In January, Nigeria's new President Umaru Yar'Adua announced that between 1999 and 2007, the administration of his predecessor Olusegun Obasanjo spent $10 billion on the power sector without building any new power plants. A leading legislator soon raised the figure to $16 billion and started a parliamentary investigation into the matter.

The scandal is now unfolding. It shows how corruption results in mega-projects that benefit the powerful but neglect the needs of the poor. Many Nigerian homes and businesses are forced to rely on generators for electricity because of lengthy and frequent power cuts in the oil-rich nation.

Meanwhile corrupt politicians get big benefits from approving new contracts for large projects, rather than making sure projects are actually implemented, supporting smaller-scale solutions that may be more effective, or maintaining existing infrastructure.

One popular sport is to shell out contracts for new projects without expecting the contractors to actually deliver. Instead the companies and politicians involved pocket the spoils. The ongoing investigation in Nigeria has thrown up many such cases, relating for example to the Kainji and Mambilla hydropower projects.

In April 2005, the German engineering company Lahmeyer got a contract to carry out a feasibility study for the huge Mambilla hydropower project in northern Nigeria. The 2,600-megawatt project would dam three rivers, and has been dubbed Nigeria's Three Gorges Project.

Lahmeyer shot to fame as one of the first large international companies ever blacklisted by the World Bank after being convicted for bribery in the Lesotho Highlands Water Project.

Lahmeyer was supposed to carry out its Mambilla contract within 15 months, and collected $3.2 million for it. Yet nothing happened on the ground. The company only set up a bungalow near the future dam site, to create the appearance of project activities.

The committee investigating the matter claims that Lahmeyer has never visited the project site, and has asked the company to refund the money it received.

So far, no criminal investigations have been carried out, and the parties involved, including Lahmeyer, deny any wrongdoing. But billions of dollars are missing. And Mambilla and other projects have the fingerprints of corruption all over them. Here are a few indicators as to what may have gone wrong.

TIME AND MONEY WASTED

Approving new projects is so lucrative that powerful politicians try to reserve decision-making powers for themselves. Under President Obasanjo, the technical experts of the energy ministry were kept out of the loop on new power plants.

All decisions were taken by the president and a small committee of influential ministers and state governors. Many contracts were awarded without competitive bidding. Some were awarded to companies headed by former presidents and other powerful figures, and $50 million was paid to companies that did not even exist.

In the case of Mambilla, an earlier president had already awarded construction contracts in 1982, but nothing happened on the ground. The large project was so attractive that President Obasanjo created a special committee on it a few weeks before the end of his tenure.

He handed a new contract to China Gezhouba Group Corporation, the main builder of China's Three Gorges Dam. The only thing that has so far happened is a ground-breaking ceremony to inaugurate the project - the kind of ribbon-cutting event that publicity-seeking politicians love.

The Mambilla Project was supposed to be financed with a loan from China Exim Bank to the tune of $1.6 billion. In exchange for the loan, the China National Offshore Oil Corporation (CNOOC) was supposed to receive four blocks in an auction of oil resources which the president also organised just before leaving office.

Yet the Mambilla contract and the oil blocks were handed off in such a hurry that many details could not be sorted out. Gezhouba, CNOOC, China Exim Bank and the Nigerian government are now bogged down in difficult negotiations over the contracts, and the hydropower project appears to be stalled.

China Exim Bank does not have a policy on corruption. "You can't stop a country's development because of some corruption," its president said in December 2007. "That doesn't help. You cannot refuse to eat because you might choke."

The Nigerian experience shows that corruption can effectively stop development. Contractors face delays, court cases and possibly cancellation of their contracts. Consumers, taxpayers and affected communities are straddled with projects that may not address their needs, could damage the environment and are over-priced.

According to World Bank estimates, the Nigerian government has earned $390 billion from its oil wealth since 1970. Yet about 120 million of the country's 140 million people live below $2 a day. As in other countries, Nigeria's oil wealth has resulted in a resource curse of corruption, failed development, environmental destruction and abject poverty.

The independent World Commission on Dams proposed a balanced, transparent and participatory assessment of all options in order to counter the influence of corruption in water and power-sector development. The World Bank and many governments have rejected such an approach because it would consume too much time.

Compared with the eight years and billions of dollars wasted by the Obasanjo government in Nigeria, a balanced and transparent options assessment process actually looks like a very good investment.

Peter Bosshard's blog appears at www.internationalrivers.org/en/blog/peter-bosshard.

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