5 October 2017

Uganda: Now Bujagali Seeking U.S.$500 Million in Fresh Debt

Ugandan power generating company Bujagali Energy Ltd, plans to raise $500 million in a refinancing plan that will see it lower electricity tariffs at a time when the government is struggling to increase access to power.

The new 15-year debt will be sourced from the international market and used to settle current existing short-term debt whose heavy repayments have forced Bujagali to price its electricity higher than other sources.

The 250MW project generates 44 per cent of the country's electricity, but constitutes 65 per cent of the power generation cost.

"The total amount of funds required to refinance Bujagali's existing loans and to fund costs associated both with the prepayment of existing loans and the refinancing, is estimated at $500 million," reads a report by World Bank's investment arm, International Finance Corporation.

IFC has already agreed to lend the company $160 million and help it to raise the remaining $340 million from other international lenders.

"The refinancing will lengthen the tenure of the company's existing loans and therefore reduce the amount of annual debt service and, in turn, lower the project's tariff under the power purchase agreement with Uganda Electricity Transmission Company. This will make the electricity in Uganda more affordable" reads a disclosure note by IFC.

Loan classification

IFC said it would give $100 million under a classification of Loan A and $60 million as Loan B. This means IFC has the option of selling the $60 million debt to other players in the market including commercial banks.

IFC has also offered to shield the project from future movement in the price of loans in what is commonly referred to as interest rate hedging.

Bujagali has been under pressure to lower its power prices as the government pushes to increase electricity connections in the country which is so low resulting in unused supply.

Power from the Bujagali operated dam costs $0.1152 per kilowatt-hour but the government wants to reduce it to $0.05.

Only an estimated 15 per cent of Ugandans have access to electricity.

The government is also banking on cheaper electricity to spur its manufacturing sector.

The 250MW project was commissioned in 2012 with government projections then indicating power demand would grow by 15 per cent annually, a feat that has not been achieved.

The high cost of connection has been singled out as a key deterrent. The government is planning free connections for households close to power lines.

The $1.2 billion debt sourced for the project has a repayment period of 12 years with four years having lapsed. Initial debt for Bujagali was disbursed at a time of the global financial crisis and Uganda credit rating was lower than the present B+, resulting to the higher pricing.

Improvement of the global debt market and higher national credit rating for Uganda stirred the push for lower interest payments.

Ugandan parliament had turned down a request by Bujagali shareholders for an extension of corporate tax relief from five years to 15 years to allow them to cut the price of electricity, forcing them to turn to debt restructuring.


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