Kampala, Uganda — ESI-AFRICA.COM — 15 April 2011 – The government of Uganda has announced that it will use tax payments by British oil explorer Tullow Oil to help finance construction of the Karuma dam in order to provide the hydro-power needed for industrial growth.

Revealing this plan here, a ministry of finance official said that last week Tullow had paid the Ugandan government US $327.5 million in capital gains tax from the US$2.9 billion it had earned on the sale of stakes in Ugandan exploration properties to France’s Total and China National Offshore Oil Corporation.

The government pointed out that the power project would cost US$2.2 billion, up from an initial estimate of US$900 million.

“The current government position is that the Tullow money that has just come in will be used to build Karuma dam,” deputy secretary to treasury Keith Muhakanizi told reporters.

The east African country discovered oil in the west along its border with the Democratic Republic of Congo in 2006, and commercial production is expected to start early next year.

The hydro-power dam, Uganda’s largest ever infrastructure project, is expected to generate 700 MW. Construction is expected to start early next year.

Uganda has enjoyed a decade of vigorous economic growth on the back of its service, construction and retail sectors, bolstered by stable economic policies, but insufficient power supplies have stifled industrial growth.