By Tim Cocks

MABIRA FOREST RESERVE, Nov 28 (Reuters) - The idea of destroying a swathe of rainforest, home to hundreds of rare species, to clear land for a sugar plantation is an environmentalist's worst nightmare.

But Uganda's President Yoweri Museveni dreams of industrialising his poor central African country, and investment is something he says it cannot afford to turn down.

In August, Museveni ordered a study into the possibility of axing 7,000 hectares (17,000 acres) or nearly a third of Mabira forest, a nature reserve since 1932, to expand a sugar estate owned by Uganda-based Mehta Group after it approached him directly.

The move outraged parliamentarians, Mabira residents and officials at the National Forest Authority (NFA), who say the environmental cost of trashing one of Uganda's last remaining patches of natural forest would be incalculable.

"You can't cut the forest. We'd lose our lives," said 50-year-old John Kasule, who lives outside the reserve.

"The forest brings rain, we collect firewood from there, we use it for houses and rope. There are 40 types of medicine we would lose," he said, pointing to a dense green tangle of trees and thick vines stretching into the distance.

The government says extra jobs would outweigh losses caused by the removal of the forest.

"I can't give projections but many Ugandans work on sugar plantations whose families depend on sugar -- we must produce cheaper sugar because competition is tough," Museveni's press secretary, Tamale Mirundi, told Reuters.

Despite landowners offering alternative land, the government says none would be as cost-efficient as Mabira.

"You can plant a forest anywhere but industry is affected by costs -- transport costs, power supply, market access. You can't just put it anywhere," Mirundi said.

STUDY

Asked to assess the plan's viability, the NFA produced a study concluding that the ecological and economic losses from destroying part of Mabira would be huge.

It said the plan endangered 312 species of tree, 287 species of bird and 199 species of butterfly. Nine species found only in Mabira and nearby forests risked going extinct.

Economic losses included lost revenue from logging and eco-tourism -- one of the world's fastest growing tourism sectors and the top source of tourist revenue in Uganda.

The forest absorbs pollution in an industrial area, sinking millions of tonnes of carbon dioxide, and helps maintain central Uganda's wet climate -- removing it would bring drier weather, hurting crop yields, the report said.

"Mabira is a watershed for two rivers contributing to the Nile, an ecological stabiliser between two major industrial towns and it protects Lake Victoria," said NFA spokesman Gaster Kiyingi.

The European Union, which has pumped money into Mabira's upkeep, axed a grant to Mehta over the proposal.

"We wouldn't give them a contract ... If that's the sort of land they're going to use, there's no way," Paul Jacovelli, head of the EU-funded Sawlog grants scheme, said.

Museveni has defended the move, saying it is easier to plant a forest than build industry.

"Instead of being negative ... we need to plant more trees," Environment Minister Maria Mutagmba said, adding that any deforestation would see replanting elsewhere to compensate.

But others disagree.

"How many years have foresters been doing research in how to regenerate rainforest? We don't know where to start," said Jacovelli. "A tropical forest with hundreds of species is impossible to replant. Once it's gone, it's gone."

Mehta has stayed largely silent, saying environmental protection is up to governments, not companies. "I'm out of this controversy. I made a request to the government -- it is they who decide," Mehta regional director Suresh Sharma said.

Zahid Alam, who is building an ecotourism lodge in Mabira but fears his investment is at risk, is not happy.

"It's just not done," he said, walking around his two-storey lodge with a view over the forest canopy. "This is a one-shot chance to save the last few environments like this."

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