At the end of July Total energies announced it had acquired SN Power, subsidiary of a Norwegian renewable energy company Scatec. In so doing it acquired SN Power’s 28.3 percent stake in the 250 MW Bujagali Hydropower plant.
SN Power acquired a 65 percent stake in Bujagali in 2018
from US private equity firm Sithe Global for a $277m (sh1 trillion), valuing
the project at just over $400m at the time.
According to people who are familiar with the project,
Bujagali’s value stands at just over $600m today or about sh2.3trillion.
"Bujagali is a particularly lucrative project because
according to their power purchase agreement, which was signed off before it
development started in 2008, it provides that they are paid for the capacity of
the dam rather than for power generated...
So if we have no demand for their power, we pay for the
unused power regardless.
On the surface of it, an unfair arrangement but was the kind
of agreement needed to unlock the billion dollars required to develop the
project at the time. International financiers require incredible guarantees to
invest in places like Uganda which they see as carrying too much risk, be it
economic, political or geopolitical.
It helps that a project like Bujagali has proved incredibly
lucrative for its investors and may shift perspectives surrounding the risk of
investing in Uganda.
I would not hold my breath for that though.
We may tear our hair out at the “unfairness” of the
situation but that is the way the world goes around you either take it or leave
it.
Leaving it, would
have stifled our growth over the last decade and who knows where we would be
today.
"Before the commissioning of the Bujagali dam we were
suffering daily load shedding, a World Bank report commissioned around that
time estimated that businesses were losing at least 30 whole days of
productivity due to power outages...
What is true of course is that those “unfair” conditions do
not come up when they are investing in their home countries.
For one they will be borrowing in their local currency and billing
their power in those same currencies. So exchange risk is not an issue.
In 2012 when Bujagali was commissioned, the average dollar
rate that year was about Shs2,510, today its about sh3,750 or that the owners
of Bujagali are paying their financiers today almost 50 percent more than they
were paying for every dollar in 2012.
And that is just exchange risk. When you look at our
economics and politics from the outside, the universal metrics of stability and
continuity don’t apply.
So the best thing we can do is to have local investors who
have a more nuanced view of our risks and know how to mitigate against them to
finance such major but critical projects.
It is the difference between Aliko Dangote building the world’s
biggest refinery in Nigeria and our own refinery whose financing has been up in
the air ever since it was conceived.
In Uganda thankfully we have National Social Security Fund
(NSSF) the biggest financial institution wholly owned by us.
With three quarters of its portfolio committed to fixed
income assets – mostly government paper, running NSSF profitably seems like a
no brainer.
NSSF has always argued that because they are dealing with
people’s retirement savings, they do not have the luxury of going after risky
projects. Given the way the Fund’s other parts of the portfolio – equities and
real estate, are struggling, the smart thing may have been to just pour
everything into government securities.
But prizing a share of Bujagali for ourselves would fit
nicely into that near-no-risk.
To begin with the Power Purchase Agreement (PPA) guarantees
payment whether Ugandans consume that power or not. This coupled with the high
tariff of $0.083 would have NSSF laughing all the way to the bank. As if that
is not enough over the 12 year duration of the concession, BUL has being paying
out 90 percent of revenues in dividends.
But also given that the concession is still on until 2042 and yet local demand is doubling every nine years, this is as good a deal as government paper...
To whom much is given much should be expected.
NSSF needs to get first bite of the cherry at such lucrative
deals. It will be good for its investors but will also give the country a
better negotiating position when at the table with foreign investors. The Fund
will also benfit much in terms of improved technical capacity when it moves
more determinedly into such mega deals
for which its is the best suited in our current circumstances.
