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Gov’t To Pay ESKOM Shs45.7bn For Ending Concession

Kira\Nalubaale power station.

Uganda Government through the Ministry of Energy and Mineral Development is slated to pay ESKOM Uganda Shs45.7bn for the buyout of the company’s investments in Uganda at the end of its concession at the Kira\Nalubaale power station.

The details are contained in the Shs2.386Trn Supplementary budget that was tabled before Parliament’s Budget Committee for consideration by the Minister of State for Finance-General Duties.

According to Government, the decision to end the concession is premised on the commitment to reduce power tariffs towards Government target of US$5 Cents per KwH, which is why the ESKOM concession for Kira and Nalubaale Power stations which is due to end in 2023 will not be renewed.

“It is however a requirement that ESKOM is reimbursed the investment and returns that are yet to be recovered from the Tariff.The amount that was determined by the Electricity Regulatory Authority was US$18.8M Whereas this is still subject to an ongoing audit by the Auditor General, it is a reliable estimate upon which resources were availed in the budget estimates,” read in part the report.

Minister Musasizi noted that the failure to raise this buy-out amount would mean extension of the concession until ESKOM recovers its outstanding investments and returns.

Last year, Government also revealed plans not to renew concession of Umeme come 2025 and the plan will see Government form its own electricity company named Uganda National Electricity Company after merging the current public agencies in the sector like Uganda Electricity Distribution Company Limited (UEDCL), Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL).

 

Relatedly, the Ministry of Energy also approved a payment to a tune of Shs57. 6Bn to Albatros after unceremoniously ending the contract for the construction of a thermal power plant in Hoima district due to the delays in start of energy production and construction of the oil refinery.

After Government agreed to an energy policy to reserve 10% of the country’s power generation capacity in the form of thermal power plants to deal with emergency situations in the event of interruptions in the national grid, in FY2014/2015, Governemnt entered into an implementation agreement with Albatros to establish a 50MW thermal Power Plant in Hoima district, that would utilize Heavy Fuel Oil produced locally from the country’s proposed oil refinery in FY2018/2019/.

However due to the delayed production of first oil and development of the oil refinery, the project was unable to commence as envisaged. Government found it costly and unsustainable to provide an annual subsidy of US$74.5M for the investor to use imported oil.

The documents before the Budget Committee read in part, “Subsequently Government and Albatros mutually agreed to discontinue the project and reimburse the developer for expenses incurred in the development of the project process, retain the land and other assets of the project. albatros presented claims amounting to US$16M incurred on the asset acquisition and other operational expenses of which US$4.768M was agreed upon as a partial settlement by both parties. Accordingly, US$4.768m approximately Shs16.832 has been paid.”

The Ministry of Finance revealed that the supplementary expenditure schedule will be funded from a combination of suppression within the Government budget, URA revenue performance, additional local revenue collection, additional borrowing as well as external financing which has already been confirmed.

Suppression from Budget Shs617.915Bn, URA revenue performance borrowing Shs1.098Trn, NTR and Local revenue Shs51.866Bn, external financing Shs652.057Bn totaling to Shs2.420Trn.

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