this change could reduce public participation on development projects.

Henry Kikoyo of AESNP stated that he was unsure what “alienation of land” was in reference to. Mr. Turahikayo reassured participants that the GOU could not and would not change any legal provision without first going through Parliament and that Parliament would only make such a provision if it were deemed to be in the best interest of the country.

Cumulative Impacts – Kalagala and Karuma

Mr. Anderson provided an overview of the issue to set the stage for discussion. He discussed the WBG’s responsibility for due diligence in the environmental and social aspects of the project as a condition to providing funding. He discussed the concern on behalf of the WBG to avoid the creation of a cascade of dams on the Nile, noting that the WBG is working with the GOU to avoid such a situation. He added that per its Natural Habitat Safeguard Policy, the WBG is also working with the GOU to establish the Kalagala offset to preserve habitat in the region. As a part of its review process, the WBG is taking particular care in researching the dam’s impact on tourism, as concerns have been raised since disclosure of the EIA.

Mr. Muramuzi expressed concern over the designation of Kalagala as an offset to Bujagali, noting that both sites represented valuable resources for Uganda, particularly in regard to potential tourism development.

Mr. Anderson acknowledged that the loss of the falls at Bujagali is a resource that is difficult to quantify, par