New York – Environmentalists say the Bujagali dam would create a socially and environmentally destructive reservoir, drowning waterfalls where local people believe spirits live and failing to meet the energy needs of the country’s population.

AES said Uganda, with a population of 25 million, currently has less electricity than a small-size city in America and that the 200-megawatt hydropower station would double capacity. The hydropower station was to be built, owned and operated by AES Nile Power Limited.

In a filing with the U.S. Securities and Exchange Commission (News – Websites), the Arlington, Virginia, company said it decided last week to pull out.

As a result, in the third quarter it will write off about $75 million of its investment in the project.

Nongovernmental groups welcomed the news. “That is very excellent,” said Frank Muramuzi from the National Association of Professional Environmentalists, a Uganda-based organization.

“It might mean that any other company that might want to work the Bujagali might want to learn from the lessons that AES has gone through.”

Lori Pottinger, Africa campaigns director at the International Rivers Network, said the project was a “costly white elephant” and urged the government to look at alternative sources of energy.

TOO EXPENSIVE

AES said the decision was based on economic reasons.

“It boils down to two results: lowered returns for AES in the ongoing project balanced against increased risk,” said Dale Perry, project director of Bujagali at AES Corp.

“Those lowered returns come about because there are some continued project delays.”

The $580 million project is currently delayed by a U.S. government probe into allegations of corruption, but AES said the decision to pull out was not related to the investigation.

The U.S. Department of Justice is looking into allegations that people or entities involved with the hydroelectric power project made or agreed to make “improper” payments in violation of the Foreign Corrupt Practices Act (News – Websites), AES said in the filing.

The World Bank, which approved the plan in December 2001, has put it on hold until the investigation is over.

The bank’s private sector financing arm, the International Finance Corporation (IFC), was set to help provide loans of $110 million and the World Bank’s lowest cost lending arm was planning to fund a $115 million partial risk guarantee for the project.

AES said it is working with Uganda, the World Bank and the IFC to look at ways to ensure the project continues.

“Bujagali is a critical project for the long-term development of Uganda,” said Peter Woicke, the IFC’s executive vice president.

“The World Bank Group will continue to work with the government of Uganda to support the implementation of the Bujagali project in the context of a new public-private partnership.”