Bujagali's tax waiver: Key to lowering Uganda's power

By Paul Busharizi

In 2016, President Yoweri Museveni proposed reducing Uganda’s industrial power tariff to US$0.05 per kilowatt-hour. This pitch came just as the country was emerging from a period of daily load shedding, which had been a persistent challenge for Uganda due to a power supply shortfall.

The situation was compounded by historically high tariffs driven by the costly reliance on thermal power plants up until 2011.

These plants, while necessary at the time, were expensive to operate, making electricity unaffordable for many, especially industrial consumers and costing government hundreds of billions of shillings in subsidies.

Museveni's push for a lower tariff was in response to this backdrop of high energy costs, aiming to provide cheaper, more reliable power for industrial users.

At the time, the analysis of Uganda's energy pricing showed that Bujagali Uganda Ltd (BUL), Umeme (the distributor), and Eskom, which managed the Kiira-Nalubale power complex, were major drivers of the high tariffs.

To meet Museveni's goal of lowering electricity prices for industries, the government took a series of steps, some of which have come to fruition recently.

These included folding the Kiira-Nalubale power complex back into the Uganda Electricity Generation Company Ltd (UEGCL) and ending Umeme’s concession in March.

In addition, the government allowed BUL’s debt to be refinanced, extending the repayment period to lower interest payments, which in turn would reflect in the tariff reduction.

However, a crucial point emerged during this process: BUL had a contract guaranteeing a certain capacity charge, which, despite the refinancing, would keep the tariff high. This was a result of the terms agreed upon when the Bujagali project was developed.

To address this, the government agreed to grant BUL a tax waiver for the duration of the loan, which will run until 2030. According to the Auditor General’s report, the tax relief would allow BUL to charge UETCL 19.58% less for the power generated.

An Electricity Regulatory Authority (ERA) report further pointed out that without this tax waiver, the end-user tariff would increase by 4.7%.

Despite these potential benefits, the Finance Committee in Parliament, during deliberations on the 2025 Income Tax Bill recently, expressed concerns about extending the tax waiver.

They argued that BUL had already recouped much of its investment since the commissioning of the 250 MW dam in 2012 and that previous tax waivers had not led to a significant reduction in the tariff.

The committee’s members also questioned the fairness of continued tax relief for BUL, suggesting that the company was already benefiting from the high tariffs set when the dam was first commissioned.

The BUL concession, which will run until 2042 when the dam is handed over to the government, guarantees that BUL will be paid for the dam’s capacity, whether or not all the generated power is consumed.

This means that while reducing the tariff may seem appealing, doing so would financially harm BUL and could threaten the long-term viability of the investment. Any attempt to lower the tariff would directly impact BUL's revenue and could undermine the initial financial agreements.

Paul Busharizi

Looking back, the Bujagali Hydroelectric Power Station project began in the late 1990s when Uganda was suffering from severe power shortages and frequent load shedding.

The Kiira-Nalubale power complex, which generated just 380 MW, was unable to meet peak demand. AES Nile Power, the initial developer of the Bujagali dam, sought to secure financing for the project by negotiating an increase in end-user tariffs and requesting a Power Purchase Agreement (PPA) that would guarantee they were paid for the power generated, regardless of consumption.

This type of agreement is common in high-risk infrastructure investments, as it assures financiers that their investment will be repaid.

Despite the urgent need for additional power generation, the Bujagali project faced significant opposition, including political resistance and environmental concerns.

The delays caused by these factors, along with a global economic crisis in Argentina, led AES to abandon the project. In the early 2000s, the project was then taken over by a consortium led by the Aga Khan, which successfully completed the dam in 2012.

This marked the end of the daily load shedding that had plagued Uganda for years.

At the time the contracts were signed, Uganda’s economy was still recovering from years of mismanagement and civil unrest.

The country had fewer than 500,000 electricity customers, and there was little investor confidence in the power sector.

The government did not have the financial capacity to develop such a large-scale project, and international lenders like the World Bank were hesitant to provide funding for new power infrastructure.

As a result, the Bujagali project was seen as a necessary and urgent solution to Uganda’s power crisis, even if it meant accepting high tariffs in the short term.

What now seems like an onerous contract—given Uganda’s current economic stability and the increase in electricity customers to over two million—was a lifeline back in 2012.

The government was left with few options to address the power deficit and turned to the private sector for a solution. Today, with the economy stabilizing and new financing options available, the government has greater capacity to negotiate more favourable terms for future power contracts.

Despite the progress in the energy sector, the need for the Bujagali tax waiver remains critical to achieving Museveni's goal of lowering electricity costs. While Parliament’s focus on the estimated UGX 115 billion annual tax loss is valid, it overlooks the broader economic benefits of affordable electricity.

During the height of load shedding in the early 2000s, businesses lost an average of 30 days of production annually—about 2.5 days per month—due to power shortages and the high cost of running diesel generators.

This had far-reaching consequences on Uganda’s overall economic productivity, and affordable power remains a vital tool for furthering Uganda’s economic growth.