Benon Herbert Oluka
1 May 2007
Nairobi — The World Bank has approved $360 million in loans and guarantees for Uganda's Bujagali Hydropower Project. This finally paves the way for the start of construction of the 250-megawatt plant that is expected to be commissioned in 2011.
The Bujagali project, which stalled in 2003 after the World Bank pulled out just before start of construction citing environmental and procurement concerns, is a vital component of Uganda's strategy to close an energy supply gap that has cost the economy nearly two per cent in growth.
A statement from The World Bank's head office in Washington said the Bujagali Hydropower Project had undergone extensive economic, environmental, and social due diligence, and had satisfied all the conditions set.
According to the Bank's assessment, Bujagali provides the most viable option for Uganda as the additional electricity it will generate will increase the supply to the national grid at the lowest cost than other options under the country's energy sector strategy.
"Uganda's workforce is expected to double over the next 15 years, making the creation of jobs through expanded industry, tourism, and commercial services critical," the World Bank Country Director for Uganda and Tanzania, Ms Judy O'Connor, said in the statement announcing the approval.
These sectors are energy intensive and will, therefore, rely on consistent, affordable, and expanding power supply. Bujagali is an important step towards realising the needed level and quality of supply," she added.
The Bujagali project is estimated to cost $799 million. Of this, the World Bank's support will comprise $130 million in loans to the private project company, Bujagali Energy Ltd. (Bel) from the International Finance Corporation (IFC), the private sector arm of the Bank.
"IFC's investment in Bujagali Energy Limited is an important element in Uganda's strategy to develop a reliable and accessible electricity sector, which is critical for the country's economic growth and development," IFC's Director of Infrastructure, Rashad Kaldany, said.
The project will relieve power shortages and substantially reduce the need for more expensive thermal power," he added.
Bel, which is a joint venture between the Industrial Promotion Services Ltd (IPS) of Kenya and the US-based Sithe Global Power, LLC, will also receive a partial risk guarantee of up to $115 million from the International Development Association for the benefit of the project's commercial lenders; and an investment guarantee of up to $115 million from the Multilateral Investment Guarantee Agency, the Bank's political risk mitigator.
"We believe that by investing in this project and supporting the development of the Bujagali hydropower plant, the World Bank is working with Uganda to address its urgent energy needs and bridge a critical gap that will help the country meet its economic growth and poverty reduction goals," said the World Bank Country Manager for Uganda, Ms. Grace Yabrudy, in another statement released last week.
The statement further notes that the Bujagali Hydropower Project is just one element of the World Bank's support for Uganda's energy sector strategy.
The second most significant element is the Power Sector Development Operation ($300 million), which was separately approved by the Bank last week. This has been earmarked to provide funding for a set of investments and policy measures designed to reduce the supply-demand gap until the Bujagali hydropower plant comes online.
Further support is also provided through three on-going projects: the Power IV investment project ($62 million) supporting improved power supply and government capacity to manage sector reform; the Energy for Rural Transformation Project ($50 million), which supports the development of rural areas' access to renewable electricity; and $40 million in investment guarantees for an electricity distribution company.
Uganda has suffered a crippling power crisis that has reduced the country's hydropower generation capacity from an installed capacity of 380 megawatts to 120 megawatts.
In the face of this crisis, the Uganda government resorted to generating additional power - as it scouted for sustainable long term solutions - from thermal stations funded by a $57 million Energy Fund, which was created this financial year.
Bujagali is itself seen as one element of a medium term solution to the energy crisis. Already, the government has earmarked other energy generation projects along the River Nile to form part of a long term strategy that will see Uganda invest an additional $4.4 billion in the energy sector by 2025.
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