On August 27, 2014, MIGA issued guarantees totaling $9.5 million to Absa Bank Limited of South Africa and Standard Chartered Bank of the United Kingdom, two of the existing senior lenders for the Bujagali Hydropower project1. The two lenders have entered into a swap arrangement with Bujagali Energy Limited to hedge against long-term interest rate risk. MIGA’s coverage on the lenders’ swap is against the risk of breach of contract for a period of 11 years.
The Bujagali project consists of the construction and operation of a 250-megawatt, run-of-the-river hydropower plant on the Victoria Nile by Bujagali Energy Ltd. (BEL). MIGA is currently covering an equity investment in the project by World Power Holdings Luxembourg S.à.r.l. (WPH), an affiliate of Sithe Global (USA). The project was developed on a build-own-operate-transfer basis and reuses water flowing from two existing upstream facilities to generate electricity. The project was successfully commissioned in 2012 and includes an associated Interconnection Project, which consists of a series of transmission lines to be owned and operated by the Uganda Electricity Transmission Company.
Reliable and accessible electricity is critical for Uganda’s social and economic development. Daily power shortages have stunted economic growth by an estimated one percent of the country’s gross domestic product. The Bujagali project is increasing supply to the national power grid at a lower cost than other power generation expansion options under Uganda’s energy strategy, thereby reducing outages and costs. The swap arrangements will help stabilize interest expenses and related costs associated with electricity tariffs.
In addition to MIGA’s guarantees, the World Bank Group is supporting the project with $130 million in loans from the IFC and a partial risk guarantee of up to $115 million from the International Development Association.
1As of November 30, 2018, MIGA is no longer covering an interest rate swap by Standard Chartered Bank into the project.