Bujagali Energy Ltd in Uganda seeks to raise US $500 million in a refinancing plan. The Ugandan power generating company’s plan will see it lower electricity tariffs at a time when the government is struggling to increase access to power.
Sourcing of the new 15-year debt will be from the international market. The money will be used to settle current existing short term debt. These heavy repayments have forced Bujagali to price its electricity higher than other sources.
44 per cent of the country’s electricity comes from the 250MW project. However it constitutes 65% of the power generation cost.
According to a report by World Bank’s investment arm, The total amount of funds required to refinance it is US$500 million. That is the total cost of refinancing Bujagali’s existing loans and to fund costs associated both with the prepayment of existing loans and the refinancing.
IFC has agreed to help the company to raise the remaining US $340 million from other international lenders. Meanwhile it has already lent the company US $160 million.
Refinancing will lengthen the tenure of the company’s existing loans. Therefore this will reduce the amount of annual debt service. In turn this will lower the project’s tariff under the power purchase agreement with Uganda Electricity Transmission Company. Making electricity in Uganda more affordable.
According to IFC it will give US $100 million under a classification of Loan A and $60 million as Loan B. This means it has the option of selling the $60 million debt to other players in the market . It has also offered to shield the project from future movement. This will be done in the price of loans in what is referred to as interest rate hedging.
Bujagali has been under pressure to lower its power prices. On the other hand the government pushes to increase electricity connections in the country. Unfortunately the connections are so low resulting in unused supply.
The government wants to reduce power from Bujagali to US $0.05. However power from the Bujagali operated dam costs US$0.1152.