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Previous experience with dams shows that the local population carry a high proportion of the burden related to such projects. This paper intends to investigate the risks of impoverishment among the project-affected people in the resettled and downstream settlements in the Bujagali area, Uganda. The data is analysed through Cernea s Impoverishment Risks and Reconstruction model and the Sustainable Livelihoods approach. The first one provided the research with concrete indicators of impoverishment. The latter allowed a broad analysis incorporating several elements which constitute a livelihood situation. The analysis found that the resettled population have experienced a relatively high degree of impoverishment, and that it is mainly caused by the adverse effects on their assets. The downstream settlements face a moderate risk of impoverishment by the dam. However, the research suggests that impoverishment can be reversed, mainly by expanding the options of the project-affected people by crating opportunities for alternative livelihood activities. Measures can also be taken to ensure the access to basic needs, especially water and health care.