THE BUJAGALI TAX WAIVER

 Almost a decade ago in 2016 President Yoweri Museveni made it known that he wanted the power tariff to be charged to big industrial concerns to be not more than US5cents.

At the time the biggest drivers of the tariff were Bujgali Uganda Ltd (BUL), distributor Umeme and South African firm Eskom, which had the concession to run the Kiira-Nalubale power complex.

Folding Kiira-Nalubale into the Uganda Electricity Generation Company Ltd (UEGCL) last year and the end of the Umeme Concession in March were in aid of Museveni’s wish.

In addition, government allowed a refinancing of BUL’s debt, extending the repayment period so the interest payments can be lower, with the savings reflected in the tariff.

But it was also established that because in the contract BUL was guaranteed a certain capacity charge, to lower what BUL charged,  government committed to giving Bujagali a tax waiver for the duration of the loan, whose tenure comes to an end in 2030.

"According to the Auditor General’s report, which parliament commissioned last year, with the tax relief BUL would charge UETCL 19.58 percent less for power generated. An Electricity Regulatory Authority (ERA) report pointed out that without the tax waiver end user tariff would increase by 4.7 percent...

Parliament’s Finance Committee while deliberating the Income Tax Bill 2025, however think that BUL should not have an extension of the waiver, which ends in June, arguing that BUL have been overcharging consumers since their 250 MW dam was commissioned in 2012, have redeemed much of their investment already and that previous tax waivers have not caused an appreciable reduction in the tariff.

This means that if government wanted to lower the tariff, it would cost BUL money and threaten the viability of the concession which runs out in 2042.

But first let us go back to the beginning of Bujagali and why it produces the priciest power in Uganda. At the end of the 1990s American firm AES Nile Power started the process of trying to develop the Bujagali dam. The country was in the throes of frequent loadshedding, as the Kiira-Nalubale power complex’s 380 MW was below peak demand.

The novelty of the investment in Uganda attracted political opposition and unfair sniping from the environmental lobby, delaying development and AES run out of time and surrendered the project.

A consortium fronted by the Aga Khan took over the project and the dam was commissioned in 2012 putting an end to the daily loadshedding we had become accustomed to.

A lot of the contracts in the power sector were negotiated at time of uncertainty. There were barely 500,000 customers when Bujagali came on line, the economy was still recovering from years of mismanagement and civil war and no one else wanted to commit the nearly $900m needed to develop Bujagali. The government did not have the money to do it and traditional lenders like the World Bank did not think Uganda needed an additional 250 MW...

During intense conversations to renegotiate the BUL concession a decade ago, when Museveni first started pushing for the US5cents tariff, several options were explored including buying out BUL totally, but this option would not have the desired effect of lowering the tariff, in fact quite the contrary. Hence the tax waiver.

The bottom line is that the tax waiver is still required to achieve our goal of cheaper power for Uganda. We forget the ripple effect affordable and available power has on the general economy, which it can be argued far outstrip the tax losses.

At the height of the loadshedding in the early 2000s it was estimated that businessmen were losing at least 30 days of production annually. This was an average, the reality was much worse and included the increased cost of running diesel generators to do business.