Norway’s SN Power has acquired a majority stake in the 250MW Bujagali Hydropower dam on the River Nile from an American private equity fund.
SN Power paid approximately $277 million for the two-thirds stake in the project previously held by SG Bujagali Holdings, a Sithe Global company owned by the New York-based private equity fund, Blackstone, which has more than $430 billion in assets under management.
“I am excited by this agreement. It is good for all parties and ensures Uganda clean and stable energy for several decades in the future,” Torger Lien, CEO of SN Power said in a statement.
“It is also proof of our commitment to the long-term strategy on focusing on investing in sustainable hydropower projects in developing markets across Africa and Asia.”
Sean Klimczak, senior managing director, Blackstone, said: “We are very proud of the pioneering role we were able to play as an early developer and investor in Bujagali and the project’s many contributions to Uganda, from enhancing power generation to improving the competitiveness of the manufacturing sector.”
Blackstone had been trying to exit from the investment for at least three years but the transaction had been held up by regulatory obstacles and parallel efforts to refinance the dam and reduce the end-user cost of the electricity it produces.
The dam will continue to be operated by Bujagali Energy Limited, whose other shareholders include the Aga Khan Fund for Economic Development as well as the Government of Uganda.
Earlier this year lenders, led by the International Finance Corporation and the African Development Bank, completed a refinancing package that extended the tenor of their loans in the project in order to reduce the cost of electricity from Bujagali.
At more than 13 U.S. cents per Kilowatt-hour, the tariff from the dam is significantly higher than the government target of 5 U.S. cents.
The Government of Uganda had earlier provided a corporate income tax waiver to BEL as part of the effort to reduce the tariff. Commissioned in 2012, Bujagali generates almost half of Uganda’s energy supply.
However, its financing costs mean that electricity from the dam is likely to be more expensive than that from two new dams in the pipeline: the 187MW Isimba Dam expected to come online at the end of this year, and the 600MW Karuma Dam which should be commissioned by 2020.
In 2043, Bujagali will be transferred to the GOU for one US dollar with an expected remaining life of 70+ years.
Meanwhile, Ugandan tax authorities are scrambling to establish how to collect capital gains tax from the transaction. Under Ugandan law capital gains from such transactions should be taxed at 30% but highly placed sources said officials at Uganda Revenue Authority had been “caught completely unawares” by the deal.
The CGT due from the deal could be as high as $83 million but the Ugandan authorities are likely to struggle to enforce the payment that appears to have been done in off-shore, low-tax jurisdictions.