Uganda - 2007 - Increasing electricity production

Increasing electricity production in Uganda

On 20 December 2007, PROPARCO and AFD signed a USD72.8m loan agreement with Bujagali Energy Limited (“BEL”), a future independent electricity producer in Uganda, for the construction of the Bujagali Dam. BEL’s shareholders are the Aga Khan Fund for Economic Development (AKFED), Sithe Global Power (USA) and the Ugandan Government.

Beginning: 2007

Financing: 72.8 MUSD loan

Partner: Bujagali Energy Limited

Context
With just 9% of the population connected to the national grid, Uganda lags behind the rest of the world in terms of electrification. Since 2001, this sector has faced a massive energy deficit because of a shortfall in supply. In an attempt to close this gap, emergency oil and coal fired power stations have been brought into service, but this move led to a substantial increase in tariffs paid by consumers between 2004 and 2006.

In order to satisfy the expected threefold increase in demand over the next fifteen years, electricity production will more or less have to double. In response, the Ugandan government considered several possibilities before settling on the Bujagali project, for economic, environmental and social reasons.

In 2005, the Aga Khan Fund for Economic Development (AKFED), which has considerable experience in the running of power stations thanks to various projects it has managed in the Ivory Coast and Kenya in particular, and the American company, Sithe Global Power, were successful in their bid to build the Bujagli dam.

Objectives

This project will considerably improve the Ugandan energy crisis on a long-term basis and will help meet the government’s objective of connecting a third more households to the national grid over the next ten years.

Description

This project involves the construction of a hydro-electric power plant with a 250 MW generating capacity. The proposed site for the dam is on the Nile River, 10 km downstream from the Owen Falls dam, which is on the banks of Lake Victoria. The electricity will be generated from the water stream which has already been used to generate energy at the Owen Falls dam.The project will be run by BUJAGALI ENERGY LIMITED (BEL), whose majority shareholder is the AKFED via its subsidiary Industrial Promotion Services (IPS), the American company Sithe Global Power and the Ugandan government. BEL holds a 30 year concession, after which its assets will be transferred to the State for the symbolic amount of one dollar.The total cost of the project amounts to nearly 872 million dollars. A loan totaling 72.8 million dollars granted by PROPARCO and the AFD is part of a global financing package of nearly 680 million dollars. Other lenders include the International Finance Corporation (IFC), the European Investment Bank (EIB), the African development Bank (AfDB), Dutch and German financial institutions (FMO and DEG/KFW), as well as Barclays Bank and Standard Chartered Bank.

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Impacts

INCREASING ELECTRICITY PRODUCTION

In 2012, when it is brought into service, the Bujagali dam will alone generate almost half of all energy produced in Uganda, and in 2020, it will generate a quarter.

CHEAPER ELECTRICITY

For Uganda, the Bujagali dam project is the cheapest way of producing energy: the average cost of electricity generated will be between 6 and 11 cents/KWh, which is two times less than the cost of oil or coal generated electricity.

JOBS

Aside from the positive impact on the country’s infrastructure, the project will lead to the creation of 1100 direct jobs during the period of construction.

BOOSTING STATE REVENUES

BEL will pay 300 million dollars in taxes to the State between now and the year 2023 and 800 million for the length of the concession.

REDUCING GREENHOUSE GAS EMISSIONS

The environmental and social impact of the project will be limited. CO2 emissions will be reduced by 1.5 million tons per year.

PROMOTING SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

The dam, built in the flow of the rapid current, will be low-volume (80 hectares submerged), which means that the resettling of the local population is limited to 634 people. Moreover, a further advantage of the US$ 12.8 million loan granted by the AFD is that the funds will be allocated to additional measures for improving the Environmental and Social Management Plan: increasing the availability of drinking water, rural electrification, reforestation of the banks of the Nile downstream from the dam and the promotion of eco-tourism.

Bujagali in the press

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