Uganda seeks new investors for its 840 MW hydro project

From the newsletter

Uganda's Energy Ministry has expressed frustration with the slow progress of the $5 billion, 840 MW Ayago Hydropower Project, signaling a potential search for a new investor. The government has given the current investor, Bridging Foundation, a 365-day ultimatum, but concerns persist over their pace.

• The Ayago project is critical to Uganda’s energy strategy, with potential to boost electricity capacity by nearly 30% and drive economic growth. Delays threaten its role in Uganda's renewable energy transition.

• Reliance on Bridging Foundation highlights risks of depending on single investors for large-scale projects, emphasising the need for diversified funding and robust oversight.

More details

• Uganda awarded the Ayago Hydropower Project in 2023, with construction expected to begin in early 2024. However, it remains stuck in the pre-development phase. Minister Ruth Nankabirwa (pictured above) has warned that further delays could derail Uganda's broader strategy to increase electricity production capacity by 80% through hydropower.

• Once operational, Ayago will significantly enhance industrialisation and electrification, meeting Uganda’s rising electricity demand, which is growing at 10% annually. It will also position Uganda as a regional energy hub, ensuring long-term energy security and economic development.

• The country's energy expansion includes parallel projects like the 392 MW Oriang Dam and the 150 MW Buliisa solar plant, as well as feasibility studies into geothermal (1,500 MW potential) and nuclear energy (1,000 MW by 2031). While Uganda currently has a surplus of over 500 MW, it aims to increase exports to Kenya, Tanzania, and Ethiopia through the East African Power Pool.

• As Uganda's largest planned hydropower facility, Ayago is central to this vision. However, funding challenges, investor uncertainty, and environmental concerns have delayed the project. Initially awarded to Turkish and Chinese firms, Ayago is now being pursued with PowerChina's involvement. The project's cost has surged due to expanded capacity from 600 MW to 840 MW, and previous contractors like Mapa Construction and Gezhouba Group lost interest.

• Securing investors for such large-scale projects is complex. Financiers must not only build the dam but also the necessary infrastructure to connect it to the grid. Additionally, Ayago’s location in Murchison Falls National Park raises environmental concerns, making it less attractive to investors. Striking a balance between energy production and environmental protection remains a key challenge.

• To attract reliable investors, Uganda must implement a robust public-private partnership (PPP) model, offering clear long-term power purchase agreements (PPAs) and stable returns on investment. This strategy has worked well for other Ugandan projects, such as the Bujagali Hydropower Plant.

Our take

• This Ayago fiasco exposes the vulnerability of relying on opaque investors. Uganda’s overreliance on a single investor has stalled a key national project. Moving forward, securing a diversified pool of financiers will prevent similar risks.

• Instead of waiting out the 365-day ultimatum, Uganda should proactively engage global energy investors with a structured financing plan and government-backed guarantees.

• Large-scale projects need better investor screening and due diligence, ensuring that chosen firms have a proven track record in delivering hydropower infrastructure. It's this or Africa will remain in a regressive limbo.