Having dropped the initial plan of buying back Bujagali hydroelectric power dam, the Ugandan government is now grappling with a myriad of demands placed by lead financiers and environmental watchdogs as a pre-condition to bring down costs of electricity produced at the 250MW project.
The lead financiers — the World Bank and the African Development Bank — demand that government should extend the loan repayment period by 15 years to allow the tariffs to come down, increase power demand and restructure the $1.2 billion debt to reduce earnings on equity and provide tax waivers.
“Refinancing processes are still on the table,” said Energy Minister Irene Muloni. “Our efforts are to see that by the end of next month we reach a conclusion.”
The Bujagali loan has a repayment period of 12 years, four of which have lapsed. The financiers argue that the remaining eight years are too few for the country to attain lower tariff targets.
The financiers are also seeking a tax waiver on income tax for a period coinciding with the loan repayment period of 15 years, but that has not been an easy sale because of the financial implications to the Treasury.
“Upon request by the Ministry of Finance, parliament has already approved a five-year exemption as part of the mechanism to bring down the tariff,” secretary to the Treasury Patrick Ocailap, told The EastAfrican.
“Revenue loss as a result is estimated at Ush80 billion ($22.2m) per annum. So, parliament did not agree to 15-year tax exemption.”
The government says the dam has already been de-risked and continues to make profits. It wants such factors considered in restructuring the debt to a lower interest rate.
The lead financiers have also tasked the government to demonstrate how it will increase electricity demand which currently stands at about 10 per cent per annum.
At the time Bujagali was conceived, technocrats anticipated that power demand would increase at a rate of 15 per cent per annum, but this has not happened.
Ms Muloni said she will soon present before parliament a free electricity connection policy for consumers close to a power line. Once connected, the clients will pay for electricity consumed.
Power transmission remains a challenge in Uganda and even where people have access to the grid, many are unable to make connections to their premises owing to the high costs involved.