Bujagali asks for longer tax waiver

Power prices could rise if the one-year tax waiver granted to Bujagali Energy Limited is not extended, an official at the hydropower producer has warned.

Speaking in Jinja on Thursday at the launch of Bujagali’s 10th anniversary celebrations, Ms Josephine Ossiya, the chief financial officer, said the tax cost would be passed on to end-users if the waiver was not renewed. 

“The tax waivers do not benefit Bujagali,” she said. “It benefits the government. The government needs waivers to keep the tariffs down because the government’s contribution to the loan repayment is in the form of the waiver.”

In May, Parliament rejected an Executive proposal for another five-year income tax holiday to the Bujagali power project. MPs on the parliamentary Committee on Finance argued that the previous 15-year tax holiday to the project had not seen a significant reduction in power costs.

Bujagali Dam which is the largest power plant in the country with a capacity to generate 250MW, was inaugurated in October 2012. The Aga Khan Fund for Economic Development is a major shareholder in the power plant.

Government is left with 10 years to repay the billion-dollar loan used to build the dam. The loan was initially meant to be repaid by 2023 but was refinanced and extended for another 14 years to keep end-user power tariffs low. The dam is scheduled to be handed over to the government in 2042.

Ms Ossiya said Bujagali is paid for how much power it can produce, not how much it produces, according to the contract with the government.

She said payments include money to repay the debt (both principal and interest), return of equity to shareholders, money for operating and maintaining the plant, and taxes.

“Lender said that as the government’s contribution to this whole process of refinancing, they give the waiver so that they (lenders) remove it from part of the money we are supposed to pay. Now we are saying if the waiver is not given, we shall pay the taxes but it is going to affect the tariffs,” Ms Ossiya said.

Government’s proposal to Parliament to extend the tax waiver period sought to amend Section 21 of the Income Tax Act to lengthen tax exemption for Bujagali Hydro Power Project from July 1 to June 30, 2027.

The amendment would reduce the average electricity tariff of the Bujagali Hydro Power project by 47 percent from the US cents 10.62 per kWh. 

The five-year tax holiday granted to Bujagali from July 1, 2017, to June 30, reduced the project power tariff from an average US cent 13.83 per kWh to US cents 10.62 per kWh. When the waiver ends next year, the government will have to pay US cents 13.83KwH which Ms Ossiya said will affect the end-user. 

Whereas the plant is supposed to generate 250MWs, the dam is currently generating 200MW from the four units. Operations manager Benjamin Kafuuma told journalists on Thursday during a tour of the power plant that one unit is still undergoing annual maintenance.

However, at the time of tour, the plant was dispatching only 148.9MWs to the Uganda Electricity Transmission Company limited (UETCL).

“We do not dispatch all the power generated on a daily basis during wet seasons because other plants which are not on large water sources are producing power. However, during the dry season, we dispatch more power because those small dams dry out,” Mr Kafuuma said.

The plant’s general manager, Alaister McDougall said the plant has provided uninterrupted power supply to the national grid since 2012, eliminated load shedding and replaced expensive thermal power with cheaper renewable hydroelectricity.

“In the first 12 months of Bujagali operations, GDP growth increased by 76 percent and part of that growth is attributed to the existence of reliable electricity,” Mr McDougall said.