The Uganda Electricity Generation Company Limited (UEGCL) finds itself entangled in significant loan obligations, amassing to UGX 5 trillion from the Karuma and Isimba Hydro Power Projects.

This financial burden stems from the construction costs of UGX 1.3 trillion for the 183.2 Megawatts and UGX 3.8 trillion for the 600 Megawatts Karuma Hydro Power Project, as revealed in the Auditor General’s report linked to the 2023 UEGCL annual performance review.

Auditor General John Muwanga’s scrutiny uncovered an accrued interest of UGX 447 billion on the Karuma Power Project loan due to the power plant’s inability to generate revenue amid delayed commissioning.

While the Isimba loan repayment commenced, Muwanga highlighted only a 6% reduction, contrasting with a 1% increase in the Karuma power plant loan in the current fiscal year. The slow decline in the Isimba loan was attributed to revenue from energy-based sales rather than capacity, deviating from the power purchase agreement stipulations.

The UEGCL Accounting Officer disclosed that since Isimba’s commissioning in 2019, a mere 10% of the loan has been serviced, reducing from UGX 1.5 trillion in 2019 to UGX 1.3 trillion in 2022/23. However, lower revenues resulting from the energy billing approach have hindered efficient loan servicing, despite Ministry of Finance advisories to pay within UEGCL’s capacity, supported by government guarantees.

UEGCL has outlined short-term strategies, including expediting Karuma’s commissioning and formalizing loan repayment top-ups as subsidies. The medium-term plan aims to modify generation and sales licenses to ensure full revenue recovery in line with power purchase agreements, while the long-term strategy targets loan-to-equity conversions to boost financing for new investments, aligning with the 2040 target of 52,481 megawatts.

Liquidity Assessment

The company’s liquidity ratio as of June 30, 2023, stood at 0.24, below the desirable ratio of 1.5. Eng. Proscovia Margaret Njuki, UEGCL’s Chairperson, Board of Directors, attributed the increase in non-current liabilities to loan disbursements for Karuma and the recognition of retention amounts for both Karuma and Isimba projects.

The disproportionate increase in short-term obligations compared to current assets was underscored by the Auditor General, emphasizing a need to renegotiate power purchase agreements to base sales on capacity rather than energy sold for a more stable revenue stream.

Delayed Commissioning Woes

The Karuma power plant, initially expected to be commissioned by July 1, 2023, faces further delays to August 2024, marking repeated setbacks. The project, contracted to China’s Sinohydro Corporation Limited in 2013, has witnessed prolonged construction, recording 99.9% physical progress but a financial progress of 98.39% as of June 30, 2023.

The significant delay of 54 months, attributed to hindrances in critical activities at the power plant, has led to additional costs and postponed revenue realization, impacting UEGCL’s financial performance. While four of the six units are operational, these delays have hindered the project’s financial benefits.

The Karuma project, with a total cost of USD 1.6 billion, primarily funded by the EXIM Bank of China and the Ugandan government, faces financial intricacies with varying interest rates and repayment terms.

Isimba Defects and Challenges

The Isimba Hydro Power Plant, commissioned in 2019, encountered significant issues when it was flooded in August 2022, necessitating an emergency shutdown. The project contractor, China International Water and Electricity Corporation, faced 776 snags, of which 763 have been rectified. However, the outstanding defects have persisted despite the defects liability period expiration, affecting plant availability and revenue.

The identified snags are currently under rectification with an expected completion by December 2025 as per the Project Implementation Schedule (PIS).