Bujagali Energy Ltd.

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24408
Company name	Bujagali Energy Limited
Country	Uganda
Sector	Utilities
Environmental category	A
Department	Infrastructure
Status	Active

Date SPI disclosed	December 20, 2006
Projected board date	April 19, 2007
Previous Events	Invested: January 22, 2008 Signed: June 27, 2007 Approved: April 26, 2007

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Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project consists of the development, construction and maintenance of a run-of-the-river power plant with a capacity of up to 250 MW on a Build-Own-Operate-Transfer (BOOT) basis on the River Nile, at Dumbbell Island, 8 kilometers north of the existing Nalubaale and Kiira power plants, in Uganda. The project company will also manage the construction of approximately 100 kilometers of 132 kV transmission line on behalf of the Uganda Electricity Transmission Company Ltd. (UETCL), Uganda’s national transmission company, to strengthen the evacuation of electricity from the facility. The project will be an Independent Power Project (IPP) and will sell electricity to UETCL under a 30-year Power Purchase Agreement (PPA), which was signed on December 13, 2005. UETCL’s payment obligations under the PPA will be guaranteed by the Government of Uganda (GOU) through a government guarantee.

Anticipated development impact of the project

The project is expected to have a major economic and developmental impact on Uganda. The current energy crisis faced by Uganda has led to significant load shedding. As a result, the GoU is forced to rely on an additional 100 MW of expensive thermal power to mitigate the problem and has had to almost double tariffs in 2006. Some business users have resorted to importing backup diesel generators, but many other users cannot afford them. This is constraining economic growth, particularly in the industrial sector.

The project will:

- displace at least an estimated 50MW of expensive emergency thermal power when it is commissioned in 2011;
- relieve residual load shedding; and
- meet incremental base load demand with least cost power generation.

This will prevent further rises in electricity tariffs and may allow a decrease. It will enable more residential users to be connected every year, including in rural areas. It will also allow industrial and commercial users to reduce their costs and increase their productivity, thereby boosting economic growth. Availability of cost effective electricity will also increase the attractiveness of Uganda as an investment destination.

During the construction phase of the dam, the project is expected to create 600-1,100 jobs for Ugandan nationals, some 10% of whom are to be hired from local communities. The community development action plan (CDAP) for the project includes strengthening of educational and health services and provision of clean water to affected communities. By “recycling” the same water that is already used to generate power at Nalubaale and Kiira, the project reduces the pressure to over-release water from Lake Victoria, thereby helping to preserve lake levels and facilitate the GOU’s compliance with the Agreed Curve. Through the displacement of thermal power that would otherwise be needed, the project reduces carbon and other pollutant emissions.

The project would be Uganda’s first IPP and one of the largest mobilizations of private financing for an IPP project in Africa. The project would strengthen Uganda’s achievement of comprehensive reforms in the power sector, started in 1999 with support from the World Bank Group. As such, it would facilitate further private sector investment in Uganda and have important demonstration effects in the region. On the other hand, failure to implement the project would be very costly for the country, as more expensive energy sources would have to be developed, and power sector reforms may be jeopardized.

IFC's expected development contribution

IFC’s involvement in this hydroelectric project will ensure that it will meet IFC’s environmental and social standards. Since the first attempt to develop the project from 2000 to 2003, IFC, in close collaboration with the World Bank, has played a leading role in advising the GoU on sector reforms. IFC has taken a leading role among the lender group in various areas, such as the funding and initiation of an economic study of key project variables, the selection of other consultants, and coordination on environmental and social issues. IFC is also playing a key role during the financing stage by providing financing in the form of long-term loans. Additionally, IFC is working in close relationship with IDA and MIGA in order to ensure an integrated World Bank Group effort vis-à-vis the Sponsors and the GoU. IDA is considering providing a partial risk guarantee (PRG) for the benefit of commercial lenders who are likely to provide long-term debt financing for the project. MIGA is considering providing equity political risk insurance. By supporting the project, IFC is sharing its experience in the sector with the sponsors as well as with other financial institutions, ensuring that the project is bankable and that it establishes a standard that can be replicated by other IPPs in Africa as well as by private investors in infrastructure in the region.

Environmental and social issues - Category A

The Bujagali Hydropower Project will involve the construction and operation of a dam in the bed of the Nile River, immediately downstream of a hydroelectric complex, and upstream of protected natural areas as well as other planned hydroelectric facilities. Bujagali will be operated as a run-of-river plant and it will impound a reservoir of 388 ha in surface area, comprising of the existing 308 ha of the Victoria Nile, and 80 ha of newly inundated land. Two managed, natural, or protected areas, the Jinja Wildlife Sanctuary and Bujagali Falls will be affected and these impacts will be offset through the designation of new areas to replace those lost due to development of Bujagali.

Land required for the project has caused people to be affected through physical and/or economic displacement. Although resettlement activities for the project were largely completed by the previous sponsor in 2001 through 2003, completion of resettlement related activities are the responsibility of BEL. Development of the project will also affect commercial white water rafting and other recreational activities, use of the river for small scale fisheries by local villagers, and islands and rapids with cultural/religious values for local persons and communities. These impacts are, among other things, being mitigated though a Social and Environmental Action Plan, Assessment of Past Resettlement Activities and Action Plan, and Community Development Action Plan.

Given the current status of project implementation, BEL has not yet fully put in place the staff resources to implement the Action Plans identified above. IFC acknowledges BEL’s commitments to procure this capacity prior to the start of any construction related activities at the hydropower site.

Key issues going forward are fulfillment of resettlement requirements for both the Hydropower Project and the Interconnection Project as an associated facility of the project, and commitments to offset impacts to biodiversity resulting from the project.

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