A dam near the source of the White Nile would obliterate the Bujagali Falls: a spiritual site for Uganda's 2.5 million-strong minority Busoga, who believe their tribe's spirits reside in the churning water; and a tourist river-rafting destination.

Dennis Bakke presents AES Corp. as a do-gooder
global power company that selflessly does God's work by bringing
electricity to the wretched of the earth. Are they for real?

"I am trying to sell a way of life," says Dennis Bakke, chief executive
officer of AES Corp., the world's largest independent power producer.
"I want the world to change."

Bakke brings the evangelical fervor of his father and brother, both
Lutheran ministers, to his work. His calling, he believes, is to
provide electricity to the masses. "I am a minister, but in a different
area," Bakke proclaims. "In Genesis our job is to steward the garden.
To steward the resources of the world is the essence of social
responsibility, and providing electricity is the most wonderful way to
change things."

Bakke takes every opportunity to promulgate his company's credo of
"fairness, integrity, social responsibility and having fun." The first
three are self-evident, but by "fun," Bakke means delegating authority
as far down the ladder as he can. AES is highly decentralized;
executives in the field make almost all their own decisions. Bakke
proudly maintains that profits and shareholder value are not among his
company's main goals. "Our mission is to serve the world," he says.

His shareholders have done very well, too. The company, then called
Applied Energy Systems, was founded two decades ago by Bakke and Roger
Sant. Last year it had revenues of $6.7 billion, with earnings of $641
million ($1.40 per share). Return on equity has averaged 20 percent
annually over the past five years, and AES's market capitalization is
about $28.5 billion. Bakke, 55, became CEO in 1994, replacing Sant, 69,
who remains chairman. Since going public in 1991, AES's stock price has
increased 17-fold. Bakke and Sant each own stock worth $1 billion.

The company's philosophy has garnered praise from the Harvard Business
Review and other publications, while its returns have wowed Wall
Street. "Out of all the companies pursuing the competitive model, AES
is the most successful," says Raymond Niles, Salomon Smith Barney's
analyst for independent power companies. "The decentralized management
structure makes them nimble. They have some of the highest returns on
equity in the industry."

Bakke likes to boast that AES puts service to the world and social
responsibility first, even if it means not maximizing profits. But
AES's internal hurdle rate of return on investment for projects is 16
percent to 20 percent, depending on risk. That's not throwaway pricing;
it's hard-nosed business.

Thanks to its constant harping on its social values, AES long managed
to escape the kind of scrutiny to which other power companies are
routinely subjected. Now the negative publicity from two recent
problems — a fine for air pollution in Southern California and an
environmentally and culturally questionable hydroelectric project in
Uganda — is inviting closer public inspection of Bakke and of AES's
vaunted values. "We don't include AES in our funds," says Elizabeth
McGeveran, vice president of research at Friends, Ivory & Sime,
which has $3 billion in screened funds. She cites a lack of
transparency about environmental impact as the reason.

To spread Bakke's gospel of power to the people, Arlington,
Virginia–based AES has operations around the world, including projects
in such unlikely places as Bangladesh, Pakistan, Kazakhstan — and
Uganda. Most foreigners still associate the latter with Idi Amin's
bloody dictatorship. Nature buffs, however, know Uganda as the home of
the endangered mountain gorilla and the waterfalls that mark the source
of the White Nile near Lake Victoria.

In the early 1990s Ugandan President Yoweri Museveni proclaimed that he
wanted a hydroelectric plant on the Nile. AES snared the $500 million
deal to build a dam that would produce 250 megawatts without having to
go through costly competitive bidding, signing a memorandum of
understanding with the Ugandan government in 1994. In early 1997 Bakke
hosted a dinner at his Arlington home for Museveni, who was in
Washington, D.C., to attend that year's National Prayer Breakfast. The
two men, both devout Christians, hit it off. Bakke hired Christian
Wright, now 29, to serve as AES's in-country representative in Uganda.
Wright had the right connections: His father, Charles Wright, was an
organizer of the National Prayer Breakfast. AES got the contract.

Four years and $25 million later, construction on the project has yet
to begin, largely because the proposed site for the dam has inspired
fierce opposition. The reservoir would obliterate the Bujagali Falls,
a series of waterfalls and rapids swirling around small islands near
the headwaters of the White Nile. The rapids have been described as
offering "the wildest commercial rafting ride in the world," making
them a popular tourist attraction. More important, they are a spiritual
site for Uganda's 2.5 million-strong minority Busoga, who believe their
tribe's spirits reside in the churning water.

Many other
Ugandans have also voiced reservations about the dam. Members of
Parliament questioned the project's merits and the means by which AES
was awarded the contract. Indeed, Parliament delayed approval,
green-lighting the project only in 1999. Local nongovernmental
organizations charge that the dam ignores more appropriate
alternatives; is environmentally, economically and culturally unsound;
and is too expensive and will not help the poor, despite the promises
of AES and the government. These local NGOs have joined forces with
more influential pressure groups in the U.S. and Europe to try and halt
the project. "Our concern is that it is a risky project for Uganda,"
says Lori Pottinger, head of Africa campaigns at Berkeley,
California–based International Rivers Network. "It will exceed the
country's needs, and there is no evidence that it will help the poor."

It annoys Bakke that anyone should question AES's public image as a
socially responsible company. "For others [social responsibility] is a
deodorant for self-interest," he declares. "We are different."

Lately, though, a chorus of socially responsible investors have been
reassessing the company. Julie Gorte, an environmental analyst at
Calvert Group, which runs $2.3 billion in socially responsible funds
that hold AES stock, notes that the company takes credit for all the
carbon dioxide amelioration from a tree-planting scheme in South
America — even though it funded only 15 percent of it. "AES has made
some attempt to mitigate [emissions] through carbon sequestration,"
says Gorte. "It is nice, but it is not the answer. We are taking a deep
look at California and Uganda and are reevaluating our position on
AES."

AES's commitment to the social values it proclaims may be in doubt, but
there is no question that the company has been an impressive business
success. Dennis Bakke met Roger Sant when they worked together on
energy conservation at the Federal Energy Administration (now the
Department of Energy) during the administration of president Gerald
Ford. Sant was head of the Office of Conservation and the Environment.
Bakke had joined Energy from the Office of Management and Budget, where
he developed enduring friendships with two stalwarts of the current
Bush administration, Treasury Secretary Paul O'Neill and Secretary of
State Colin Powell.

Sant and Bakke left government to join a Carnegie Mellon University
think tank, where they advocated the then-radical idea that electricity
generation doesn't need to be a state-run monopoly and should be
deregulated. Acting on their convictions, Bakke and Sant founded AES in
1981 with $60,000 of their own money and $1 million from other
investors.

AES took off by aggressively building and, later, buying plants. It now
has interests in 153 facilities with 53,000 megawatts of capacity in
more than 20 countries. AES has more than 50,000 employees and
continues to buy up power plants and distribution companies across the
globe — from Pakistan to Chile, from Nigeria to Hungary — as well as in
the U.S.

Originally laid out by Sant, the company's values govern the way AES
operates. The overarching tenet is social responsibility, which AES
defines as sensitivity to the needs of the communities where it
operates. This means lowering customer costs, paying attention to
safety, increasing employment and promoting a cleaner environment. To
AES, providing electricity to the underserved is an unquestioned good.
Profits are a reward for investors and a means for the company to do
further good.

Now largely retired, Sant, a lapsed Mormon and an agnostic, is
concerned that AES not get carried away by the righteousness of its
mission. "There are a lot of business models that work," he says. "I
would be appalled if we became evangelical and tried to convert
others."

Bakke, however, sounds very evangelical. "I am the keeper of values and
principles, the chief teacher," he proclaims. "I am the chief adviser.
This is the one requirement in our company — to ask for advice." Like
many missionaries, Bakke refuses to mold AES's values to different
cultural contexts. "I am a cultural imperialist," he says. "This is
what we believe no matter where we go — our values are consistent with
all faiths."

For most companies social responsibility is enlightened self-interest:
doing good to do well. Bakke insists that AES's employees do good to do
good, period. But he acknowledges that the company's image helps it do
business. "The reputation that we have for doing the right thing, being
sensitive to the community and being very careful with the environment
will in fact make it easier for us to do things, as opposed to somebody
who's there primarily for the profit," he says. "We certainly have a
better chance with the governments themselves."

The problem is that AES doesn't always look like the company Bakke
claims it is. As one of the biggest global power developers, AES is by
definition a major polluter. "If I were totally green, I wouldn't
invest in a power company, because we still pollute," Sant says
bluntly. Yet AES doesn't belong to organizations like the Coalition for
Environmentally Responsible Economies or the World Business Council on
Sustainable Development, which seek to get corporations to work with
environmental groups.

Some of AES's hard-nosed business practices are less than saintly as
well. AES routinely eliminates jobs at companies it buys; most
recently, it cut half of the 5,000 jobs at Electricidad de Caracas, a
Venezuelan power distribution company it acquired in a hostile takeover
last summer. That's understandable activity — for a company driven by
profits, but not for a corporate prophet of social values. Unless, of
course, those values are conveniently adaptable.

In Bakke's view layoffs not only help society at large, but the
individuals fired as well. "We believe it is socially irresponsible to
keep even one extra person employed when he or she cannot help operate
the business more effectively," Bakke wrote in the 1999 annual report.
"That extra person stunts everyone's growth, freedom and fun.
Furthermore, by freeing a person from an unproductive, overstaffed job,
society gains another problem-solving citizen."

Tell that to a laid-off worker.

Sant, a former chairman of the World Wildlife Fund, offers a different
perspective. "Having these values doesn't mean we always succeed in
being socially responsible," he says. Sant cites some examples: In 1991
AES wanted to build a coal-fired power plant in Bucksport, Maine. When
the town board voted against the project, AES sued, unsuccessfully, to
force it to allow construction to begin. In 1993 AES workers falsified
water treatment records at a power plant in Shady Point, Oklahoma; the
company paid a $125,000 fine. That same year, AES was forced to sell
its partially completed cogeneration plant in Jacksonville, Florida,
when project lenders balked after the state moved to revoke the
company's site certification, claiming it had been misled when AES
applied for the permit. And in Pakistan the company spent more than $3
million in discretionary funds on education programs, rather than
investing in antipollution equipment for its power plants.

But no AES project inspires more controversy than its plan to build the dam across Bujagali Falls.
Critics argue that the electricity, to be sold at 7 cents per kilowatt
hour, will be too expensive for most of Uganda's desperately poor,
rural population. The vast majority of Ugandans earn less than $1 per
day, and fewer than 10 percent are connected to the national power
grid. In mid-1998 Stephen Linaweaver, an American operating rafting
trips on Bujagali Falls, was arrested and asked to leave Uganda for
"inciting unrest." Linaweaver had begun a campaign to oppose
construction of the dam. "I was trying to educate people about the
effects of the dam," he says.

One of those interested in Linaweaver's efforts was Ugandan businessman
and former local politician Martin Musumba, who created the Save
Bujagali Crusade. "I started SBC to lobby the government and Parliament
to look at the project to see how economically beneficial it was, as
opposed to tourism, vis-à-vis the purchasing power of Ugandans, and
also how it would affect people culturally," he says.

Musumba persuaded Frank Muramuzi, president of Uganda's National
Association of Professional Environmentalists, to assess the project.
"We looked at AES's environmental impact assessment and found it didn't
spell out how resettlement aspects would be dealt with or
comprehensively review the hydrology," says Muramuzi.

Musumba and Muramuzi got together a group of Ugandan NGOs to form a
coalition against the dam. They also turned to International Rivers
Network to lobby the World Bank
not to support the project. "We are amplifying Ugandan NGOs' voices.
They were being ignored by the powers that be in the World Bank," says
IRN's Pottinger. "The whole country assumed that once the president
agreed it was a done deal."

In keeping with its approach to
all its undertakings, AES funds its local projects with as much
nonrecourse financing as possible. The company owns 100 percent of AES
Nile Power Uganda but will put up $100 million, or 20 percent in
equity. The World Bank's private sector financing arm, the International Finance Corp.
(whose president, Peter Woicke, happens to be a close friend of
Bakke's), has been asked to lend $200 million, or 40 percent of the
project cost, with the rest coming from other investors. The World Bank
also plans to provide a partial risk guarantee that would cover the
Ugandan government's contractual obligations, such as paying for
electricity or maintaining the regulatory environment. The activists
hope that their protests will cause the World Bank to refuse to
participate in financing the dam, and without its support, AES is
unlikely to convince private investors to back the deal.

Based
on Muramuzi's findings, the IFC, already under fire from NGOs for
funding environmentally unsound projects, like an oil pipeline in Chad
and a gold mine in Peru, rejected the environmental impact assessment
submitted by AES as lacking enough work on the environmental and social
impact of the dam. The company plans to submit a revised EIA this
month, and the IFC board is expected to vote on the project by midyear.

"One thing NGOs have been very successful [in] is delaying the
process," says Bakke. "But you know what? We don't go away. Unless
people chase us out, we are staying. There is no question that this
particular solution is the best thing for the people of Uganda."

Bakke is indignant that NGOs are involved at all. "The opposition is
not being led by Ugandans," he says, ignoring the actions of Musumba,
Muramuzi and the Ugandan coalition. "The people there have a legitimate
government, and they need to address those things with their
government, not going out and getting an NGO. It is not legitimate to
put forward the ideas of the individual citizen over the elected
government."

The Ugandan Parliament approved the project in 1999 after a yearlong
debate. At public hearings people living near the falls said they
supported the project. Ugandan activists say that AES promised the
poverty-stricken local residents money and that others were intimidated
into silence. "There is so much poverty that people will sell anything
to get money," says Musumba. Adds Muramuzi: "Although AES says they
have good intentions, on the ground they are telling people lies. They
told people that when [the] dam is built, they will all get jobs, light
and money. But the real issue in Uganda is not electricity. It is
poverty." Bakke responds that even if the poor don't get electricity,
the project will provide a steady power supply to hospitals and schools
that they use.

Even supporters of the dam are not exactly enthusiastic. "We are
disappointed to find that only people close to the project will benefit
from roads and electricity and that AES has provided $1 million for
people close to the project," says William Kiwagama, the prime minister
of Kyabazinga, the kingdom of the Busoga. "But we think in the end the
benefits will spread to people further away from the project."

Yet to be resolved is the way in which the Bujagali spirits will be
propitiated. AES asserts that the Jaja Bujagali, the chief priest and
spirit medium who is the Busoga's communicator with the spirits of the
Bujagali Falls, agreed to a "relocation" of the spirits at a public
hearing. "I have never agreed," said the Jaja Bujagali in a December
interview with Ugandan researchers. "If they want to relocate it to
another place, will they carry the whole river or falls to that place?
They think that a Musambwa [spirit] is like a goat that can be
transferred from place to place."

"The spirits represent the collective of the people and cannot be
moved," says Musumba. On the other side, Kiwagama, the Kyabazinga prime
minister, scoffs at the Jaja Bujagali's objections. "If the project
goes ahead, the spirits will have to move," he says. "The Jaja Bujagali
will be prevailed over."

Bakke says the Ugandan Parliament's decision to approve the project is
all the justification AES needs to go ahead. "We have found few people
— no official folks, no respectable groups of any consequence — who
oppose the dam," he says.

But Uganda is not exactly a paragon of democracy. Museveni took power
in a 1986 coup and banned all political parties. He was elected
president in 1996 and is running for a second term in this month's
presidential elections. "In Uganda people usually don't oppose a
project, especially when the president is involved," says Musumba.
"People are intimidated."

Various allegations of corruption have swirled around the project. One
comes from the accounts manager of AES Nile Power Uganda, a local hire
whom AES accuses of having embezzled $400,000 from the company. The
employee, Harriet Kabayondo, claims that the $400,000 was authorized by
AES Uganda director Wright to pay bribes to local politicians. Wright
denies allegations of misconduct. He says his signatures were forged.
"We have paid no one at any stage in the project," he says. "No one has
made false promises, and we have been very careful not to raise
expectations." The case is now in Ugandan courts. Bakke also denies any
untoward dealings by Wright. "He has more integrity than you or I will
ever have."

The project's fate now lies in the hands of the World Bank, which faces
a difficult decision. The German development bank, Deutsche
Investitions und Entwicklungsgesellschaft, decided to withdraw in
December. Even if the World Bank approves the project, Bakke will have
to make sure that his rhetoric matches his company's actions. "I'm not
trying to maximize earnings," he insists. "We are going where we can
make a difference. We are as committed to the people of Uganda as the
World Bank and certainly as any of the people talking to NGOs. We are
much more committed than these people because that's our mission."

Fun in the California sun

One of the values that AES Corp. cofounders Roger Sant and Dennis Bakke
hold dear is that employees should "have fun." They define "fun" as
decentralizing management down to the executives in the field. Is
Bakke, now CEO, concerned that young executives might make mistakes?
"The danger is they won't make enough big mistakes," he says.

Sometimes, though, you can have too much fun.

Last summer AES should have made a killing in California. A massive
power shortage had sent prices soaring, and most electricity generators
selling power to utilities were reaping what state officials condemned
as windfall profits.

Alas, AES was not one of the beneficiaries of the price spike. In 1998
it had signed a 20-year, fixed-price contract to deliver the output of
three plants in California with almost 4,000 megawatts of installed
capacity to Williams Energy, a power marketer, which then sold the
electricity on the open market. When prices rose, Williams, not AES,
was able to sell power at whatever the market would bear.

Worse, AES ran out of NOx permits. What are NOx permits? In the arcane
world of electric power generation in the U.S., the right to pollute
the air is a tradable commodity. If you have a plant that belches
noxious fumes, you can always buy "permits" from those with cleaner
plants.

In July AES's three main plants exceeded nitrogen oxide (NOx) emission
limits. In December the company was fined $17 million by the Southern
Coast Air Quality Management District for not shutting down the plants
when they ran out of NOx permits.

AES was caught in a classic squeeze play. The state desperately needed
electricity to keep air conditioners running and asked Williams to take
more power from the AES plants under its contract. Bakke says the
company was faced with the choice of shutting off the juice to
sweltering Southern California or violating emissions rules. Local
managers thought they had an agreement with regulators to keep the
plants running until a solution was worked out.

Bakke insists that AES could not have bought additional NOx permits
since they were both scarce and expensive. So while AES didn't profit
from the higher electricity prices in California, it had to pay a fine
for polluting. Indeed, it lost revenue as well when its plants
periodically broke down because they were running for longer periods
than normal. Williams got the profits; AES and its self-proclaimed
value of environmental responsibility got a black eye from the
environmental regulators. "Sometimes it is a tough world," Bakke
shrugs. "You try to be the big guy and save the world, and it doesn't
always pay off in the short run."

Still, keeping its plants running may have paid off for AES by building
goodwill with California officials. In return for paying the $17
million fine and installing pollution control equipment, regulators
agreed to accelerate permits for AES to expand the capacity of one of
its plants by 450 megawatts (which would be sold directly to the
state).

After factoring in revenues from its single 120 megawatt California
plant that sells directly to the open market, AES reported a net loss
of $11 million in the state last year. Last month AES found itself
facing a squeeze similar to what befell it last summer. This time the
state's independent system operator obtained a court order enjoining
AES to keep its plants running even though environmental regulators
were again insisting they be shut down.

But Bakke has apparently decided his field executives have had enough
"fun" in California. "We made a mistake [last time]," says AES investor
relations chief Kenneth Woodcock. "This time we will shut down."

But faced with such threats, Southern California environmental
regulators have issued a temporary order that exempts power generators
from NOx emission rules.