Uganda has halted plans to develop a $2.2 billion hydropower dam after objections were raised over the short-listing of an Iranian company in potential contravention of international sanctions, a procurement official said on Friday, Reuters reported.
Billed as one of East Africa's largest infrastructure projects, construction of the 700 MW Karuma dam on the Nile river was expected to begin by the end of this year aimed at overhauling the east African nation's stuttering energy supply.
"We received petitions by a whistleblower and representatives of other companies which were left out who said one of the firms that prequalified was an Iranian (firm)," said Vincent Mugaba, spokesperson for Public Procurement and Disposal of Public Assets Authority (PPDA).
"The Iranian company would not have the capacity to conduct international trade in light of sanctions imposed on Iran so we have halted the whole procurement process until we complete an investigation into the matter," Mugaba said.
Washington and Europe have imposed sanctions on Tehran over its disputed nuclear programme. Some of the sanctions make it difficult for other countries to trade with Iran.
Mugaba said PPDA had requested the energy ministry, which is managing Karuma's procurement process, to explain why it had overlooked the impact of sanctions on the Iranian company, Perlite Construction.
"What happened was that when we prequalified the Iranian company the U.S. sanctions had not come into effect but of course we realise that the company might have problems executing the contract if its bid was to be successful," Yusuf Bukenya-Matovu, a public relations officer at the energy ministry, told Reuters.
"Uganda isn't bound to respect U.S. unilateral sanctions but nevertheless there are implications. Perhaps there would be problems if the Iranian firm were to win but we'll cooperate with the PPDA investigation," he said.
The Karuma dam is expected to more than double the country's total power output. The state-run Electricity Regulatory Authority says Uganda produces a total of 550 MW while power demand at peaks stands at about 480 MW.
The snag was the latest to stall progress on Karuma, which the government is banking on to help prevent persistent power outages that have put a strain on the economy and discouraged investors from pouring more money into the oil-rich country.
Several years ago, a Norwegian investor that had expressed interest pulled out because it failed to secure funding for the project.
The Ugandan government wants to develop Karuma as a public-private project with the private investor as lead financier.
Uganda is keen to woo investment in its cash-starved energy sector to rapidly increase its generation capacity and in October plans to start pegging power tariffs to changes in inflation, international fuel prices and the exchange rate to make the sector more attractive.
Energy officials say the internal rate of return for energy projects in Uganda is fairly attractive at between 15-18 percent and higher than South Africa's 12-14 percent, although the country has a higher risk perception.
Commercial hydrocarbon deposits were discovered along the Albertine rift basin along its border with the Democratic Republic of Congo in 2006 and reserves are estimated at 2.5 billion barrels.