Museveni’s Tax Waiver To Bujagali Questioned

Civil society groups have protested against the latest extension of corporate income tax exemption by President Yoweri Kaguta Museveni to Bujagali Energy Limited (BEL) another year of tax waiver.

Parliament recently allowed a one-year tax exemption to the power producer following the insistence of the President.

But members of different civil society actors which include the African Institute for Energy Governance (AFIEGO) and 12 others in a statement said they were dismayed that President Museveni returned the Income Tax (Amendment) Bill 2023 to Parliament asking it to grant a one-year tax waiver to Bujagali Energy Limited (BEL).

The Tax waivers to Bujagali Energy Limited (BEL) which owns and operates the Bujagali hydropower project have been of concern to the civil society and a section of Members of Parliament.

The hydropower dam is partly owned by Bujagali Holdings Power Company Ltd (BHPCL), an affiliate of the influential Aga Khan Fund for Economic Development (AKFED) has enjoyed tax waivers, especially income Tax exemptions.

BEL whose majority owner is Norway’s SN Power (65%) has a capacity-based pass-through supply agreement with Uganda Electricity Transmission Company Ltd (UETCL) to run the dam up to 2042. During the consideration of the 2022/2023 budget, the Ministry of Finance suggested a five-year corporate income tax exemption for BEL. MPS instead approved a one-year exemption.

The waiver again came up during the 2023/2024 budgeting process. MPS rejected another year of exemption but President Museveni insisted that the one-year tax exemption will reduce the cost of electricity for the benefit of the citizens and promote industrialization.

The CSO however alarmed with information about the new power tariffs announced by Umeme with approval from Electricity Regulatory Authority however disagreed with the President’s reasoning for further exemptions.

They say while Bujagali Energy Limited has since 2012 enjoyed tax exemptions, electricity tariffs have remained high and unaffordable for over 80% of Ugandans.   Corporate tax exemption for Bujagali should have ended at the end of June 2017.

At the time, it was expected that the exemptions would lead to a 3.1 cents/kWh reduction in the tariff. The Ministry of Finance with the President’s backing extended the exemptions for 15 years.

Civil society which includes, the Women for Green Economy Movement (WOGEM), Action Coalition on Climate Change (ACCC), and Water Governance Institute (WGI) among others say the current tariff by Bujagali is still over and above the government target of US cents 5 per kWh.

“The current power tariff from the dam is US cents 8.3 kWh which remains costly to all consumers small and big. High and unaffordable tariffs negatively affect the quality of lives and national socio-economic transformation” reads part of the statement.

The CSOs demanded that the Auditor General (OAG) should conduct a forensic audit into the operations of Bujagali Energy Ltd regarding the Bujagali dam.

In March, Parliament’s Adhoc committee led by Sheema MP, Dickson Kateshumbwa recommended a recovery of $63 million from BEL.

MPS also pointed out an anomaly in the computation of figures in the payouts to Bujagali Energy amounting to $342 million. The legislators alleged that the money had accrued during the first five years of development of the project on the Bujagali dam.

They had recommended that the consideration of an extension of Corporate Income Tax waiver would only be granted after BELL had refunded what the committee had described as excess payment. The Speaker of Parliament, Anita Among then noted that there was a need for a competent body (Auditor General) to carry out a forensic audit of the payouts.

“I would request that the figures be determined by the Auditor General. The figures have never been determined by the Auditor General. Now that we have leading figures from our committee, and we are not mandated to do that, we need to subject the figures that we have to have a forensic audit by Auditor General” said Among while considering the Adhoc Committee’s report in mid-March.

The Attorney General, Kiryowa Kiwanuka then asked the parliament to grant the execution more time to have the Executive look into the issues raised by Parliament’s Committee.

“Parliament has done its part, it has pointed out the issues that they think the executive needs to look at, and we are saying let’s go back as the Executive go back, look at the issues and we use the technical persons like the Auditor General to ensure that we have the figures correct” pleaded Kiyrowa Kiwanuka, the Chief Legal Advisor to government.

He had promised to return to Parliament with an updated status of the payouts to Bujagali. But from a statement by the CSOs, the Office of the Auditor General had by the end of July not conducted a forensic audit into Bujagali Energy Limited whose construction cost the taxpayer.

Revenue Foregone Due to Bujagali Exemptions

Without the exemptions, Bujagali should have paid $24.7 million in 2014 and $28.4 but the government forfeited it with the reasoning that they would lower tariffs for average electricity consumers.

After Parliament allowed the extension, Museveni said during the independence day celebrations in Bushenyi in 2017 that more power was being generated in the country but he noted that the only concern was how to lower the retail price for manufacturers from $0.11 cents to five American cents per unit.

The President had blamed the high tariff then charged due to what he described as a “mistake” by the government negotiators whom he said opted for expensive money.

The government also allowed the restructuring of the financing of Bujagali with cheaper money to be paid for a longer period.

It was hoped that during the extended period, the government would borrow money on friendlier terms, pay off the Bujagali project investors, then lower the tariff, and then repay the new loan over a period of time.

The President then blamed the high tariff due to what he described as a “mistake” by the government negotiators whom he said opted for expensive money. The government also allowed the restructuring of the financing of Bujagali with cheaper money to be paid for a longer period.

It was hoped that during the extended period, the government would borrow money on friendlier terms, pay off the Bujagali project investors, then lower the tariff, and then repay the new loan over a period of time.

Construction of Bujagali should have taken four years but it took more than that. Overall the project ended up costing the taxpayer $790 million instead of 480 million.

Civil society says the cost overruns have not been investigated and that tariffs have remained high and yet the money the government has been paying Bujagali investors was borrowed and therefore part of the contributors to the external debt crisis.

According to the Ministry of Finance, revenue foregone by the government due to tax exemptions to the Bujagali hydropower project during the 2018/19 financial year was 108.4 billion shillings, 100.04 billion shillings in 2019/2020, and 90.7 Billion shillings for the 2020/2021 financial year.

The Ministry noted that the biggest contributors to revenue foregone are exemptions related to; employment income tax for armed forces personnel, the income of Bujagali Hydro Power Project, and employment income other than basic salary for MPs.

The tax expenditure report by the Ministry for the 2020/2021 financial year indicated that revenue foregone due to income tax exemptions increased by 7.3% from UGX 360.20 billion in FY 2019/20 to UGX 386.34 billion.

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