As parliament scrutinises the budget papers of various ministries, two government officials, including the state minister for planning and the permanent secretary (PS) of the Ministry of Energy and Mineral Development, have revealed that the cost of power from the Bujagali hydropower dam is set to be reduced owing to government interventions.
According to David Bahati, the state minister of finance in charge of planning, a corporate tax income exemption of 30 per cent that will last up to 2033 will see prices reducing, owing to a reduction in the cost of producing power at the dam.
On his part, Stephen Isabalija, the PS of the ministry of energy, stated that they had engaged the African Development Bank (AfDB) to settle the loan for Bujagali dam. This would reduce power to the cost of 3.1 US cents per unit by June this year.
Efforts to reduce power tariffs to increase electricity access and drive economic growth are commendable. However, the interventions being taken to reduce the tariff prices are questionable.
In January 2017, State House, on its website, reported of how President Museveni complained about the high price of electricity from Bujagali dam. The website said Museveni made his concerns while meeting the president of the AfDB.
AfDB is one of eight financing institutions that loaned Uganda money to construct the dam. The dam cost over $1.2bn, a price considered too high for Bujagali’s size, where the capacity is 250MW.
The AfDB president, according to State House, is reported to have given the following response to the Ugandan president: “In this regard, the bank will float a credit guarantee facility of $500 million bond. This facility will restructure tenure of the loan over the 15 years’ period and will bring down the electricity tariffs. The bond holders will be paid revenue that will be generated from projects (Bujagali).”
This response is contained in a State House report. In simple terms, the above response means that Uganda will issue bonds to the public and the AfDB will guarantee the bonds to a tune of $500m. In effect, government will be getting a loan(s) to pay off the Bujagali dam loan! The persons to whom government issues the bonds will be paid back their money including interest.
Talk about a cycle of loans! Certainly, governments must borrow to run economies but with Uganda’s high debt burden, there is need to be mindful of government borrowing. Uganda’s debt burden stood at 38.6 per cent of Uganda’s 2016/2017 GDP, according to Bank of Uganda’s 2016 annual report.
One also questions the rationale of government borrowing to offset high production costs arising from high electricity prices when we all know that one of the sources of government revenue are taxes.
To pay its creditors including the bond holders from the above arrangement, government will tax businesses and others. This will still impact on the cost of doing business rendering the reduction in power prices a venture that delivers little or no benefits.
In short, it is impossible to have a quick fix of Uganda’s current electricity challenges. We need a comprehensive plan, covering generation, transmission, distribution and regulation.
What should government have done? From the start, it shouldn’t have botched the design, procurement and construction project process for the dam. The procurement process was dogged by fraud and corruption scandals.
Construction of the dam delayed for over ten years and it only resumed in 2007 by Bujagali Energy Ltd, whose owners include Industrial Promotion Services and Sithe Global Power LLC. By that time, Uganda was desperate for a new dam. This is how we ended up with the worst deal because at the time, the argument was that expensive power is better than no power.
In the end, the construction cost moved from the initial $600m to over $1.2 billion, including the Jinja-Kawanda power line. While borrowing to extend the repayment period of other loans may provide a short-term benefit, in the end, if we don’t reprogramme our power sector as a whole, Ugandans will get nothing other than increased taxes to repay the said loans.
You would think that Uganda had learned its lessons but no; the procurement processes for the Karuma and Isimba dams were rocked by corruption scandals as well. The president interfered in the contract award process ‘giving’ Karuma dam to Sinohydro Corporation and Isimba was ‘given’ to China International Water & Electric Corporation (CWE), which had provided wrong information on the projects it had previously undertaken in its bid documents.
No open bidding was allowed for these projects as well. We should certainly expect expensive power from Karuma and Isimba dams, as their costs are high too. For instance, while Ethiopia is building a 6,000MW dam at $4.8bn, the 600MW Karuma dam is costing $1.7bn.
Only good planning and corrupt-free businesses spearheaded by pro-poor leadership will guarantee Ugandans cheaper electricity. For this to happen, as citizens, we must hold the government accountable for every decision made and increase the penalty for messing up any public project by those in authority.
The writer is the CEO of Africa Institute for Energy Governance.