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ODA and the private sector: A blessing for bleeding

Partnerships between public and private sector don't come without problems. Power project implemented in Uganda works as an example of this.
Bakar Khamis
7.7.2015

Donor countries increasingly support private investment with public money, often official development assistant (ODA) funds. The support to private sector is provided as innovative financing model called ‘blending’. The guiding principle of blending being the desire to join forces of development expertise and resources to fulfil partner countries development needs in the most efficient manner. Hence, an increased bias towards the private sector and public private partnerships (PPP).

However, the bias towards the private sector and public private partnership (PPP) is not certainly justifiable. In its recent report on ODA and private sector, Reality of Aid African network raised concerns about manners in which a power project in Uganda was implemented.

The report reveals that different investigations showed that the project implementation did not meet the international [environmental] required standards. But, the Government of Uganda and the International Financial Institutions (IFIs) decided to continue with the project and constructed the dam. This had serious impacts to the economy as the income from the tourists sector was largely affected.

The situation regarding worker’s human rights is more worrying as those who considered themselves to be lucky to get jobs in the project and suffered occupational accidents were not compensated, the report says. The National Association of Professional Environmentalists (NAPE) had seek intervention to support the people with outstanding complaints to seek legal redress but, it still remains to be seen if justice would ever prevails.

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While PPP involves million dollar infrastructure projects, often in the energy sector (power generation), they are big corruption deals. The Richmond scandal and the IPTL saga in Tanzania will go down in history as major corruption scandals. Tanzanian tax payers are still feeling the pinch by paying millions of dollars daily in power generation capacity charges associated with the deals. These costs are born by power users and poor Tanzanians through ‘other tax’ monies, provided as subsidy to the Tanzanian energy supply company (TANESCO).

Elsewhere in Uganda, costs are inflated in the PPP arrangements but also government’s contribution in kind (e.g Land provision) is not considered part of the project cost. For example ,the cost of Vegetable Oil Development Project (VODP) in Uganda was originally estimated at 60 million US dollars, consisting of an IFAD loan of 20 million, 33.1 million in co-financing from the private-sector partner, and contributions of 3.8 million and 3.1 million from the Government and the beneficiaries, respectively. However the total project costs were later increased to about 156 million, reads part of the Reality of Aid report.

Meanwhile, these projects don’t leave up to the expectations and often local knowledge is ignored. The Bujagali power generation project in Uganda is a case in question.  Bujagali dam was expected to add 250 megawatts to the national grid but NAPE warned that Bujagali would not generate the projected megawatts. The advice was ignored but to date the dam is only able to produce 180 megawatts and the electricity demands are growing.

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While blended projects might respond to priority needs of national governments, development partners who provide resources, should also ensure that the project operations are in line with international frameworks and standards.  This is not the case with most PPP projects.

In Uganda for example, it is hard to find evidence of how the Busan principles for development effectiveness influence the execution of these projects. Hence, it is extremely difficult to understand donor’s motivation of financing a particular project.

What is most striking is that as concessional loans and grants are used to finance PPP projects, private companies pocket in profits while leaving the risks to the public. At best, blending is a blessing to the private sector but the consequences are often bleeding to the poor as their huge expectations usually turns to be nightmare.