Dear Compatriot Karoli,
Thank you for this piece on Bujagali.
I am sad to admit that the relevant Minister of Energy has always seemed to me to be some baffoon of a woman who has no clue about the issues of Energy. She, like Specioza Kazibwe, is just there as Museveni's flower girl.
I hope Specioza Kazibwe got some money from the Arab man she was always sleeping with.
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Leave Bujagali debate to the next govt
By Karoli Ssemogerere August 21, 2003
AES Nile Power eventually have packed their bags and written off a $ 75 million project. The Power Purchase Agreement (PPA) signed with the government of Uganda is dead. All figures associated with the $ 550 million Bujagali dam are a post-mortem fact.
The PPA was never published in the press; the source of primary information, and possibly some of it could legitimately be covered by legitimate business interest confidentiality.
Some matters however, never really caught on in Uganda’s long-term economic strategy and are more pertinent today as we re-evaluate the efficacy of the donor-driven economy after 15 years of donor-driven economic growth, structural re-adjustment, and open-ended liberalisation of the economy.
The first is the domestic component financing to reduce the level of debt eventually taken on as “sovereign debt” by the Republic of Uganda or “floating guarantees” that would crystallize into “sovereign debt” upon the occurrence of any trigger event. This is often the meat of drafting of several contracts.
Risk investment guarantees are often shared with multi-lateral institutions as well as insurance companies, which often offer a performance bond once the contract starts.
Risk is measured in several terms; the political risk associated with investing in politically volatile countries is a material fact when you start arming new paramilitaries without enabling legislation less than two hundred miles away in Teso.
Political risk also computes the ability of organised political institutions, including environmentalists to scuttle, or increase the costs of a contract.
In Uganda, unless proven otherwise, we have a pliant Parliament to rubberstamp the executive’s bidding.
Economic risk covers a variety of areas, principally currency risk normally associated with depreciation of the value of domestic currency, inflation that would affect the overall value of the investment and its product.
In Uganda, this has ably been resolved by removing currency control regulations requiring all domestic transactions to be priced in local currency. The cost of inputs, price of output measured in kilowatt hours, cost of labor (expatriates included) is priced in United States of America dollars to mitigate the currency risk.
Many countries with broken economies will never have their currencies rated because such ratings carry immense responsibilities and costs. International debt is monitored, through default risk including both short term and medium ability to pay.
In Uganda, we have realized that debt relief under the Highly Indebted Poor Countries initiative was tokenism that made our overall long-term debt forecasts slightly more manageable. Until you replace borrowing as a source of consumption, and recurrent expenditure, you can only promise yourself long-term economic grief and systemic risk.
Countries like Zimbabwe, Argentina and Indonesia are all the wiser for it.
Ability to pay eventually is used to price the contract, and its attendant interest rates. Save for the Shs 20 billion or $ 10 million, the Uganda government wanted to borrow from a soon-to-be divested National Social Security Fund, (NSSF), there was little Uganda was drawing from her savings account to finance this mortgage in the form of a down payment.
Save for taxes, that are guaranteed to rise as churchmen withhold from their parishioners tithes, evidence of ability to pay to pay is weak. As of now, we know that the World Bank had committed itself to $ 225 million in loans, and guarantees to AES, that is in now a global tailspin having run into significant financing problems at its United Kingdom, India and China affiliates. The interest rates on the World Bank guarantees are not disclosed.
Neither is the repayment term. There was a brief controversy a few years ago on the pricing of the kilowatt hour, which is the final bread and butter determining how much Ugandan consumers would have to pay for power produced in Bujagali.
At that time, Ugandan power was significantly more expensive than in other countries that rely on hydroelectric power, “the clean fuel” including South Africa, Zimbabwe and Mozambique.
The counterpart risk taken on by the international partners, AES, International Finance Corporation and it now appears the American government, given the very strong remarks attributed to US Ambassador Jimmy Kolker, which were far more detailed than those we could squeeze out of the duo of Energy ministers Syda Bbumba and Daudi Migereko while Parliament was in session is misty at best.
The initial PPA never provided for cheaper electricity being able to be produced at lower unit cost, an economies of scale issue. Bujagali’s single advantage was its proximity to the core of the national/regional distribution grid a few miles from Jinja.
Yet as we know areas with minimal coverage including the vast northern region, and West Nile are miles away from Bujagali, and may benefit from regionally located projects. Future administrations, God Bless the Third Term, will face the very political question of deciding to default on a 30-50 year long term commitment facing the wrath of a Bretton Woods institution, if the retail price of electricity eventually shows up just like the weekly phone service charge, as a stumbling block to Uganda’s competitiveness in the international market.
Landlocked and energy poor countries like Uganda start off the competitiveness debate at a significant disadvantage. The cost of exports is doubled by the overland component.
The cost of primary energy like petroleum products is doubled or tripled by taxes and the transportation component. The least we can afford is a strategically uncompetitive economy where comparative advantage is premised on zero labour component solutions like agriculture that flourishes because we underpay the peasant.
After 15 years of record economic growth, Uganda would be drawing from her reserves to make a substantial down payment on Bujagali. Until oil shows up, by which time, we will all be up in arms with Arrow militias guarding blocks of houses, Bujagali is a delay we can all afford. Introducing a new $ 500 million-plus debt into our national finances, under the stewardship of political and economic managers who have not passed the integrity test, may not be a wise decision.
Let this decision be made by the next government, with a fresh mandate and new strategic ideas.
The writer is a Ugandan working in Washington, D.C.
© 2003 The Monitor Publications
Mitayo Potosi
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