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Will Ugandans get Cheap Power from Bujjagali Dam on River Nile?

13-March-2012

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When the Minister for Energy and Mineral Development, Irene Muloni, announced a new power tariff on Jan. 12, she assured Ugandans that the tariff will reduce once all the five units of Bujagali Hydropower Dam have come on board.

But The Independent has established that electricity tariffs are likely to either remain high or go even higher if the government accepts the payment plan proposed by Bujagali Energy Limited (BEL).


The BEL power tariffs remains uncertain because of the many, and sometimes contradictory, numbers being mentioned. Minister of State for Energy, Simon D’Ujanga, says BEL will be selling Bujagali power to Uganda Electricity Transmission Limited at 12 US cents/ kwh in the first 13 years. But a statement BEL sent to The Independent says the tariff will not be “constant” but will be a “profile” averaging at between 10 US cents over the 30 years before the dam reverts to government-ownership and peaking at 16 US cents in 2022.

The BEL tariffs make the Bujagali power 5 to 8 times higher than the power being consumed currently from the Kiira and Nalubaale dams which sell at 2 cents. The D’Ujanga rate would be even higher. The question is why?

Analysts have argued that there is no justification for Bujagali tariff to go beyond 10 cents. They go on to say that if the investment cost of Bujagali was with in the internationally accepted range, the tariff could have been 5 cents or lower. If the project period is 40 years, then the loan can be paid even when the tariff is at below 5 US Cents per kwh according to the cash flow analysis. This would be a boost to the national economy and social economic transformation.

The Bujagali power is just 14 – 22 cents lower than the thermal generators which sell between 24 - 34 cents depending on the exchange rate and the fuel prices. But D’Ujanga says the tariff will be high for only the time when BEL will be paying back the US$875 million loan that was used to construct the dam. He says 13 years; the tariff rate will go as low as 8.5 cents. In cash flow analysis of D’Ujanga’s figures created by The Independent, this would amount to:


1. (i) During Year 1, when the tariff is at US Cents 12, BEL, the investor will earn net profits of US $ 48.3 million, increasing annually by over US $ 7.2 million. And on the 12th year he would earn US $ 135.63 million.

(II) During the project period (13 years) at the tariff of 12 US Cents, BEL would earn net profits of US $ 1.4 billion and if taxed earns 0.98 billion.

2. (i) Even at 10 US Cents tariff, the Investor will earn net profits of US $ 13.25 million during the first year, increasing gradually by over US $ 7 million annually to US$ 166.72 million during the 13th year.

(ii) During the project period of 13 years, the Investor will earn net profits of US $ 906.48 million and if taxed, would earn US $ 634.54 million.

Why high tariff?

Kwesigabo Johnson, a former lawyer at the Electricity Regulatory Authority, who is among the people that negotiated with BEL on behalf of the government, says this tariff is justified. He says it is true that hydro power is cheaper than thermal but says the initial investment of hydro is much higher than the investment of thermal.

“Although the running costs of hydro are much cheaper than thermal, the initial costs of a hydro plant are high,” said Kwesigabo.

He told The Independent that Ugandans will endure the relatively high tariff rate saying it is not higher than what they have been paying to thermal generators until BEL recovers its investment costs. However, this contradicts the pledge by the government that Bujagali power would reduce the cost of electricity to consumers.

Kwesigabo says Kiira dam cannot be compared to Bujagali because unlike, Kiira and Nalubale which were public financed projects, Bujagali is a public private partnership project. He adds that Nalubaale is an old dam, so the costs have already depreciated and for the new dam at Kiira, the loan that constructed it was taken over by government. The Director Ministry of Energy and Mineral development, Paul Mubiru, says the loan on Kiira is required to be paid in 40 years with a grace period of 10 years at an interest rate of only 0.75 percent.

In contrast, according to BEL, the Bujagali loan has various tranches but will largely be paid over a 20 year period with a five-year moratorium. Payment will start in November, 2012. A cash flow projection based on these and other figures would show that BEL will earn enormous profits as shown below:

1. (i) If there is a ten year grace period, at 12 US Cents tariff, the Investor would earn net profits of US $2.018 billion. If taxed, he will take home US $ 1.412 billion. This could even pay off the loan.

(ii) During Year 1 of loan repayment period, when the tariff is at US Cents 12, the Investor will earn net profits of US $ 166.67 million annually, increasing annually by over US $ 0.2m, and on the fortieth year he would earn US $ 173.12 million annually.

(iii) During the project period (40 years) at the tariff of 12 US Cents, the Investor would earn net profits of US $ 7.285 billion and if taxed earns $ 5.099 billion.

2. (i) Even at 5 US Cents tariff, the Investor will earn net profits of US $ 43.94 million during the first year, increasing gradually by over US $ 0.2m annually to US$ 50.39 million annually during the 40th year.

(ii) If the project has a 40 year period, the investor will earn net profits of US $ 2,348.82 million and if taxed, would earn US $ 1,637.17 million.

Mubiru says “there is no pressure on the loan that constructed Kiira dam but the agencies that lent money for Bujagali have different terms”. He says being various bodies- International Finance Cooperation, the European Investment Bank, the African Development, Stanchart, Holland’s FMO, PROPACO and DEG/kfw have different terms and different interest rates.

“Comparing Bujagali with these two dams is surely like comparing tomatoes and oranges,” Mubiru told The Independent.

Bujagali power plant has so far cost $862 million according to Sithe Global Vice President, Glenn Gaydar. US$191 million of that money is equity where the government contributed US$20 million from the assets it inherited from the first contractor of Bujagali1 AES with the balance obtained from various international financial bodies, as a loan. We should note however that, during the contract award, the contractor’s cost for Bujagali was only US $ 460 million, but now it is US $ 862 million.

Ugandans, Mubiru suggested, should not worry themselves with the Bujagali tariff. He said their only concern should be Bujagali to produce all the expected 250MW so that “we solve this surging power shortage”.

“The dam will not change anything about the current tariff, so there should be no worries that BEL will be selling at 12 cents,” he said.

But Ugandans who consume electricity have to worry, since the cost outstrips their domestic earnings. In most countries, utility bills do not exceed 10% of a family’s domestic income. This guarantees decent living, with enough money left for house rent, food, clothing, school fees, transport, etc. Distorted costs also distort life. BEL selling Bujagali power to UETCL at 12 cents mean the end user pays over 24 cents (Shs.540) per unit and above.

The Independent Newpaper

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