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IFC and MIGA support refinancing of Bujagali, Uganda

The run-of-river plant on the Victoria Nile is an important source of baseload power for the country, contributing in 2016 around 45 per cent of its electricity supply.

The World Bank’s International Finance Corporation (IFC) and MIGA have approved a plan to refinance more than US$ 400 million of loans to Bujagali Energy Ltd and provide up to US$ 423 million in guarantees in support of the 250 MW Bujagali hydro plant, with the aim of helping reduce electricity costs in Uganda.

The private sector lending arm of the World Bank Group announced on 8 March that the refinancing package will extend the tenor of senior and subordinated loans originally provided in 2007 by the IFC, the African Development Bank, the European Investment Bank, the Netherlands Development Finance Company (FMO), France’s Agence Française de Développement and Proparco, Germany’s DEG and KfW, and four commercial banks (ABSA, BNP Paribas, Nedbank and Standard Chartered Bank). This extension in tenor, it said, will reduce Bujagali Energy Ltd’s annual debt-servicing payments and make it possible for the company to reduce the cost of electricity produced by the hydropower plant over the next five years. The Government of Uganda has committed to pass on these cost savings to consumers, in support of their goals to spur economic growth and expand access to energy. In addition, MIGA will provide political risk guarantees of up 20 years for the equity investors, helping to shore up investor support and long-term engagement with the project. An existing partial risk guarantee from the International Development Association for two of the project’s commercial lenders remains in place.

The run-of-river plant on the Victoria Nile is an important source of baseload power for the country, contributing in 2016 around 45 per cent of its electricity supply. Its commissioning in 2012 allowed the decommissioning of more than 100 MW of diesel-fired powerplants, significantly reducing Uganda’s reliance on costlier thermal power generation, and made it possible to almost eliminate government subsidies to the electricity sector. However in 2016 it also accounted for around 65 per cent of the country’s generation costs, according to the Electricity Regulatory Agency.

Reducing the cost of generation is the first step in a three-pronged approach by the Government to increase the competitiveness of the electricity sector, and by extension the manufacturing sector, compared to other countries in East Africa. By lowering generating costs and by extension electricity tariffs, the Government aims to increase electricity access to the wider population.

At present, only one in five Ugandans has access to electricity. Since 2005, the share of Uganda’s population with access to electricity has increased from nine per cent to 22 per cent, with the total number of customers having grown from 292 000 to more than 1.1 million over the same period. Bujagali was developed on a BOOT basis by a consortium of AKFED (the Aga Khan Foundation for Economic Development) group companies (Industrial Promotion Services (Kenya) and Jubilee Insurance), CDC UK (the UK’s Development Finance Institution) and SG Bujagali Holdings, an affiliate of Sithe Global Power.

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