Uganda has dropped plans to take over the Bujagali dam due to financial constraints, even as it continues to explore options to make power from the 250MW reservoir more affordable.

The government is now considering a raft of options including subsidies, extending the term of the loan from China’s Exim Bank and reducing the return on investment by financiers. It has commissioned a study to establish the best option, officials told The EastAfrican.

“Buying out Bujagali is out of the question. Would it make sense to buy out a power station that is already generating power and making profits since it was commissioned? We can only do that when we have excess money, but not at a time when we hardly have enough to meet our obligations in education and health,” said Deputy Secretary in the Treasury Patrick Ocailap.

The idea of a buyout was first broached by President Yoweri Museveni during his 2015 State of the Nation address in which he expressed concerns over high tariffs on power generated at Bujagali.

“With the commissioning of Bujagali, power shortage has been alleviated but the cost of electricity is still high.  We are determined to provide electricity for manufacturing at four US cents per unit,” said President Museveni in a written speech.

Well placed government officials, however, said that President Museveni balked at the buyout proposal when the actual cost was presented to him. He then directed government officials to work with the proprietors of Bujagali dam and the lenders to reach a solution that would yield lower end user tariffs without compromising a reasonable return for proprietors.

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Finance experts said that the government would find it difficult to acquire the project after it struggled to raise $340 million for  its 15 per cent share contribution for the 600MW Karuma dam and 183MW Isimba project. The two projects are being built by Chinese contractors.

Tariffs

A source familiar with the talks said that they are seeking ways to bring tariffs down, but not to buy out Bujagali “because it is not a question of kicking the Chinese out.”

“We are undertaking a study using data from way back in the 1990s in terms of how much taxes the proprietors are paying and the profits they are making. We shall then co-relate that with the tariff levels and discuss how we bring it down,” said the source.

Power from the dam owned and operated by Bujagali Energy Ltd costs $0.1152 per kilowatt-hour and is set to rise from next year to a peak of $0.15/Kwh by 2022. The government wants to reduce the cost to $0.04 to lower the end-user tariff and make the country’s industries competitive.

Transmission too, remains a challenge, such that even where people have access to the grid, many are unable to make connections to their premises due to the costs involved. It has been proven that for every shilling spent on generation, an equivalent amount should be spent on distribution, meaning that investments in the transmission are critical. 

Another option on the table is reviving electricity subsidies. The government spent over Ush1 trillion ($275.3million) on thermal power generators between 2006 and 2011 to supplement power generation at a level of low production that led to unprecedented load shedding.

“We shall be looking at which sectors warrant subsidies. We estimate that it will cost us Ush707 billion ($194.6million) annually to subsidise power when we target large electricity consumers like coffee processors and steel rolling companies,” said  a source within the industry.

Bujagali has a guaranteed internal rate of return of 19 per cent over the 30-year lifetime of the private-public partnership, which comes to an end in 2042.