Construction of Uganda’s controversial $550 million Bujagali hydroelectricity project, a 200-megawatt dam on the Victoria Nile, was due to start early this year, but was halted after Swedish, Norwegian and Finnish export credit agencies withdrew guarantees worth more than $200 million.

The Scandinavian agencies were apparently worried that the Ugandan government would be unable to repay the hefty project costs to AES Corp, the US power giant contracted to build the plant. Local civic groups and international environmentalists have questioned the economic viability of the project and say it could drive Uganda further into debt, just as it is starting to pull out of a vicious debt spiral.

The Frankfurter Rundschau (Germany) also reports, noting that the Cologne-based Deutsche Entwicklungsgesellschaft and the French agency Proparco also rejected the project because of concerns about its environmental impact. The Danish agency, as well as British and US financiers, saw the project as overly large and unfeasible.

The World Bank board was due to meet in Washington today to approve a $215 million guarantee to fill the funding shortfall, notes the Independent. A World Bank spokesman said there would be “further discussion with the sponsors over the coming weeks.”

Also reporting, the Financial Times notes that the board also studied a response from Bank management, which is seeking a political risk guarantee of $250 million from MIGA, the institution’s risk management arm, to the Inspection Panel report.

The Independent notes that the postponement was a victory for civic groups in Uganda and international environmentalists, who say the project may hold hidden dangers for Uganda. Frank Muramuzi, of the National Association of Professional Environmentalists, said, “They want to use it as a showcase of investment. But we shouldn’t be used as guinea pigs. What if it goes wrong? It will be a very big problem for Ugandan taxpayers.”

AES and the Ugandan government say that Uganda desperately needs a fresh power supply for economic development, and that hydropower offers the most cost-effective solution. The multibillion-dollar company, which has an interest in more than 125 power plants around the world, is confident that the World Bank will eventually agree to guarantee the $215 million. Christian Wright, the project manager, said: “This is seen by the clear-minded as a very good project.”

The New Vision (Uganda) meanwhile quotes the country representative of the International Union for the Conservation of Nature, Alex Muhwezi, as saying that “Uganda needs electricity to develop. We need to play our roles to ensure that we achieve this rather than sabotaging what has been decided on.”

He has advised anti-Bujagali crusaders to redirect their energies towards mitigating the undesirable consequences of the construction of the dam, the story says, adding that he noted the decision to construct the dam was reached after wide consultations. “Those opposed to the Bujagali project have failed to offer tangible and realistic alternatives to the dam that will alleviate the chronic power problems in Uganda,” Muhwezi said.