Bujagali sale goes bad

Bujagali sale goes bad: President Yoweri Museveni’s push to cut the cost of power from the 250 MW Bujagali dam has put him at the centre of a fight with investors and technocrats at the Energy Ministry over the sale of a stake in the dam project writes Haggai Matsiko and Agather Atuhaire

Museveni wants deal investor, technocrats can’t offer

President Yoweri Museveni is under pressure from technocrats at the Energy Ministry to allow the sale of a stake in the 250 MW Bujagali power dam to an investor.

At the centre of the push is Sithe Global, an America company which wants to sell off its stake in Bujagali Energy Limited (BEL) which owns majority stake in the Bujagali Dam project.

Sithe Global’s 65 percent stake in Bujagali is under SG Bujagali Holdings Limited (SGBH), a Mauritian-licensed company and is seeking to sell a partial stake to SN Power for about US$ 100 million about (Shs330 billion). SGBH has stated that its business model is invest and later sale. For now, its major interest is selling. Government and the Industries Promotions Services (IPS) an arm of The Aga Khan Fund for Economic Development (AKFED) are the other investors in the venture that was funded by the European Investment Bank and the World Bank, among others.

According to Thomas DeLeo, the Director of SGBH, “now that we have completed our goal of proving Bujagali’s operational strength with operations above a 99% contractual availability over the past 3 ½ years, SN Power will be the ideal partner to continue this legacy for Uganda”.

DeLeo says SN Power has world-class operating capabilities, global portfolio, financial strength, and proven commitment to the highest social and environmental standards.

SN Power is owned by Norfund and Statkraft, which is wholly owned by the Norwegian state and is the largest renewable energy and hydropower company in Europe. It has total installed capacity of more than 18,000 MW. Statkraft’s gross sales amounted to US$8.7 billion in 2014.

Both SN Power and SGBH confirmed to The Independent that they are pushing ahead with the deal.

Museveni unimpressed

But the problem is that President Museveni is not impressed by the SN Power offer and is seeking new investors.

Museveni is said to be unsatisfied that the SN Power offer does not cater for his goal of lowering the cost of Bujagali Dam electricity for the final consumer, especially the industrialists.

The Independent understands from insiders that Museveni wants the unit cost of power from the dam reduced from the current 11 U.S. cents per kilowatt hour (kWh) which is the highest amongst sector hydro power generators in the region.

Uganda’s electricity transmitter, UETCL buys power from the Nalubale and Kiira dams at five times less the Bujagali cost, that is a paltry 2 U.S. cents. The two dams are run by Eskom Uganda; a subsidiary of South Africa’s power giant and together have an installed capacity of about 380MW.

Museveni has for some time been lamenting that his government made a strategic mistake by agreeing to buy the power generated by Bujagali at 10.1 U.S. cents.

At the time the deal was inked, Uganda was reeling from a massive electricity generation shortfall and incessant power cuts or load-shedding were the order of the day. There were riots in cities over the high cost of unreliable electricity.

At one point, the government was forced to resort to costly power was from thermal generation, which cost 30 U.S. cents per kWh. This was too costly for most consumers and the government had to subsidise them to the tune of U.S$175 million annually and U.S$ 624 million from 2005 to 2012.

Back then, President Museveni was pushing for more power generation at whatever cost.

When Bujagali brought its 250MW online in 2014, it put an end to the insufficient power generation.

Even before that in 2012 when Bujagali produced its first 50MW, power subsidies were abolished and customers started paying for the tariff directly. However, instead of fulfilling earlier promise that Bujagali would lead to lower tariffs, there was a jump upwards of about 40% for final consumers. Since then the tariff has consistently been inching northwards.

President has since shifted his fight from increasing capacity to lowering costs.

The Independent understands that the President is pushing for the average cost of power to be 5 U.S. cents, about 50% less than what Bujagali is selling at.

But the proposed new investor in Bujagali, SN Power and SGBHL, in a joint statement, told The Independent that is not part of the deal.

According to them, “SN Power is replacing Sithe as a shareholder,” they said, “Bujagali Energy Limited (BEL) is, and will remain, the owner and operator of the project.  The Power Purchase Agreement (PPA), a 30 year contract that governs tariff, is between BEL and UETCL.  The PPA (Power Purchase Agreement) is not impacted by Sithe’s sale to SN Power.”

It is important to recall the history of the Bujagali project and the contractual basis of the PPA, the duo added. Bujagali’s significant cost savings (a 66% reduction in the marginal cost of power) were achievable because the project was implemented at the lowest possible cost through an international, transparent and competitive bidding process overseen by the GOU, European Investment Bank and the World Bank, the email response reads.

But The Independent understands that as an entity that invested its cash in the project, Sithe Global is simply keen to dispose of its asset and turn a profit.

SN Power, on the other hand, is also keen to get a piece of the action.

Technocrats argue that the government should not force its hand against a valued investor.

Even if Sithe Global’s hand is forced, others argue, it does not follow that the other investor in Bujagali, IPS, will agree to the deal.

But other insiders insist that there are ways in which the investors and government can negotiate, still make a health profit, and have the tariff lowered.

Some experts claim that even at 5 US Cents tariff, if the project has a 40 year period, any investor would earn net profits of US$ 2,348.82 million and if taxed, would earn US$1.6 billion.

The SN Power response regarding the transfer of shareholding and the PPAs, however, could also be aimed at Uganda’s tax body which often computes Capital Gains Tax (CGT) on such transfer transactions. On this current transaction URA is looking to pocket 30 percent of the cash as CGT.

The email response adds: “BEL always maintains an open dialogue with the GOU regarding matters of interest to each of the parties, and this will continue regardless of the sale transaction process.”

SN Power says it is committed to being a long-term investor in the transformational project and working with Ugandan stakeholders to continue to help meet the nation’s growing energy needs.

“SG Bujagali Holdings Ltd (Sithe) and SN Power AS (SN Power) continue to work constructively with the Government of Uganda (GOU) toward the successful and timely close of the Bujagali Hydropower Project transaction,” they said in a joint email to The Independent.