Following World Bank approval, the Ugandan government has given the local unit of American power giant AES Corporation the green light to begin construction of the 200MW Bujagali run-of-the-river plant on the Nile.

‘We are very hopeful that we shall start construction before the end of January,’ the chairman of the firm’s local unit AES Nile Power (AESNP) George Kihuguru told company and government officials at a ceremony to mark the event.

The planned dam is in the eastern part of the country about 80km from the capital Kampala. It has been under consideration since 1994, and came under intense scrutiny from opponents who complained that Bujagali was a ‘white elephant’ that would not bring electricity to the majority of Ugandans (95%) who are not connected to the grid, and that it would push up tariffs for those who were because they were unwittingly taking on the hydrological risk of the project.

Other criticisms included that alternative sources of electricity were not seriously analysed, bearing in mind that developing Bujagali would interfere with tourist activity such as whitewater rafting, before getting the government green light.

AES Corporation maintains that the Bujagali project site was selected as it is one of the most environmentally and socially benign hydro options on the Nile. Numerous village meetings, NGO forums, government meetings, cultural institution discussions, as well as radio, TV, and newspaper coverage has culminated in an eight-volume Environmental and Social Impact Assessment (EIA) report, including a Resettlement and Community Development Action Plan, to address the environmental and social issues related to the project, with, the company claims, full transparency in line with World Bank guidelines.

IFC and the World Bank Group have also convened a number of stakeholder forums to seek input from Ugandan citizens, NGOs and civil society and international NGOs.

Various allegations of corruption concerning the project have been brought to the attention of the World Bank’s Department of Institutional Integrity (INT). Although the opposing International Rivers Network says that there has been no public disclosure of the outcome of the ensuing investigation, the INT has concluded that there was no evidence of corruption to date, and that it would monitor all payments in connection with the project as carefully as possible.

The World Bank, through its private lending arm the International Finance Corporation (IFC) and the International Development Agency, has committed US$215 million in direct loans and guarantees for the 200MW dam. The Bank’s board approved its share of the financing on Tuesday.

The balance of the funds will come from private lenders and equity capital, a senior company official said.

At the ceremony, AES executive vice president Mark Fitzpatrick has received land title for the dam site, a construction permit and licence for the use of the water for power generation. AESNP will develop, build, operate and maintain the Bujagali plant and sell electricity to the Uganda Electricity Transmission Company under a 30-year power purchase agreement. Construction is expected to take 44 months. Alongside the hydro project, AES will construct a 100km transmission line and two substations.

The World Bank Group and IFC will seek input from Ugandan citizens and the general public on AES Corporation’s financing request to the World Bank Group for these proposed facilities. The project will be financed through a combination of equity, debt and internal cash generation. Equity of around US$115M will be provided through an IFC loan of up to US$60M, a loan from the African Development Bank of US$55M, a commercial loan facility supported by export credits amounting to US$234M, and an IDA risk guarantee.

Mandated lead arrangers WestLB and ANZ Investment Bank will also shortly approach banks to expand the bank group to fund the commercial loan facilities for the project.