Bujagali sale goes bad

New investors sought

Agents of SN Power were in Uganda mid this year and they left the impression that they were close to finalising a deal that would see them as the new shareholders. The electricity regulator, ERA, was already concluding the clearance, insiders told The Independent.

However, investigations by The Independent into the deal and what it would mean for the Ugandan energy sector have revealed that the deal is far from concluded. It is now not even clear if SN Power will get the deal at all.

After SN Power agents had left town, The Independent understands, President Museveni met officials from the Energy Ministry, electricity regulator, Electricity Regulatory Authority (ERA) to discuss Bujagali at State House Entebbe.

Details of that meeting remain scanty but The Independent understands that President Museveni refused to okay the SN Power deal once he heard from technocrats that the Norwegian firm’s plan did not involve cutting the tariff.

Museveni insisted that if any investor is unable to entertain the idea of lowering the tariff, the government is determined to look elsewhere.

He has since tasked players in the sector to look for such an investor who would consider government’s interests. One such a player, The Independent, understands is Stephen Isabalija, the chairman of the board of governors of Uganda Electricity Generation Company (UEGCL). Isabalija was not available for a comment.

However, both Museveni’s technocrats and the investors they are working with have a problem with that stance.

Minister Irene Muloni and Frederick Kabagambe Kaliisa, the Permanent Secretary in the Energy Ministry, were also not available for a comment.

But Kabagambe has previously said the priority in the sector should be building new power dams in the pipeline, not buying back existing projects. The Independent understands that Kabagambe supports the SN Power deal.

SN Power, The Independent, understands, is keen to buy only if the status quo is maintained. The Norwegian company claims it plans to invest in other dams.

Museveni advisers say the two dams that the President is using as a benchmark, Nalubaale and Kiira, have been around for decades and were built with government funds (colonial government in the case of Nalubaale) and not private equity which attracts both higher interest rates and return on equity like Bujagali.

Many other factors could explain why Bujagali power is costly.

The first is that private investors borrow at an expensive interest rate of 6-8%, a cost that is transferred to the final consumer through the tariff.

In contrast, government borrowing is either concessionary (0.78% for 40 years with a 10-year grace period) or commercial (at 3.5%).

For instance, the loan on Kiira was 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.

The second cost is return to private capital, which in the Power Purchase Agreement (PPA) for Bujagali is 19% per year.

Initially, the private investors’ equity into Bujagali was US$171 million and government contributed US$20 million.

Initially supposed to cost $460m in 2001, the Bujagali venture became a bottomless pit. Its cost rose to US$580m in 2007 and finally to US$ 862m at completion in June 2012.

An energy committee of parliament even suggested that the plant had cost US$1.3bn – an extra US$438m.

Yet the largest dam in the world with an installed capacity of 21,000MW, the Three Gorges Dam in China is said to have cost about US$25 billion.

Keeping other factors constant, constructing each Mega Watt at the Three Gorges dam cost about US$1.2 million but a megawatt at Bujagali cost US$3.6 million.