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UGANDA:
Bujagali Hydropower
Project
A CASE STUDY ON RISK
MITIGATION THROUGH
PPP STRUCTURING
November 15, 2011
2
Bujagali Project Brief
• 250 MW hydropower project to double Uganda’s generation capacity
• US$900 million non-recourse/largest IPP project financing in SSA
• US$700 million long-term debt:
16-year facility from EIB, AfDB, DEG & IDA PROG Covered:
Barclays/Absa & Standard Charted
20-year facility from IFC, Proparco & FMO
• US$180 million private equity (Blackstone & Aga Khan Foundation) &
US$20 million public equity investment
cont…
3
Bujagali Project Brief
• 30 year BOT concession with availability-based PPA - full & capped
pass-through elements within PPA tariff
• Comprehensive government guarantees of the obligations of
government agencies within the concession arrangements
• Multi-competency government team negotiated the deal with the
private sector and DFI lenders
…cont.
4
Uganda’s Project Crisis in 2005
• Installed capacity 380 MW, effective output 120 MW and peak demand 260 MW -
40% power shortage
• Nearly 100% hydro-power system – subject to river hydrology variations and
regional drought risks
• Power shortage addressed through 100 MW expensive emergency power with an
additional 50 MW on tap - short-term fix at best
• Power sector in a weak operational and financial state – only 55% of the
electricity generated is commercialized
• Average retail electricity tariffs doubled to 17 ¢/kWh despite a large annual
tariff subsidy by the government
• Unsustainable economic trend if the country is to continue have rapid economic
development and attract foreign direct investments
Are there similarities to the current Nigerian power sector?
5
Similarities between 2005 Ugandan
& Current Nigerian Power Sectors
Uganda Nigeria
Regulatory Risk High High
Operational Strength of Sector Weak Weak
Sustainability of Power Tariffs Weak Weak
Unmet Electricity Demand Very High Very High
Level of Investments Low Low
Hydrology (Uganda)/Gas (Nigeria) Risk High High
Fuel Risk Diversification None None
Implementation (Largely Political) Risk High High
Private Sector Equity Interest Low Moderate
Commercial Bank Lender Interest None Moderate
Government Commitment High High
World Bank Group & DFI Commitment High High
6
Similarities between 2005 Ugandan
& Current Nigerian Power Sectors
Uganda Nigeria
Unmet Electricity Demand Very High Very High
Regulatory Risk High High
Hydrology (Uganda)/Gas (Nigeria) Risk High High
Implementation (Largely Political) Risk High High
Government Commitment High High
World Bank Group & DFI Commitment High High
Private Sector Equity Interest Low Moderate
Commercial Bank Lender Interest None Moderate
Level of Investments Low Low
Operational Strength of Sector Weak Weak
Sustainability of Power Tariffs Weak Weak
Fuel Risk Diversification None None
7
Uganda’s Privatized Power Sector Structure in 2005
Electricity Regulatory Authority
Electricity Regulatory
Authority
Uganda Electricity
Generation Company
Nalubaale & Kira Stations
Concessioning
Private Generation IPP
(Aggreko, others)
Electricity Regulatory
Authority
Uganda Electricity
Transmission Company
Transmission operator
System operator
Single buyer
Electricity Regulatory
Authority
Uganda Electricity
Distribution Company
Generation Sector
Distribution & Supply
Concession (UMEME)
Transmission Sector Distribution Sector
C
U
S
T
O
M
E
R
S
8
Bujagali – PPT Contractual Structure
Blackstone
Aga Khan Foundation
GOU
Commercial Lenders:
(Barclays/Standard Bank)
DFI Lenders:
(IFC, EIB, AFDB, Proparco, DEG,
FMO, KfW)
IDA PRG
BUJAGALI ENERGY Ltd
Operator:
(Union Fenosa)
EPC Contractor:
Salini/Alstom
Offtaker:
UETCL
GOU Guarantee
(market risk, hydrology, FX,
Political risk, subsurface)
EPC O&M
PPA
MIGA
GOU Guarantee
9
Broad PPP Remedies Sought by Uganda to Mitigate Risks
Risks Approach
Regulatory RiskHigh level of sustained commitment by
Government to sector reform, privatization
and independent regulationsOperational Strength of Sector
Sustainability of Power Tariffs
Unmet Electricity Demand Transparent and politically acceptable
decision on next priority investmentLevel of Investments
Hydrology (Uganda)/Gas (Nigeria) RiskComprehensive & unambiguous Government
underwriting of certain risks which cannot
be borne by the private sectorFuel Risk Diversification
Implementation (Largely Political) Risk
Private Sector Equity Interest (a) Clear, inclusive & transparent decision
making by Government,
(b) concession & contractual structures that
have been successfully implemented
before, and
(c) equitable risk allocation to all stake-
holders
Commercial Bank Lender Interest
Government Commitment
World Bank Group & DFI Commitment
10
Broad PPP Remedies Sought by Uganda to Mitigate Risks
Risks Approach
Regulatory RiskHigh level of sustained commitment by
Government to sector reform, privatization and
independent regulationsOperational Strength of Sector
Sustainability of Power Tariffs
Unmet Electricity Demand Transparent and politically acceptable decision on
next priority investmentLevel of Investments
Hydrology (Uganda)/Gas (Nigeria) RiskComprehensive & unambiguous Government
underwriting of certain risks which cannot be
borne by the private sectorFuel Risk Diversification
Implementation (Largely Political) Risk
Private Sector Equity Interest(a) Clear, inclusive & transparent decision making
by Government,
(b) concession & contractual structures that have
been successfully implemented before, and
(c) equitable risk allocation to all stake-holders
Commercial Bank Lender Interest
Government Commitment
World Bank Group & DFI Commitment
1. Clear & Practical Policies
2. Sector & Regulatory Framework
3. Sustained Application of Regulations
4. Fuel Supply/ Hydrology
5. Power Off-Taker & Demand
8. Procurement &Construction
9. Operations & Maintenance
7. Financing of Investments
10. Long-Term Implementation
6. Bankability
11
Evolution of Risk Apportioning in PPP
Public
Pri
vate
12
Bujagali: Contractual Structure
O & M contractor:
Union Fenosa
EPC Contractor:
Salini/Alstom
UETCL
GoU
Guarantee
Agreement
Aga Khan Foundation Blackstone
Implementation
Agreement
Power Purchase
Agreement
O&M Contract
Commercial
Lenders
Loans
Project AgreementPRG
Other DFIs
7. Financing/Investments
8. Procurement/Construction
9. Operations/Maintenance
10. Long-Term Implementation
7. Financing
8. Construction
9. Operations/Maintenance
10. Long-Term
Implementation
8. Construction Operations/
Maintenance
Government of
Uganda (GoU)
EPC Contract
Indemnity Agreement
Shareholders’ Financing
Bujagali Energy Ltd.
1. Policies
2. Sector Framework
3. Regulations
4. Hydrology
5. Off-Taker/Market
6. Bankability
13
Was it Worth the Effort… ?
Benefits to the country through Government’s commitment to PPP…
• Doubling of Uganda’s electricity supply – first power in late-2011
• Sustainable boost to economic development of a land-locked country
with limited alternative energy sources
• Dedication to sector reform and the BOT structure paid off
• Demonstration of private sector development of large scale
hydropower investment is possible in riskier investment climate
cont…
14
Was it Worth the Effort… ?
Private sector investor’s commitment on the strength of the PPP…
• Investment of ≈US$20 million pre-financing development capital as part of
US$180 million in long-term equity investment
• US$700 million in ultra long-term debt investment
• Nearly on-schedule delivery of the project within expected cost
• Proven track record paves the way for other private sector involvement in
riskier markets on the basis of a suitable PPP structure
Bold power expansion programs in riskier market places with limited track record are
at least initially going to require a proactive PPP structure to achieve the objectives
cont…
15
PPP Implications for Large-Scale
Private Power Expansion in Nigeria
Public Sector Focus
The next 2 years a cr i t ical phase for Nigeria Power
Pros: Large under-served demand, high willingness to pay, ample gas resources to base a large-scale
expansion & significant equity & debt interest for new investments
Cons: Regulatory concerns lead to bankability issues, poorly commercialized sector, weak
transmission network undermines power trading potential & unreliable gas supply chain
• Deal with policy implications that the privatization of power sector will end up “absorbing” significant part of the
limited private sector capacity for power investments in Nigeria – privatization will not add significant new
generation
• Specifically target limited number of MW for development in the next 3-5 years
• Clearly define contractual & regulatory framework for new private power investments (including FDI). Bujagali-type
PPP contractual structure a must given investment risk vs. generation needs of Nigeria. Next phase could possibly
evolve into a less regimented PPP scheme
• Continue rapid strengthening of transmission network in the public sector – enable power trade
• Guarantee bankability of gas value chain – through rapid public (and private) sector investments in key midstream
gas infrastructure and contractual guarantees for the IPPs
• Credit guarantees from DFIs not an alternative for implementation of bankable concrete measures by Government of
Nigeria