The International Rivers Network (IRN) and the Corner House said in a report that once completed, the 67-metre-high dam would create a 174 km-long reservoir and flood an area of 476 sq km. It is currently the largest hydropower project being developed in Africa.
According to the report, the dam was likely to cause "sedimentation of the reservoir due to massive erosion, evaporation from the reservoir and infestation of the reservoir by water hyacinths.
It could also lead to massive daily fluctuations of the water level downstream of the dam, with corresponding impacts on downstream agriculture and the spread of waterborne diseases."
In addition, the report said, the reservoir would inundate an area rich in history and antiquities dating back 5,000 years, "from the time of the ancient Nubian civilization that preceded Pharaonic Egypt."
"It is clear that there is a great need for electricity generation in Sudan, and the affected residents in the area acknowledge that," Nicholas Hildyard, Corner House researcher and one of the co-authors of the report, told IRIN.
Ibrahim Mahmud Hamid, the Sudanese minister of humanitarian affairs, told IRIN on Wednesday in Nairobi: "I think this is one of the best-organised projects with the best-organised response for those that have been affected."
Expected to be completed between 2007 and 2009, the dam would generate 1,250 MW of hydroelectricity, roughly doubling Sudan's current power-generating capacity.
The Merowe Dam Project Implementation Unit estimated that the dam project would displace 9,500 families, or about 50,000 people, from their land in the Nile Valley.
The Sudanese government has offered the affected families cash compensation for lost assets, a new house, land at resettlement sites and free utility services for two years after resettlement.
"I have been there to see their places. They have proper houses, they have proper facilities, they have farms, everything. And even it is better than the old villages," Hamid said. "The have been compensated generously."
"It is one of the most important projects, and it will change the whole situation in the area," he added. "I was there, and they are now constructing an airport, a bridge, roads, everything. The whole area is moving now. About US $2 billion will be spent in that area and it will bring it alive."
About 10,000 affected people have been resettled from the fertile Nile Valley to the El Multaga resettlement site in the Nubian Desert since June 2003.
The IRN/Corner House report said the soil at the resettlement site was so poor the farmers could not grow produce to sell on the market.
"Those that have been resettled there simply can't make a livelihood," Hildyard said. "The land is desert and extremely unproductive. It is just sand."
After meeting with the affected communities and visiting El Multaga, the two organisations said most of the free services, such as water, electricity and fertiliser, were not in place.
When asked about people who complained that they had not received the compensation and free services they had been promised, Hamid said these measures had been provided for in the compensation programme.
"They [free services and compensation] will come, but they will come later. They will come in phases. Some groups in the opposition want to use it as a political issue," the minister told IRIN. "All the problems now are with those who are very far from the dam, and they will be affected later on, in 2007. They think that they have to get the same things as those who are in the direct site of the dam."
The Merowe/Hamadab dam, budgeted at a total cost of $1.2 billion, was financed by China's Export Import Bank and several Arab financial institutions.
The report urged private investors and donors - who have pledged more than $4.5 billion over three years to support the peace-and-reconstruction process in Sudan - to ensure that the benefits of new development and investment projects were widely shared, and the rights of affected communities and the environment were protected.
According to the report, Sudan's electricity-generating capacity before the project consisted of about 760 MW of thermal power and about 320 MW of hydropower. In a country with a population of close to 40 million, the national power utility had only 700,000 customers. About 70 percent of the electricity was consumed in the capital, Khartoum.