The government has started the process of modifying Bujagali Energy Limited’s license for the Bujagali 250MW hydropower dam after it agreed with the lenders to spread the loan repayment period by 10 years.

After negotiations that took more than two years, the government recently agreed with the World Bank’s International Finance Corporation, the lead lender, to spread the payment of the outstanding loan amount of US $402 million to the year 2032.

The Bujagali loans were split into two: the senior loan and the subordinate loan. The senior loan, which formed the largest amount of the entire credit facility, was supposed to be paid back by the year 2023, while the smaller but more expensive subordinate loans were to be serviced by 2027. The new changes mean that government will pay smaller interest payments but in total the amount will be more because of the spread. Due to this, the tariff from Bujagali, which is locked in at $0.11/ kWh and is one of the highest around the region, is expected to reduce in the short term but move up in the longer term.

The impact of this refinancing is expected to be felt in the tariff for the third quarter of this year. At 250MW, the Bujagali dam is currently the biggest power project in Uganda today. The dam accounts for more than a quarter of Uganda’s energy supply.

Reports say the Uganda Electricity Transmission Company Limited, with other government agencies, is amending the Implementation Agreement, the Power Purchase Agreement and the Liquidity Facility Agreement to incorporate the new terms of the financing. The approval of all this paperwork is expected to be done by the end of April 2007. The new amendments will supersede the agreement that was signed in 2007.

The closure of the negotiations brings to an end a long and tedious process for both sides. Tickled with the availability of a large amount of money from China, Uganda, and in particular President Museveni, started getting agitated over the expenses it was incurring from the Bujagali power dam – financial expenses and also in regards to the tariff.

The Bujagali dam, which was enjoying a cool 19 per cent return on investment under a take-or-pay arrangement, became a source of criticism in a number of Museveni’s speeches. It was partly as a result of the pressure from Museveni that Uganda looked to take a haircut on the interest payments on Bujagali. Facing political pressure, one of the shareholders in Bujagali Energy Limited, Sithe Global, looked for a way out.

The company started negotiating with a Norwegian company, SN Power AS, to buy its shares. Our sources say SN Power AS needed a guarantee that it would enjoy the 19 per cent return on equity as Sithe Global, which had been negotiated 10 years ago. Government argued that under the current circumstances, that figure needed to be knocked down to at least 15 per cent or else it would not sanction the Sithe Global-SN Power deal. SN Power declined and its negotiations with Sithe Global were then terminated in January 2017.

The African Development Bank also came up with another suggestion, also in late January 2017. The bank suggested to Uganda’s government that it would float a credit guarantee facility in the form of a $500 million bond. The bond was to be restructured in such a way that it would be repaid in 15 years. The bond holders were to be paid using revenue generated from the Bujagali dam. This suggestion was not sanctioned because the interest payments on the bond were higher than what government desired. In the end, the government was left with the option of offering a waiver of a 30 per cent corporation tax for Bujagali Energy Limited in exchange for a spread in the payment of the loan.

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President Yoweri Museveni has implored foreign investors to help Africa explore its vast resources potential, saying the continent presented immense business opportunities.
“There is a lot of sleeping in Africa. You find people who should know but instead don’t know,” said Museveni. “And also there has been sleeping in the West, they don’t care about what potential is in Africa.”
The President made the remarks at State House Entebbe as he witnessed the signing of the Project Framework Agreement between the government and the Albertine Graben Refinery Consortium (AGRC).
The agreement will ensure development, design, financing, construction, operation and maintenance of the oil refinery in Hoima District.
President Museveni said unlike China which seems to understand Africa’s potential and has been active in doing business with Africa, Western companies have been reluctant in taking up projects and investing in the continent.
“Africa is going to be a huge power house in terms of business,” said the President, who noted that African leaders and the NRM government in particular have resolved some of the obstacles to doing business like fragmented markets and confiscation of private companies by past regimes.
While congratulating the parties to the agreement, President Museveni said the composition of the AGRC showed that Western companies were also waking up to realise Africa’s potential.
“Africa and the West share a lot of history together and there is a need for them to use these past linkages to further economic business,” said the President.
The AGRC comprises YAATRA Africa (Mauritius), Lionworks Group Limited (Mauritius), Nuovo Pignone International SRL (a General Electric Company located in Italy) and SAIPEM SPA (Italy).
Uganda is represented in the consortium by the Uganda National Oil Company (UNOC), which is a limited liability petroleum company owned by the government.
The signing of the PFA means pre-Final Investment Decision (FID) activities like Front End Engineering and Design (FEED), Project Capital and Investment Costs Estimation (PCE), Environmental and Social Impact Assessments (ESIA) can commence.
Under this agreement, AGRC will be responsible for funding the pre-FID activities listed above and will also proceed to construct and operate the refinery.
The consortium has also been tasked to ensure Ugandans get jobs and skills out of the project.
The refinery, which will be developed as a commercial undertaking with focus on the regional market, will supply products like kerosene, petrol, diesel, heavy fuel oils, among others.
The refinery will have a refining capacity of 60,000 barrels per day, relying on crude oil from Uganda.
The entire project will be implemented by a Special Purpose Company, the Refinery Company, that will be incorporated by the private investors and the Uganda Refinery Holding Company, which is a subsidiary of the Uganda National Oil Company.
Uganda is estimated to have 6.5 billion barrels of oil deposits with an estimate of 1.4-1.7 billion barrels recoverable.
The Energy Minister, Eng. Irene Muloni, said the signing ceremony marked the end of the selection process that commenced in January 2017.
She said her ministry had done extensive consultations before arriving at who to assign the project, estimated to cost between $3-4 billion.
Eng Muloni saluted President Museveni for the guidance provided throughout the entire process.
In her remarks, Dr Josephine Wapakhabulo, the Chief Executive Officer, of the Uganda National Oil Company, said the development of the refinery will trigger a number of other investments in the energy-based industries, contributing to economic development and attainment of middle income status.
She added that the refinery will grow UNOC’s business portfolio and help unlock other planned investments at the Kabaale Industrial Park.
The Italian Ambassador, Domenico Fornara, commended President Museveni for his counsel, saying the project would enhance Uganda-Italy business relations.
Ambassador Deborah Malac of the US, congratulated the government upon conclusion of the selection process, saying she hoped more business opportunities would emerge for American companies after this project

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Canada’s M2 Cobalt has appointed a top deal maker of mergers and acquisitions as the company prepares for what could be an aggressive foray into Uganda’s cobalt industry, the company said in a statement to the media.
The company said the appointment of Mahendra Naik as an advisor to its board of directors “brings a wealth of expertise in helping to grow junior resource companies into world players.” According to his profile, Naik is a Chartered Professional Accountant and was one of the founding directors and key executives for IAMGOLD Corporation, a listed gold mining company with a market capitalization of $3 billion.

As chief financial officer for IAMGOLD, Naik is said to have put together US$550m in major debt and equity financings in the 1990s. He is said to understand Africa’s mining industry quite well. The appointment of Naik comes right after M2 Cobalt embarked on its exploration programme for cobalt in Bujagali in eastern Uganda and in Kilembe in the western after assembling teams at its mining sites.

Among other activities, M2 Cobalt also launched aerial drone surveys over its mining sites, with a high resolution magnetic and electromagnetic airborne survey planned for its Kilembe property. In a company statement, Dean Besserer, the technical advisor and manager of the exploration program, is quoted saying: “This is an exciting time for M2 Cobalt as the next phase of exploration commences.
Uganda is vastly under-explored, and the Company has designed a comprehensive exploration program within its very large land package… Some of our licenses are very close to, and are on trend with, the former producing Kilembe mine which was historically a significant producer of high-grade copper and cobalt.”
In January, M2 Cobalt Corp. completed the acquisition of seven exploration licenses that span 1,564 square kilometers for a cash consideration of $1.1 million and some shares. The money, on top of some shares in the company, was given to the earlier shareholders of the mining licenses, who are listed as 1126302 B.C. Ltd.

Five of these licenses are in the Bujagali property and stretch 1,371 square kilometers, while the other two are in Kilembe, totaling 193 square kilometers. In coming to Uganda, M2 Cobalt will try to achieve what Kasese Cobalt Company Limited failed to do – to turn cobalt resources into the lucrative mineral that it is.

Kasese Cobalt Company Limited collapsed after a drop in prices on the international market and the depletion of copper tailings from the neighbouring Kilembe Mines Limited. The increasing popularity of electric cars and electronics has turned around the fortunes of cobalt, with demand expected to jump 40 per cent in 2018.

Apple is now trying to skirt the bloody hotspots of DR Congo, one of the main producers of the mineral, to get the cobalt directly from certified miners. BWW and Volkswagen are said to be increasing their budgets for the purchase of cobalt. The Economist magazine recently reported that “each new electric vehicle uses about 10kg of cobalt.” A tonne of cobalt now goes for just over $85,000, up from $30,000 a decade back.

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