The World Bank Group has approved US$360mn in loans and guarantees for the Bujagali Hydropower Project, an integral component of Uganda’s strategy to close an energy supply gap that seriously constrains social and economic development in Uganda.

“Uganda’s workforce is expected to double over the next 15 years, making the creation of jobs through expanded industry, tourism, and commercial services critical,” says Judy O’Connor, World Bank country director for Uganda. “These sectors are energy intensive and will therefore rely on consistent, affordable, and expanding power supply. Bujagali is an important step towards realizing the needed level and quality of supply.”

Once commissioned in 2011, the 250MW, run-of-the-river hydropower plant on the Victoria Nile will re-use water flowing from two existing upstream facilities to generate electricity. The additional electricity will increase the supply to the national power grid at the lowest cost compared to other power generation expansion options under Uganda’s energy sector strategy.

Of the total estimated project cost of US$799mn, the World Bank Group’s support is composed of US$130mn in loans to the private project company, Bujagali Energy (BEL) from the IFC, the private sector arm of the World Bank; a partial risk guarantee of up to US$115mn from the International Development Association for the benefit of the project’s commercial lenders; and an investment guarantee of up to US$115mn from the Multilateral Investment Guarantee Agency (Miga), the World Bank’s political risk mitigator.

“IFC’s investment in Bujagali Energy is an important element in Uganda’s strategy to develop a reliable and accessible electricity sector, which is critical for the country’s economic growth and development,” says Rashad Kaldany, IFC’s director of infrastructure. “The project will relieve power shortages and substantially reduce the need for more expensive thermal power.”

“Miga’s guarantee, the linchpin to securing part of the Bujagali equity investment, supports the agency’s overall strategy of helping Uganda address the electricity issues it is facing,” says Philippe Valahu, Miga’s acting director of operations. This is the agency’s third guarantee for an electricity project in Uganda in two years.

The Bujagali Hydropower Project is one element of the World Bank Group’s support for Uganda’s energy sector strategy. Other elements include a Power Sector Development Operation (US$300mn) approved separately by World Bank Group today that, among others, provides funding for a set of investments and policy measures designed to reduce the supply-demand gap until the Bujagali hydropower plant comes into service. Support is also provided through three ongoing projects: the Power IV investment project

(US$62mn) supporting improved power supply and government capacity to manage sector reform; the Energy for Rural Transformation Project (US$50mn), which supports the development of rural areas “access to renewable electricity; and aUS$40mn in investment guarantees for an electricity distribution company.

The Bujagali Hydropower Project has undergone extensive economic, environmental, and social due diligence. Documents made available to the public include the Project Economic Analysis – prepared by an independent consultant – and the power purchase agreement. Consultations between BEL and the local communities have been ongoing throughout the project.