Local community members
Inadequate compensation for assets
The Bujagali Energy project involves the development, construction, and maintenance of a run-of-the-river power plant with a capacity of up to 250 MW on the River Nile in Uganda. Bujagali Energy Ltd. (BEL) also manages the construction of approximately 100 kilometers of 132 kV transmission line on behalf of the Uganda Electricity Transmission Company Ltd. (UETCL) to improve the transfer of electricity from the plant.
Bujagali Energy Ltd. is owned by Industrial Promotion Services (Kenya) Ltd.—the industrial development arm of the Aga Khan Fund for Economic Development, and SG Bujagali Holdings, Ltd., an affiliate of Sithe Global Power LLC (US). IFC and MIGA are supporting the $750 million project along with several other international financial institutions, including the International Development Association, African Development Bank, and European Investment Bank. IFC’s investment comprises $100 million in A and C loans, and MIGA issued a $115 million guarantee to World Power Holdings Luxembourg S.à.r.l., a subsidiary of Sithe Global Power, for its investment in the project.
In February 2015, four community members residing in the Bujagali affected area submitted a complaint to CAO on behalf of themselves and over 200 other community members. The complaint relates to inadequate compensation for crops damaged by project activities.
CAO found the Bujagali Energy-07 complaint eligible for further assessment in February 2015. Due to the complicated nature and volume of individual complaints forming part of the group complaint, as well as other ongoing processes at the time, the parties agreed to an extension of the deadline to complete the assessment. Consulting with the different parties, CAO understood that while the complainants expressed interest in pursuing a CAO dispute resolution process, BEL and UETCL felt dispute resolution was not appropriate at this time. Given the voluntary nature of CAO’s dispute resolution processes and lack of consensus between the parties to pursue dispute resolution, in accordance with CAO’s Operational Guidelines, the Bujagali-07 case was referred to CAO’s compliance function for appraisal.
A compliance appraisal was released in November 2016, and CAO concluded that an investigation was warranted in relation to this complaint. In the interest of time and given the extent of completion of the parallel compliance Bujagali Energy-04/06 investigation related to labor issues, the issues raised in the Bujagali Energy-07 case were considered in a separate investigation from the Bujagali Energy-04/06 investigation. Terms of Reference for the Bujagali Energy-07 investigation were disclosed in November 2016 (updated in January 2017).
CAO publicly released its compliance investigation report in January 2018. The investigation finds that IFC and MIGA properly recognized the interconnection project as an associated facility of the hydropower project, requiring the application of the 2006 Sustainability Framework and committing through a direct agreement that UETCL work with IFC’s client to implement the project in accordance with IFC’s performance standards.
The investigation also finds that IFC did not have the assurance that the Resettlement Action Plan (RAP) for the transmission line, a key step in any land acquisition process, met the requirements of Performance Standard 5. In this regard, firstly, CAO finds that IFC lacked assurance that the compensation framework provided in the RAP met IFC’s requirements for compensation at full replacement cost. Secondly, CAO finds that IFC lacked assurance that the final RAP compensation framework was disclosed or was subject to meaningful consultation with affected communities. Thirdly, CAO finds that IFC did not assure itself that the RAP addressed gaps in government capacity that would need to be bridged in order to support effective implementation at the level required by IFC’s standards.
Weaknesses in the RAP manifested as challenges during project implementation. The project grievance mechanism as described in the RAP, however, was not equipped to deal with the types of complaints that were noted as soon as land acquisition began and persisted throughout the construction period. As a result, numerous complaints were referred to UETCL, the Chief Government Valuer, and the recourse mechanisms of the project financiers. Despite indications that complaints regarding compensation were systemic in nature, IFC and the other financiers supported an ad hoc response to the complaints being raised rather than requiring a review of the adequacy of the compensation framework provided for by the RAP. To date, a required completion audit of the resettlement process has not been conducted. In these circumstances, CAO finds that IFC lacks assurance that compensation paid meets the full replacement cost requirement or that affected people have been appropriately compensated considering the delays in payment that have occurred. As a result, significant numbers of households whose land was acquired for the transmission line likely did not receive compensation at full replacement cost.
IFC provided a public response to the CAO investigation report in January 2018. In accordance with CAO’s Operational Guidelines, the case has remained open as CAO monitors IFC actions taken in response to the investigation’s findings.
On May 22, 2018, IFC shared with CAO an addendum to the management response to the CAO investigation report for the Bujagali Energy-04 & 06 and the Bujagali Energy-07 cases. On June 20, 2018, IFC shared with CAO its Terms of Reference titled: Bujagali Interconnection Project (BIP) Land Acquisition Completion Report Gap Analysis and Supplemental Completion Report Consulting Assignment. CAO monitoring would include a review of the implementation of the actions listed in the addendum and compliance with the Performance Standards.
In March 2019, CAO published a monitoring report of IFC/MIGA’s response to the Bujagali Energy-04, 06, 07, and 08 cases. In response to the issues raised in the Bujagali-07 case, CAO awaited completion of the IFC-commissioned gap analysis and resettlement completion report. Given the issues raised in the complaint, it is important to ensure that this output addresses both (a) livelihood restoration and (b) compensation for impacted assets, including crops, at full replacement cost in accordance with the requirements of Performance Standard 5. CAO’s monitoring report noted delays in the implementation of actions proposed by IFC to address CAO’s findings.
In May 2020, CAO published its second monitoring report of IFC and MIGA’s response to the Bujagali Energy 04, 06, 07, and 08 cases. In response to the issues raised in the Bujagali-07 complaint (land acquisition), CAO acknowledges the Task 1 report’s finding that there are gaps in the existing completion reports against the PS5 (2006) requirements, particularly in relation to the determination of whether project-affected people have had their livelihood restored. The Task 1 report recommended the preparation of Task 2: Supplemental External Completion Report. CAO notes the limited progress in the preparation and implementation of Task 2 and the importance of securing government support for this task.
In September 2022, CAO issued a third monitoring report. It analyzes whether IFC has adequately addressed CAO’s non-compliance findings, building on CAO’s two earlier monitoring reports issued in February 2019 and May 2020. While acknowledging steps taken by IFC, CAO has concluded that CAO’s non-compliance findings and associated adverse impacts on the complainants remain unaddressed.
CAO acknowledges IFC’s intent to conduct a review of the resettlement process for the Bujagali transmission line and its impacts on affected communities consistent with the project investment agreements and the IFC Performance Standards. Notwithstanding the position of UETCL that a Supplemental Completion Report or Corrective Action Plan is no longer needed due to the findings of the AfDB’s IRM, the project continues to remain out of compliance with IFC’s Performance Standards. If IFC does not implement the commitments it made to address CAO’s findings at the time it refinanced the project in 2018, the likely underpayment of compensation to households adversely affected by the construction of the transmission line as identified by CAO will remain unaddressed.
All documents relating to this case are available under "Case Documents" section below.
CAO published the third monitoring report in September 2022, and it is available in the “Case Documents” section.
Given that the Bujagali hydropower project is an active IFC project that remains in material non-compliance with IFC’s environmental and social requirements, CAO will keep these cases open in monitoring. See related cases:
Status as of September 19, 2022