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Why Top Bujagali investor quit

Inside Bujagali

Norwegian firm SN Power set to consolidate position in Ugandan economy, writes Isaac Khisa

SG Bujagali Holdings Ltd, a company incorporated in Mauritius and which partially owned interests in the 250MW Bujagali hydropower project is bowing out.

The firm, an affiliate of Sithe Global Power, part of Blackstone Group, the US-based private-equity fund, has expressed an interest to sell its shareholdings to the Norwegian state-owned SN Power AS at an unspecified amount of money.

SGBH has been a key partner in the development of Bujagali project seeing it through construction and full operation, alongside the Aga Khan Fund for Economic Development Network and the government of Uganda that owns a 4.63% stake.

SGBH Director Thomas DeLeo said it is time for the firm to exit the shareholding having seen businesses and consumers benefit from reliable electricity since Bujagali came online in 2012.

“Now that we have completed our goal of proving Bujagali’s operational strength with operations above a 99% contractual availability over the past three and a half years, SN Power will be the ideal partner to continue this legacy for Uganda, given its world-class operating capabilities, global portfolio, financial strength, and proven commitment to the highest social and environmental standards,“  Deleo said in a statement on april 7.

Blackstone is said to have sunk nearly $120 million into the project, about double what the Aga Khan Development Network put in, thus giving Blackstone two-thirds ownership of the facility.

The shedding of shares by SGBH however, does not come as a surprise as the investor entered the project with the intention of disposing off its shares in later years as part of its growth strategy, to boost Blackstone’s overall returns to a rate closer to what the firm seeks in buyouts.

Blackstone’s venture into power production traces to 2004 when, in a traditional buyout, the firm and three partners acquired a Houston power producer called Texas Genco LLC with lots of debt. They sold it less than two years later for a $4.9 billion profit, more than five times their cash investment.

And besides electricity projects like in Uganda, Rwanda, and the DR Congo in Africa,  Blackstone has also spent billions of dollars of its investors’ money’ in real estate and transport projects.

Torger Lien, the chief executive officer at SN Power, said the firm looks forward to a strong and enduring partnership with Uganda, as well as the operating and lending partners of Bujagali Energy Ltd, in contributing to the critically important goals of materially enhancing Uganda’s installed generation capacity and providing a greater share of Ugandans with access to electricity.

With consistent power, he added, businesses can grow, agricultural producers can prolong the shelf-life of their products, hospitals and clinics can better provide for their patients, and schools can keep the lights on for a new generation of students.

“SN Power is seeking a long-term investment in Uganda that will sustain Bujagali’s transformational, positive impact,” he said.

 

Museveni Energy meeting 2

Museveni meets the Norwegians recently to discuss Bujagali.
Museveni meets the Norwegians recently to discuss Bujagali.

Data from The Global Village Energy Partnership, a UK-based non-governmental organisation, shows that only 5% of Uganda’s population have access to electricity lower than 9% in Rwanda and Tanzania, and 15% in Kenya.

The new acquisition is expected to give a platform to SN Power to develop additional hydropower projects in Uganda and Sub-Saharan Africa.

Sithe Global bosses said the project’s debt financing arrangement with its lenders – including development finance institutions such as the African Development Bank, World Bank Group and European Investment Bank – will not be affected by the transaction. However, officials of the Uganda Generation Company Limited, feigned ignorance about the transaction saying they have “little information about the dam”. The Bujagali Hydropower Project has been considered as the most successful public private partnership in the power sector in Sub-Saharan Africa and has been used as a model for subsequent projects in the region. Commissioned in 2012, Bujagali has reduced on the incidences of load shedding, and thus looking at stirring the country’s economic growth.

Its operation replaced expensive thermal generation that used to cost over $30 cents/kWh with renewable power at $11 cents/kWh, enabling the government to discontinue annual subsides that cost the economy $175 million per year, and channelling these savings toward other crucial public sector investments.  The project also has provided a reliable backbone for the Ugandan grid, averaging over a 99% contractual availability factor and generating half of the country’s power supply.

In addition , the project has reduced on the marginal cost of electricity generation by 66%, spurring strong economic growth since coming online.

Blackstone through Sithe Global has developed over 50 power projects in nine countries with a capital investment in excess of $5 billion.

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