How Ugandan MPs Rejected 15-Year Tax Waiver for Bujagali Energy Limited
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Tags: africa, Agha Khan Development Foundation, Bujagali Energy Limited, Income Tax Amendment Bill, National Resistance Movement, President Yoweri Museveni, Sithe Global Power LLC, State House Entebbe, Uganda, World Bank
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At a meeting at State House Entebbe, MPs rejected a proposal by President Museveni to offer a 15-year corporation tax waiver for Bujagali Energy Limited (BEL), a 250-megawatt power-generating facility.
Included in the Income Tax Amendment Bill (No. 2) 2017, the proposal sought to exempt Bujagali Hydro Power Project from paying corporation tax until 2033. The MPs last Monday rejected the 15 years but endorsed a five-year waiver on corporation tax levied on the company’s profits.
Despite pleas from Irene Muloni, the minister for Energy, and David Bahati, the minister of state for Planning, that the tax waiver was crucial in harnessing reduced electricity tariffs starting July 1, 2017, the MPs didn’t budge. They instead pushed for a shorter and renewable period of five years, within which government would assess the impact of the waiver and offer another lease.
Originally, Bujagali hydropower project was run by AES and Madhvani group but was suspended in 2003 after strong opposition from parliament and lack of financing.
A consortium called Bujagali Energy Limited (BEL) under the Agha Khan Development Foundation and Sithe Global Power LLC took over the project, whose construction started in 2007. Under a public-private partnership (PPP), government financed the 250 Megawatt project to a tune of $75m, while the European Investment Bank and World Bank guaranteed a $136m and $275m commercial loan respectively.
The dam was commissioned in 2012. The Observer has learnt that President Museveni called for two meetings with Parliament’s committees on Finance, Budget and National Economy at State House, Entebbe early this month to discuss, among other issues, the budget process.
According to sources who attended the meeting, President Museveni updated the committee members on the state of the economy, including the current investment climate.
It was during one of the meetings that the president raised the issue of high taxes paid by investors. Citing Northern Ireland, which levies 15 per cent corporation tax on foreign companies, Museveni lamented that at 30 per cent, Uganda levies one of the world’s highest corporation tax rates.
“The president told us the current corporation tax levy greatly discourages investors because the more profits you make, the higher the tax paid. He hinted on the fact that foreign investors had complained to him about this,” one MP who attended the meeting said.
President Museveni reportedly said that slashing the corporation tax by half to about 15 per cent would draw more foreign investment to the country and more revenue and jobs generated in the long term.
From 2012, when the dam was commissioned, government waived corporation tax for Bujagali. The waiver was expected to expire at the end of the 2016/2017 financial year, which would see the unit cost of electricity rise from the current 11 US cents to 13.38 US cents.
CAUCUS DECIDES
On May 22, President Museveni chaired the National Resistance Movement (NRM) caucus meeting at State House Entebbe. Debate focused on the Income Tax (Amendment) Bill, torture of suspects and sim card registration.
When the tax waiver for Bujagali came up, the majority of the legislators rejected the 15-year proposal. James Kakooza (Kabula) questioned the rationale of the exemption, yet electricity tariffs are still high.
Kakooza then proposed five years, only renewable after government has ascertained that the electricity tariffs have reduced. He received overwhelming support.
President Museveni reportedly admitted that the power purchasing agreement signed between government and the private investors was poorly negotiated.
When Bahati tabled the bill before parliament, it looked like a battle already lost, as legislators from the onset of debate shot down government’s proposal. Jacob Oboth (West Budama South), who chaired an ad hoc committee set up in the 9th Parliament to investigate the energy sector, revealed that their probe then found that Bujagali is one of the most expensive dams constructed in the world at $900 million.
Furthermore, Oboth said the power purchasing agreement was poorly negotiated and government is trapped. The only solution, he said, is to buy out BEL and get another dealer who would accept to work under another arrangement, which is cheaper.
“Probably there is more inside the whole deal than meets the eye. A forensic audit is needed here because we just had poor negotiators and the president admitted [during the NRM caucus] that he was not involved or informed, which is an indictment on the technical officers who could have connived and got kickbacks,” Oboth said.
The Natural Resources committee, in its report on the 2017/2018 budget for the energy sector, also observed that non-traditional access to development financing through PPPs like Bujagali has raised risks pertaining to profitability assurance clauses, escalating costs and affordability of services.
“This was noted in the Umeme and Bujagali dam contracts, pegged on non-disclosure and confidentiality provision that limit public scrutiny. The auditor general has not audited such PPPs due to lack of funding,” committee chairman, Alex Byarugaba (Isingiro South) said.
Nathan Nandala-Mafabi (Budadiri West) insisted that government produces the agreement and list of officials who were involved in the negotiations and eventual signing of the agreement.
Bahati on Friday tabled the agreements and names of technical officers, documents which will be scrutinized by parliament. Some legislators wondered why, in spite of a previous five-year waiver on corporation tax, only 20 per cent of Uganda’s population is connected to the electricity grid.
Okot Ogong (Dokolo South) mused that government had been warned about entering into the Bujagali agreement, on grounds that the concession was too expensive.
“For over 13 years that company has been charging Ugandans 13 US cents per kilowatt and enjoying profits. Now having enjoyed these profits, we are the same parliament that is going to say, let us add more unto you,” Ogong said, proposing, “Let us go for a buy-off. We get a loan from the World Bank and buy off the loan and manage our own project.”
Muloni said the tax waiver will reduce power tariffs from 13.8 US Cents to 11 US cents that will attract more investors because of cheaper power.
“Let’s continue with the waiver but we want this loan structured and refinanced so that we can reduce the tariff further. With many industries in this country, we are going to generate taxes. The economy is going to improve,” Muloni struggled to explain, amidst heckles from legislators.
