For the next five years, the African Development Bank will focus on how to work with Uganda to bring down the power tariff from Bujagali hydropower dam.
Through its country strategy paper 2017-2021, which it released in October, the African Development Bank said it will provide up to $250 million in a 15-year debt or a partial credit guarantee to Uganda in order to support Bujagali Electricity Limited raise $250 million of new long-term debt from institutional investors.
The African Development Bank wants its financial intervention to reduce the average Bujagali tariff from the current estimate of 10.7 US cents/kWh to 8.2 US cents/kWh, and the overall end-user tariff from 15 US cents/KwH to 13.5 US cents/KwH.
“Bank intervention, through the private sector window will largely comprise restructuring of the Bujagali Energy Limited (BEL)’s debt to ensure that its tariff trajectory over the 2018 – 2023 period is significantly reduced to allow for affordable power costs for the priority industrial, business and retail sectors,” the bank said in its strategy paper.
The Bujagali power dam is a 250MW project that accounts for nearly a third of the country’s total energy output. Uganda has been engaged in discussions with Bujagali’s lenders for more than a year on how to restructure the loan.
The International Finance Corporation, the finance arm of the World Bank, has been leading the talks on behalf of the 11 lenders, who contributed a combined $702 million to the project. The African Development Bank contributed $29 million of this amount in 2007.
AfDB’s decision to provide $250 million in debt is a slight departure from the proposal of a $500 million bond that the bank’s president, Akinwumi Adesina, had proposed to list for the power project.
We also reported earlier that Uganda’s government was holding parallel discussions with Stanbic bank to either issue a bond or arrange a syndicated loan with the other larger financial institutions such as Standard Chartered and Barclays bank for the Bujagali hydropower project.
That option, however, was bound to run into a key regulatory barrier that places a ceiling on the amount of money a bank can lend against its core capital.