AES Uncovers Bribery In Bujagali Dam Project

By Michael Phillipsin WASHINGTONA corruption scandal is threatening to derail AES Corp.’s $550m power project on the River Nile in Uganda.The World Bank, alerted by AES that its main construction contractor allegedly bribed a Ugandan government official before joining AES, has suspended consideration of some $370m of loans and guarantees for the project, halting progress on the Bujagali dam.“Until we are completely confident that all issues of corruption are being addressed, the World Bank Group will not proceed with the financing of this project,” said Peter Woicke, head of the International Finance Corp., the bank’s business-finance arm. The bank said it routinely alerts “national authorities” on corruption, but gave no further details.The indefinite delay comes as AES of Arlington, Virginia, the world’s largest independent power producer, is selling assets and equity, cuttings costs and slashing capital investment to generate more than $2b in balance-sheet improvement. The company owns 150 generating facilities world-wide, as well as utilities.The heavily leveraged company’s shares fell 61 cents, or 13%, to $4, as of 4:00pm in broadly lower New York Stock Exchange composite trading on Tuesday, down from $72 in October 2000.Last month, AES named Paul T. Hanrahan president and chief executive to succeed company co-founder Dennis Bakke, and guide AES through the current period of low power prices, tight capital markets and troubled emerging-market economies.The dam project has survived years of attacks by environmentalists, who fear it will damage the Victoria Nile and flood the scenic Bujagali Falls.In May, the World Bank’s internal watchdog panel issued a lengthy report criticising bank staff for failing to account for the cumulative environmental effect of the dam with an existing power project upstream.Corruption allegations have hovered around the project but have never been confirmed.Nonetheless, in December, the World Bank board - representing its member nations - approved $175m of financing. The African Development Bank was to provide an additional $55m. On June 18, the bank’s investment-guarantee arm was scheduled to approve $195m more in risk guarantees to cover export financing by Norwegian, Swedish, Finnish and Swiss export-credit agencies.But the decision was postponed indefinitely after AES informed the bank that it had discovered evidence of past corruption by its prime contractor, Veidekke ASA of Oslo. Kai Henriksen, Veidekke’s executive vice-president of communications, said company officials found a $10,000 payment to a Ugandan official made in 1999 by a manager of its English subsidiary, Noricil Ltd.Mr. Henriksen declined to identify the manager or the official or the purpose of the alleged bribe, and said the subsidiary was liquidated a year later. At the time, Veidekke was still promoting a competing project on the Nile and hadn’t joined AES’s effort.“It’s a limited problem and a historical thing,” Henriksen said. “The payment was never authorised, either by any consortium or by Veidekke.”Richard Kaijuka, who was energy minister in 1999 and now represents Uganda on the World Bank board, said he knew of no such payment. Ugandan newspapers have accused Kaijuka of taking illegal payoffs related to the Bujagali project, a charge he firmly denied. “If they paid any official, certainly I don’t know that official. It certainly isn’t me,” he said.AES officials issued a statement confirming they had asked the World Bank to hold up its financing decision after learning of “allegations of impropriety”.“Based on the investigation that it has conducted, AES believes that neither it nor any subsidiary had any involvement in the conduct at issue,” the statement said. “Although AES remains committed to Uganda and the Bujagali project, the company will proceed only when it is completely satisfied that all aspects of the project fully comply with all legal and ethical standards.”Ugandan President Yoweri Museveni, a favourite of the West and the international lending agencies, has regularly defended the dam project as essential for the East African nation's economic growth. Just 3% of Ugandans have access to electricity.“Those who are saying the World Bank should not give us money, like environmentalists, should know that it will be built, whether it is by the World Bank or ourselves,” Museveni said last month, according to the state-owned New Vision newspaper. Wall Street Journal