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Bujagali dam to raise power costs

By Vision Reporter

Added 25th September 2009 03:00 AM

THE 250 megawatt hydroelectric power station being constructed at Bujagali will not lower electricity tariffs, according to an energy ministry document.

THE 250 megawatt hydroelectric power station being constructed at Bujagali will not lower electricity tariffs, according to an energy ministry document.

By Vision reporter

THE 250 megawatt hydroelectric power station being constructed at Bujagali will not lower electricity tariffs, according to an energy ministry document.

Experts also said the $860m project on the Nile River will be among the most expensive hydropower plants in the world. This will inevitably lead to higher electricity prices.

The document quotes from a World Bank review of the power sector, advising that the tariffs be increased by 5% this year and by a similar percentage next year to avoid shocking Ugandans with a sharp hike in the price when the Bujagali dam is completed.

“Tariffs should be adjusted further on Bujagali commissioning so as to meet the annual sector revenue requirements in 2011 and 2012,” the energy ministry document quoted the World Bank as saying.

“The first two small adjustments will avoid larger increases that will otherwise be necessary when Bujagali comes on the line.

The Government should also consider linking movements in the international oil price to electricity tariffs.”

The study contradicts the assertion by Bujagali Energy Limited (BEL), the project sponsors, that power tariffs would drop to an average of $6 cents per unit once Bujagali becomes operational, compared to the current tariff of $24 cents.
Following the World Bank’s proposal of an annual increment of 5%, it means Ugandans will be paying $26.4 cents by the time the project is commissioned in 2012.

The project cost went up from the original budget of $500m to $860m, with indications that it may hit the $1b mark as a result of high interest rates and other factors.

The interest rate for the Bujagali power project loans is determined by the London Inter-bank Offered Rate. Experts say the cost of hydropower construction per mega watt usually ranges between $1m and $1.5m. However, at $860m, Bujagali’s construction cost will be $3.4m per megawatt.

Some of the most expensive power plants built or under construction include the Chinese Three Gorges power project with a capacity of 18,000 MW at $1.3m per megawatt. The controversial Ilisu hydroelectric dam being built in Turkey will cost $1.6b but will generate 1,200MW of electricity. This means an average cost per megawatt of $1.3m.

Nearer to home, in Sudan, the 1,200MW Merowe dam on the Blue Nile, commissioned in March this year, cost only $760m while the Gilgel Gibe II hydropower station in Ethiopia with a capacity of 420MW was built at $600m.

When contacted, energy minister Hilary Onek described Bujagali as a bad project.

“There were mistakes in the Bujagali project,” Onek said.

“It is a bad project, over-delayed, and over priced. If I had been there (as minister of energy), I would not have allowed poor negotiations for this project.”

He vowed he would not accept the same procurement mistakes to be made again. “Uganda is not a rich country and we have no money to dump like that.”
Efforts to get a comment from BEL were fruitless. Kenneth Kaheru, the BEL, deputy manager, did not respond to the questions sent to him by e-mail as he requested.

In earlier comments, the developers had said the project cost shot up because some areas in the site had no rocks. This meant spending more money to ferry and compact rocks to build a strong foundation. They also said the increased fuel prices on the international market pushed up the cost.

But other sources said the additional works should not have pushed the overall project cost so substantially since they were catered for under contingent fees in the project finance.

To cover the increased cost and sustain the loan repayment, the developers have already adjusted the tariff from $6 cents to $13 cents when the plant is commissioned.

Bujagali is being constructed on a Build Own Operate Transfer (BOOT) scheme, where the developers will run the plant for 30 years before reverting it to the Government.

The World Bank Group through its agencies is the lead project lender. Other funders include the African Development Bank and the European Investment Bank, while the rest comes from commercial banks and donors.

Bujagali dam to raise power costs

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