Investment Guide for Rural Electrification
R2006 020 Investment Guide for RE DRAFT (15June06)\THP\22.04.13\10:50
Table of Contents:
Acronyms 2
Executive Summary 2
1 Introduction 2
2 Investing in Uganda 2
2.1 Introduction to investing in Uganda 2
2.2 Procedures for investing in Uganda 2
3 Institutional framework for rural electrification 2
3.1 Overview of the power sector 2
3.2 Power sector reform and restructuring 2
3.3 Rural electrification strategy and plan 2
3.3.1 Project approaches 2
3.3.2 Tariffs and subsidies 2
3.4 Institutional set up and funding for rural electrification 2
3.4.1 Rural Electrification Agency 2
3.4.2 Rural Electrification Fund 2
3.5 Regulatory framework for rural electrification 2
4 Incentives and guarantees 2
4.1 The current incentive regime 2
4.1.1 Tax incentives in Uganda 2
4.1.2 Foreign exchange 2
4.2 Investment protection and guarantees 2
4.3 Specific incentives accorded to investors in rural electrification 2
5 Investment opportunities 2
5.1 Investment opportunities in rural electrification 2
6 Procedures for investing in rural electrification 2
6.1 Environmental and other permissions and authorisations 2
Annex: Contact information 2
Acronyms
BOO / Build, own, operateCDM / Clean Development Mechanism
CIREPs / Community Initiated Rural Electrification Projects
COMESA / Common Market for East and Southern Africa
CSF / Credit Support Facility
DWD / Directorate of Water Development
EIA / Environmental Impact Assessment
ERA / Electricity Regulatory Authority
ERT / Energy for Rural Transformation
EU / European Union
FDI / Foreign Direct Invetment
GoU / Government of Uganda
HH / Household
ICSID / International Centre for Settlement of Investment Disputes
kWh / kilowatt hour
LIREPs / Locally Initiated Rural Electrification Projects
MIGA / Multilateral Investment Guarantee Agency
MTCS / Medium Term Competitiveness Strategy
MW / Megawatt
NEMA / National Environmental Management Authority
PEAP / Poverty Eradication Action Plan
PMA / Plan for Modernisation of Agriculture
PPA / Power Purchase Agreement
PREPs / Priority Rural Electrification Projects
PSF / Private Sector Foundation
PSRPS / Power Sector Restructuring and Privatization Strategy
PV / Photovoltaic
RE / Rural Electrification
REA / Rural Electrification Agency
REB / Rural Electrification Board
REF / Rural Electrification Fund
RESP / Rural Electrification Strategy and Plan
Sida / Swedish International development Cooperation Agency
SOE / State Owned Enterprise
SSA / Sub Saharan Africa
TIN / Tax Identification Number
UEB / Uganda Electricity Board
UEDCL / Uganda Electricity Distribution Company Limited
UEGCL / Uganda Electricity Generation Company Limited
UETCL / Uganda Electricity Transmission Company Limited
UIA / Uganda Investment Authority
WNRECO / West Nile Rural Electrification Company Ltd
Executive Summary
The Government of Uganda (GoU) has recognised the importance of Rural Electrification (RE) as a key input to enhance growth and economic development. In 2001 an ambitious Rural Electrification Strategy and Plan (RESP) was formulated with the aim to connect an additional 400000 rural households by 2010. In order to achieve these ambitious targets, the GoU outlined a new institutional structure for RE in the RESP as it has been recognised that a rethink of the Sector would be conducive to attracting investors. In that respect, the Rural Electrification Board (REB) has commissioned the preparation of this Investment Guide for promoting the opportunities in rural electrification and renewable energy in Uganda. The reason for focusing on rural electrification is that for the further economic development and growth of the country, access to modern energy in rural areas must be accelerated. Provision of electricity to previously unelectrified locations will stimulate growth of strategic economic activities for example agro-business, small and medium industries and enterprises, and commercial establishments. This in turn will stimulate job-creation, investment and revenue generation, and enhanced income generation throughout both rural and urban sectors and hence contribute to economic growth and poverty alleviation.
Background and scope
The present Investor Guide for RE provides all the key basic information that an investor in the sector will need in order to initiate prospecting of the opportunities in rural electrification in Uganda. It specifically covers the following items:
· Overview of the sector in general with specific respect to the growing gaps between the demand and supply for electricity in Uganda
· Overview of the process to invest in Uganda outlining the conducive macroeconomic framework that has been put in place to promote investment and private sector development.
· Institutional framework that an investor in rural electrification will work with in establishing the investment in Uganda.
Current issues in the Ugandan power sector
Electricity supply
The hydropower installations at the source of the Nile River provide the majority of Uganda’s electricity supply. There are two stations at the outlet of Lake Victoria – Nalubale and Kiira with total of 380 MW capacity.
In addition, there is approximately 16 MW of independent generation connected to the grid, primarily from small hydro generators and a bagasse plant is expected to deliver a further 12 MW by 2007. In 2005, a 50 MW emergency diesel generator was installed in response to power shortages. Given the continuing power shortages, the authorities plan to install a further 100-150 MW of additional thermal generation.
There is considerable hydropower potential for future development. Most of this lies in further developments on the Nile River, e.g. Bujagali and Karuma hydropower schemes and Busowoko a few kilometres downstream from Bujagali. There are also a number of potential mini and micro hydropower sites available for development. In addition to hydropower, there is also potential generation capacity in the sugar industry as well as the possibility to exploit geothermal resources.
Uganda has a national transmission system that connects most towns and district centers in the country. The transmission system has export links to Kenya and Tanzania, and the distribution system includes links to Rwanda in the south-west of the country.
Electricity demand
Electricity end-user sales in Uganda in 2005 were 1015 GWh (compared to 870 GWh in 2003) but due to high technical losses the actual generation needed to meet demand is 1900 GWh.
Future growth rates in electricity consumption are expected to be in the order of eight percent per annum, implying a five-fold increase in consumption over a twenty-year period. Maximum demand on the system is expected to reach 530 MW by 2010, which will imply a deficit of 150 MW unless additional capacity (beyond the committed capacity at Kiira) is bought on-stream by this date.
Power sector reform and restructuring
Government adopted a new strategic approach to the power sector in June 1999 with the publication of the Power Sector Restructuring and Privatization Strategy (PSRPS). The key feature of the strategy was the intention to introduce private sector participation in the industry – both in existing operations as well as to finance and manage future investments.
As a result, a new electricity law (The Electricity Act, 1999 Cap 145) was passed in 1999 that set out the framework for the reformed electricity industry, opening up for new market arrangements, establishing the Electricity Regulatory Authority (ERA) and the Rural Electrification Board/Agency, and permitting the privatization of the former UEB.
Rural electrification strategy and plan
The Rural Electrification Strategy and Plan (RESP) of 2001, provides information on the broad policy framework for RE in Uganda and presents information on electrification targets, the kind of projects being supported and eligible for subsidies and broad guidelines on tariff and subsidy approaches. The primary objective of the RESP:
“… is to reduce inequalities in national access to electricity and the associated opportunities for increased social welfare, education, health and income generating opportunities”
The aim of the RESP is to achieve a rural electrification rate of 10 percent, translating into 480,000 rural consumers by end of 2010, a net increase of 400,000 over the year 2000 figure.
REA is targeting projects with a least cost approach to serving new areas with electricity. The different general approaches, which could encompass several different technologies, include:
· Grid extensions projects in which existing transmission and/or distribution lines are extended to cover new and or previously unelectrified areas.
· Mini grids or isolated grids projects where grids are sufficiently far from the national grid to be cost effective solutions to providing certain areas with electricity.
· Stand alone systems e.g. photovoltaic (PV) systems projects that have limited capacity and offer less scope for income generating activities than the two previously mentioned approaches.
Subsidies for rural electrification
The RESP specifically provides for two types of subsides using grants from the Rural Electrification Fund (REF). The investment subsidies for grid based systems (including isolated grids); and solar-PV systems aimed at buying down high capital costs to make these investments more attractive to investors and end-user prices/tariffs more affordable to rural consumers.
Institutional set up and funding for rural electrification
The institutional mechanisms for funding, planning and coordination of rural electrification in Uganda are overseen by the Rural Electrification Board (REB) which was inaugurated in May 2002. The Rural Electrification Agency (REA( is the implementing agency of RESP and serves as the REB Secretariat.
Investment opportunities in rural electrification
Currently 26 projects have been identified for mini hydro electricity project of which 15 are still available for investment opportunities in rural electrification mainly to develop mini-hydro potentials in various parts of Uganda.
Investment Incentives and Guarantees
The GoU provides competitive investment incentives and guarantees to any investor in Uganda which include tax incentives, accelerated depreciation, and foreign exchange repatriation measures. The incentives have been institutionalised and are provided for under section 27 of the Income Tax Act Chapter 340 of the laws of Uganda.
Specific incentives accorded to investors in rural electrification
Additional and specific incentives to rural electrification investment is provided for under Section 64 of the Electricity Act, 1999 Chapter 45 of the laws of Uganda in which the Minister (of Energy) has the authority to establish a rural electrification fund to support rural electrification funding. The Minister is also supposed to develop the criteria for eligibility for financial support and subsidy level.
Investment protection and guarantees
The Constitution of the Republic of Uganda guarantees the right to protection of private property (including foreign investments) from expropriation and compulsory acquisition. Currently, Uganda is a member and signatory of the following international organisations:
· MIGA
· The Overseas Investment Insurances Corporation of the UK
· OPIC US
· The International Centre for Settlement of Investment Disputes (ICSID)
· The Convention on the Recognition and Enforcement of Foreign Arbitration Awards
· The Conventions on the Settlement s of Investments Disputes between States and Nationals of other States
· African Trade Insurance Agency (ATI)
Procedures for investing in rural electrification
An investor/developer in rural electrification in Uganda need to go through a number of steps before a license can finally be granted by ERA. The guide provides a step by step process for obtaining the various licenses and permits required for any investor in rural electrification sector in Uganda. REA and UIA are central in the processes of obtaining all the necessary licenses and permits and have established networks and focal points in all these organisations. An investor therefore has to contact UIA for assistance throughout the process.
Ö Introduction
Uganda is a country that has adopted an ambitious growth policy with a focus on rural development, stable inflation and a stabilisation of the external debt situation. In the financial sector, remarkable reforms have been undertaken since the late 1990’s collapse of a number of banks. Several structural and sector specific reform initiatives have been undertaken by the Government of Uganda (GoU) over the years to enhance the economic development process. These included reform in the financial sector with the Financial Institutions Act Chapter 54 of the Laws of Uganda, there is now a new legal and regulatory framework in place and Bank of Uganda complies with the Basel Committee’s principles for effective banking supervision (often referred to as the Basel II principles). The Government is also executing the Plan for Modernisation of Agriculture (PMA), Sector reforms in Energy, Water, Communications, restructuring and privatisation of State Owned Enterprises (SOEs). All these reform processes have created a better business environment for private sector participations in the economy as well as creating new investment opportunities. .
There are significant investment opportunities in the various sectors of the Ugandan economy and more particularly in the electricity sector. There is currently a shortage of generation capacity and hence ample investment opportunities for developing new and renewable energy sources for electricity generation, transmission and distribution do exist. In order to promote such investment activities, the Government of Uganda (GoU) has put in place several policy instruments and appropriate financial and regulatory framework. For example, the Government has recognised the importance of Rural Electrification (RE) to further growth and economic development and in 2001 an ambitious Rural Electrification Strategy and Plan (RESP) was formulated with the aim to connect an additional 400000 rural households by 2010, i.e. to achieve a rural electrification of ten percent. These additional rural connections are estimated to be achieved by increasing the number of customers according to the following:
Rural HHs on the existing grid in 2000 / 80 000Number of additional rural connections by 2010 / 400 000
New customers on existing grid / 15% à / 60 000
New customers through grid extensions / 40% à / 160 000
New customers through isolated grids / 25% à / 100 000
New customers through solar-PV / 20% à / 80 000
In order to achieve these ambitious targets, the GoU outlined a new institutional structure for Rural Electrification (RE) in the RESP as it has been recognised that a rethink of the Sector would be conducive to attracting investors.
In addition to the policy and institutional measures undertaken, the Rural Electrification Board has commissioned the preparation of this Investment Guide for promoting the opportunities in rural electrification and renewable energy in Uganda. The reason for focusing on rural electrification is that for the further economic development and growth of the country, access to modern energy in rural areas must be accelerated. It is now well established that provision of electricity to previously unelectrified locations stimulates growth of different economic activities. When agriculture, agro-business, small and medium industries and enterprises, and commercial establishments have access to and use of modern energy, the economy will be transformed. This will stimulate investment, job-creation, and revenue generation throughout both rural and urban sectors and hence contribute to economic growth and poverty alleviation.