Uganda agrees to demands of Bujagali financiers

Saturday December 30 2017

Bujagali hydropower dam

An aerial view of the Bujagali hydropower dam. PHOTO | NMG 

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After years of haggling, Uganda has finally agreed to all the demands of the financiers of the 250MW Bujagali hydropower dam, which include extending the loan repayment period and a tax waiver as a measure to bring down the cost of electricity.

The lead financiers — the World Bank’s International Finance Corporation and the African Development Bank — demanded that the government extends the loan repayment period, increase power demand and restructure the debt with a view to reducing earnings on equity and provide tax waivers. Other financiers are French private sector lender Proparco, the Netherlands Development Finance, European Investment Bank and KfW.

Permanent Secretary in the Ministry of Finance, Keith Muhakanizi, who represents the docket in the negotiations, told The EastAfrican that parliament gave a tax waiver of five years but the government has agreed to a further 10-year extension.

“The tax waiver is for the benefit of consumers, not Bujagali,” said Mr Muhakanizi.

The government and the financiers are expected to reach financial closure in January, when new contracts will be signed.

“We expect the Bujagali Energy Ltd board to meet in January and conclude the deal. The implication will be that we will have lower electricity tariffs,” Mr Muhakanizi said. 

According to the Ministry of Finance, if the tax waiver is not given, electricity consumers will meet the cost in the form of high tariffs — particularly for power produced at Bujagali.

The financiers demanded that the government extends the repayment period by 15 years and also avail a tax waiver over the same period for the tariffs to come down.

In order to reach a feasible solution, the Ministry of Finance conducted a study using data starting in the 1990s to determine how much tax Bujagali has been paying, how much profit the project makes and the figures were co-related with the tariff levels. Guided by the study, the government opted to give in to the demands.

A big chunk of the $902 million Bujagali loan was to be repaid by 2023, and four years of that period have already elapsed. The remaining years, the financiers argue, are too short for the country to attain lower tariff targets.