Many Concerns and Questionable Benefits
Secrecy and the Possibilities for Corruption
Drowning Out Debt Relief?
AES Not All It Claims

AES (Applied Energy Services Corporation) is the largest independent power producer in the world, with total assets of almost $38.7 billion and 59,000 MW of electricity generation from 177 facilities in 33 countries.

AES markets itself as a socially and environmentally responsible company. In fact, its website sates "One of the only centrally-controlled aspects of AES is our commitment to four major "shared" principles: to act with integrity, to be fair, to have fun and to be socially responsible. These principles are goals and aspirations to guide the efforts of the people of AES as we carry out the mission of the Company." Yet AES' Bujagali hydroelectric power project in Uganda tells a different story.

AES is a lead sponsor behind the Bujagali hydroelectric power project, a power plant on the Nile River in Uganda. Bujagali is financed with support from the IFC, a partial risk guarantee from the World Bank's International Development Corporation (IDA), as well as several export credit agencies (ECAs). MIGA was to consider getting in on the project through its political risk insurance, but indefinitely postponed the June 18, 2002 Board vote. Shortly after the schedule vote, newspapers reported allegations that AES's main construction contractor bribed a Uganda government official prior to the contractor partnering with AES.

Many Concerns and Questionable Benefits

In addition to serious bribery allegations, Bujagali is a controversial project plagued by numerous concerns. The large dam will disrupt other economic activity in the project region, especially ecotourism. Thousands of people will be displaced, and rare species could be affected. In addition, long-term risks about the project, such as changing water cycles from possible climate change, have not been addressed.

An investigation by civil society groups in the area where people affected by the project would be resettled uncovered complaints that compensation was inadequate, and that new lands provided were less fertile and received less rainfall. Some farmers were compensated for only one plot of land when they owned more. Women claimed that they were not compensated for plots that they owned. Farmers who had been notified by the company that land clearing was imminent still had not received their compensation six weeks later. Promises by the company to drill more boreholes for water had not yet been fulfilled.

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Secrecy and the Possibilities for Corruption

In stark juxtaposition to AES's stated goal to act with integrity, to be fair, and socially responsible, the Power Purchase Agreement (PPA)-- the contract that lays out risks and costs to Uganda-- is secret, a serious problem given the corruption allegations that have dogged the project. Ugandan citizens cannot verify the amount their government has agreed to pay for the project's deliverables and whether it is a fair price. Some reports say that the Uganda government has committed to pay AES up to $100 million annually for the first 10 years of the contract, with payments slowly tapering after that. Other reports say the $100 million payments will be made over the course of the 30-year contract.

On July 13th, a Ugandan court ordered the Ugandan government to produce the PPA. In response, the government wrote to the court stating that no PPA exists. According to the letter, efforts to produce the PPA are "fruitless as it has been discovered that in actual fact there is/was no PPA executed between Government and AES Nile Power." Previously, however, the government has claimed that the PPA is a comprehensive document that contains technical and commercial secrets that are protected by confidentiality clauses.

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Drowning Out Debt Relief?

These payments would exceed the debt relief Uganda has received under the Heavily Indebted Poor Countries (HIPC) Initiative. Furthermore, Uganda has suffered heavily from low commodity prices, and even with this debt relief, a recent IMF/World Bank report admits that Uganda's debt sustainability outlook is "worrisome". Yet this project would put enormous financial burdens on the government, further exacerbating the debt problem. AES's current financial difficulties, including a depressed stock price, and recent earnings losses, further highlight the concerns over the financial viability of the project. The project's economic viability, as assessed by the World Bank, is also based on over-optimistic macroeconomic assumptions, such as unrealistic GDP and income from coffee exports, as well as inflated figures for increasing demand for electricity.

A Power Purchase Agreement that delivers a sweetheart deal for AES could be a significant burden on Uganda, a heavily indebted poor country. The Ugandan government has pledged to pay AES for electricity for 30 years, regardless of whether the project actually yields the amount of electricity it promises to or whether or not all the electricity produced can be sold. Uganda citizens would still bear the burden of meeting the government's financial obligations to AES. In a country already impoverished and dependent on overseas development assistance, these obligations will likely translate into resources that cannot be provided to other areas. These include primary education, efforts to combat the spread of HIV/AIDS, environmental protection or more decentralized electricity provision that would bring power to outlying rural areas not served by this project.

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AES Not All It Claims

Bujagali is not the only problem project associate with AES. In the US, it is currently being sued in California as part of a class action lawsuit charging wholesale power generators and marketers with anti-competitive behavior. Its annual filing with the Securities and Exchange Commission also states that each of the company's businesses in California is being investigated by various state agencies, including the Attorney General's Office and the Public Utility Commission. In May 2000, AES was found to violate the Federal Clean Air Act at two New York State facilities. Also in 2000, the company paid a $17 million fine for excess air pollution at some of its generating facilities in California.

In the US, citizens have had recourse to courts to challenge AES for environmental impacts and anti-competitive behavior. Citizens in other countries, however, do not necessarily have access to similar systems of justice. A global liability regime would allow affected people who have no recourse to take companies like AES to court to seek redress for harms inflicted on them.

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