PROJECT INVESTOR MANUAL: UGANDA

Transcription

1 Mitigating Risk and Strengthening Capacity for Rural Electricity Investment in Africa PROJECT INVESTOR MANUAL: UGANDA September 2007 Supported By:

2 TABLE OF CONTENTS A. BACKGROUND Introduction Economy and Energy Sector Context Economy Energy Sector Power Shortages Energy Sector Finances Longer Term Generation Expansion Energy Policy... 8 B. PROJECT DEVELOPMENT GUIDELINES Introduction Generic Process Description Key Stakeholders in Rural Electrification and Renewable Energy Public Authorities Ministry of Energy and Mineral Development (MEMD) Electricity Regulatory Authority (ERA) Electricity Tribunal Rural Electrification Board (REB) Rural Electrification Agency (REA) Ministry of Water, Land and Environment National Environment Management Authority (NEMA) Ministry of Finance, Planning, and Economic Development (MFPED) Uganda Revenues Authority (URA) Uganda Investment Authority (UIA) Uganda Registration Services Bureau Procurement and Disposal of Assets (PPDA) Uganda National Bureau of Standards (UNBS) Parastatals Uganda Electricity Transmission Company Ltd. (UECTL) Uganda Electricity Generation Company Limited (UEGCL) Uganda Electricity Distribution Company Limited (UEDCL) Uganda Energy Capitalisation Trust Bank of Uganda Technical and Other Services Private Sector Foundation of Uganda (PSFU) Makerere University Uganda Renewable Energy Association (UREA) Uganda Manufacturers Association (UMA) Uganda Small Scale Industries Association (USSIA) Uganda Consumer Protection Association Cogen for Africa

3 4 Procedures for Developing Power Projects Incentives to Promote Rural Energy and Renewable Energy C. FINANCE MANUAL Introduction Financeability Issues Country Issues Credit Strength of Purchaser Government Support Political Risk Currency Stability Strength of Local Financial Markets Price of Power Avoided Cost of Power Maturity of Grid IRE Policy Legal Framework Power Purchase Agreement Project Specific Issues Project Sponsors Financial Structure Buy-Out Power Costs Technology Construction Risk Operation Risk Insurance Foreign Exchange Risk Environmental Risk Documentation Power Purchase Agreement Utility Requirements Tariff Structure Increased Costs Interruptions to Generation Payment Credit Risk Construction Operation Term and Termination Liability Metering Assignment Construction Contract

4 3.2.1 Tests on Completion Liquidated Damages Warranties Security Financing Training / O&M Manuals Operation & Maintenance Contract Operator O&M Contract Key Project Issues Project Insurances Project Lenders Requirements Tax Issues Security Role of Security Available Security Sponsor Support Security over Physical Assets Security over Rights and Cashflows Political Risk Changes in Legislation Agreements with Government Bodies Sources of Finance Commercial Banks Bonds Development Finance Banks Local Institutions International Institutions Investment Funds Political Risk Insurance Sample Project Profiles Suma SHPP Kenya Nandi Hills Mtibwa Sugar Estate Limited Bagasse Cogeneration Bibliography This report is an output of the European Commission funded project MIRREIA. For further information and details of the project team and authors, please visit: The sole responsibility for the content of this publication lies with the authors. It does not represent the opinion of the Community. The European Commission is not responsible for any use that may be made of the information contained therein. 3

5 A. BACKGROUND 1 Introduction This document is an output of the European Commission 1 funded project Mitigating Risk and Strengthening Capacity for Rural Electricity Investment in Africa (MIRREIA). For further information of the project please visit The document is a deliverable of the MIRREIA Work Package 5: Policy and Regulation and Work Package 6: Finance. The report combines deliverable D5.4: Project development guidelines with deliverable D6.2: Finance manual, thereby providing a comprehensive tool for investors wishing to develop rural electricity projects in Kenya, Tanzania or Uganda. This document looks specifically at Uganda interested parties are referred to the additional investor manuals on Tanzania and Kenya where required. 2 Economy and Energy Sector Context 2.1 Economy The annual headline inflation in Uganda averaged 6.6 percent in 2005/06, lower than the 8.0% posted in the previous year. However, the annual underlying inflation averaged 5.2 percent in 2005/06, slightly higher than the target of 5.0 percent, and more than the 4.7 percent recorded in 2004/05. The overriding factors that caused an upward pressure on underlying inflation in part were: The rise in international oil prices during 2005/06, which led to increases in domestic pump prices of oil products and the subsequential rise in transport fares, production and distribution costs. The shortage of hydroelectric power generation caused by prolonged drought during most of 2005 exerted direct pressure on utility prices. Over 2005/06, the Bank of Uganda issued Treasury bonds of various tenors to support monetary policy implementation. The annualized yields on the 2-year, 3-year, 5-year bonds were 12.4, 12.8 and The yield to maturity of the 10-year bond remained the same, as there were no issues of the 10-year bond in the period under review. As a result of the rising demand for Treasury bonds as evidenced by the consistent over-subscriptions at each bond auction, most of the bond rates dropped compared to the 1 The Intelligent Energy Europe programme, the COOPENER component (promotion of renewable energy sources and energy efficiency in developing countries). 4

6 corresponding rates of 14.6, 17.7, 16.0, and 13.5 percent on the 2-year, 3-year, 5-year and 10-year bonds, respectively. As at June 2006, the outstanding stock of Treasury bonds amounted to Shs billion. As part of the strategies to manage rollover risk, the BOU bought back and converted Shs billion worth of bonds in the period under review. Secondary market trades in the bond market totaled Shs billion. By end-june 2006, the effective yields on the 91-day, 182-day, and 364-day Treasury bills averaged 7.2, 7.7, and 10.0 percent. The Uganda Shilling depreciated by 7.1 percent in 2005/06 from Shs. 1,737.4 per US Dollar in June 2005 to Shs. 1,859.9 per US Dollar in June 2006, compared to the 4.3 percent appreciation observed in the twelve months prior to June Estimates of real Gross Domestic Product (GDP) at market prices indicated a slowdown in economic growth. Real gross domestic product in 2005/06 grew by 5.4 percent compared to 6.7 percent recorded in 2004/05. The slowdown in growth was attributed to exogenous shocks such as prolonged drought and a reduction in hydro electricity generation capacity, which affected agricultural production and manufacturing sector. Sector contributions to GDP are tabulated below: Sector Table 1: Uganda Economic Sectors Growth Contribution to GDP Agriculture 0.13% 19.65% Mining 8.26% 0.85% Manufacturing 0.97% 9.42% Electricity, water -2.02% 1.34% Construction 13.19% 8.63% Services 9.48% 18.03% Wholesale, retail 6.81% 11.32% Hotels, etc 14.95% 3.48% Transport, communications 20.74% 8.95% 2.2 Energy Sector The Government of Uganda (GOU) power sector strategy has been to: (a) promote legal, regulatory and structural sector reforms, including leveraging private sector investment; (b) provide adequate, reliable and least cost power generation with the goal to meet urban and industrial demand and increase access; and (c) scale up rural access to underpin broad based development. 5

7 Over the past seven years, the Government has: Promulgated a new Electricity Act; Created an independent Electricity Regulatory Authority (ERA), which has established a strong track record in ensuring the financial viability of the sector; Unbundled the state-owned Uganda Electricity Board into separate entities responsible for generation, transmission and distribution, and concessioned the generation and distribution facilities to the private sector; Increased the number of urban and rural households with direct access to electricity, promoted grid and off-grid private sector-led rural electrification and established a Rural Electrification Agency (REA); Pursued least cost power investments to provide adequate and reliable service; Collaborated with the East Africa Community on regional power interconnection. This regional approach is expected to benefit all countries involved by diversifying supply sources and reducing investment costs. In spite of the significant structural reforms implemented in the power sector, Uganda is confronted by a number of short and medium term challenges in this sector which are affecting growth. The main issues are described below Power Shortages The lack of adequate and reliable power is consistently cited in private sector surveys as being among the top five constraints for Uganda s economic growth. Electricity service quality, availability and reliability have been major impediments to sustained investment and growth. To mitigate the shortages, the Government has taken action on three fronts: (a) Augmenting supply - the Government has taken the following steps (i) (ii) (iii) Thermal Power - Installed an initial 50 MW power station at Lugogo in May 2005 on an Independent Power Producer (IPP) basis; the average load factor for the Lugogo thermal station was increased from 75 percent to 90 percent. The plant is now also running on a 24 hour basis. These measures added an additional 10 MW of firm capacity. An additional 50 MW of thermal capacity was added at Kiira in November 2006, for a current total of 100 MW thermal power capacity. Bid evaluation is now underway for a third 50 MW power station at Mutundwe. GOU also is currently procuring a 50 MW thermal plant on a BOT basis, which is expected to be commissioned in January 2008 for 15 years. (b) Improving Power Transmission and Distribution Performance - In March 2005, UMEME, the private concessionaire, took over the operations of the distribution system under a concession agreement that includes financial incentives to increase the number of connections, reduce technical 6

8 and non-technical losses, and increase the collection rate. At the time of UMEME s takeover, system technical and non technical losses were around 38% (or 43% including 5% transmission losses through UETCL s transmission network). The billing/collection ratio was 80%, implying that prior to the UMEME concession only about 47% of the energy sent out to the national grid was paid for. Since March 2005, UMEME has improved the collection rate from 80% to 92% (although the rate dropped again to 82% in December 2006 since the June and November tariff increases), decreased technical and nontechnical losses to about 34%, and connected about 36,000 new customers. During the first 22 months of the concession, UMEME invested US$13.6 million in system improvements, and has committed to invest a total of US$65 million during the first five years of the concession. (c) Reducing Demand - demand side management and energy efficiency interventions also help to reduce the supply-demand gap by reducing demand. MEMD already has a program to distribute, on a grant basis, 800,000 energy-efficient light bulbs, by April This will not only help poorer households to cope with the higher tariffs but also reduce the overall demand for electricity during peak hours and result in energy savings of about 10 MW (average) and 40 MW (during peak hours) Energy Sector Finances The advantage of the short-term thermal plants is that power is available quickly on a stop-gap basis. The disadvantage is that this power currently costs between US$ 0.22 and 0.24/kWh, which is more than twice the cost of hydropower. This is the main factor that has unsettled the sector s cost structure and finances. Further, the shortage of power has affected UMEME s financial viability, as it has fewer units available that can be used to recover fixed costs. The regulator has raised end-user power sector retail tariffs by a cumulative 94 percent to US$0.172/kWh in These tariffs are high by regional and international standards, but they still do not cover the full costs of power purchased by UETCL. The Government has provided funds to UETCL to cover the shortfall, although not fully. Further, the Government has renegotiated its agreement with UMEME to address financial issues arising from the power crisis. Despite the fact that only 5 percent of Uganda s population has access to electricity and that only a very low level of power consumption is attributed to the poor, the proposed temporary subsidies to the electricity tariffs is justified for two main reasons: Cost of Doing Business - The current fully cost-reflective end user tariff would have to be around US$0.26/kWh. Such a tariff level would have negative implications on the opening of new businesses and thereby on the expansion of the industrial and commercial sectors; and Increase Access to Electricity - Fully cost-reflective tariffs would seriously hinder or even stop completely UMEME s ability to expand its customer base as unsubsidized tariffs would be unaffordable for a majority of potential new residential and non residential customers. 7

9 However, it is thought that the GOU subsidies should only be needed until the next least cost hydropower generation facility comes on stream, currently scheduled for early The much cheaper generation costs of the World Bank supported Bujagali hydropower project should help eliminate GOU subsidies to the sector in the medium term Longer Term Generation Expansion The current crisis in the power sector stems from a shortage of electricity supply due to the lack of least cost generation facilities. In the long term, a more sustainable and least cost expansion of the generation capacities in Uganda is needed. Part of this expansion is to be met with the decision to proceed with the construction of a 250 MW hydropower plant at Bujagali Falls Energy Policy Renewable Energy Policy for Uganda, March 2007 This is a very comprehensive policy document, setting out Government s policy vision, goals, principles and objectives for promoting sustainable utilization of renewable energy in Uganda. The document includes much detailed information on the potential for renewable energy development. It also includes a standardized Power Purchase Agreement (Annex 1) and feed-in tariffs for electricity generators below 20 MW (Annex 2). Energy Policy for Uganda, September 2002 The Policy spelt out Government s commitment to the development and use of renewable energy resources for both small and large scale applications. An overall policy goal is to increase the use of modern renewable energy, from the current 4% to 61% of the total energy consumption by the year Some key objectives of this policy are: To publish a standardized Power-Purchase Agreement (PPA) with feed-in-tariffs determined periodically. Create a Renewable Energy Department. Promote, in collaboration with NFA and MAAIF, the growing of energy crops. Develop appropriate legislation and provide financial incentives for the production of biofuels. Rural Electrification Strategy and Plan, 2001 The plan covers the period Energy for Rural Transformation (ERT) The ERT, which is a 10-year programme, integrates rural electrification with the development of small renewable energy. ERT is managed by the Ministry of Energy and Mineral Development (MEMD) and has attracted USD 400 million support from the World Bank. 8

10 The activities are incorporated in ongoing activities, which include the planning of priority Rural electrification projects (PREPS), the Locally/Community Initiated Rural Electrification projects (LIREPS/CIREPS) and the extension of grid electricity to agricultural enterprises. The ERT financial support has two channels: o Project development is supported by the Private Sector Foundation for Uganda (PSFU), while o Investment subsidies are managed by the Rural Electrification Agency (REA). All projects supported by ERT must comply with environmental and social policies of the Government of Uganda and of the World Bank. For this purpose, the Rural Electrification Agency issued an Environmental and Social Management Framework in 2006, together with a briefer version ( A field manual ) in January Electricity Act, 1999 The act set the legal basis for the industry s restructuring, including the establishment of the Electricity Regulatory Authority (ERA). The act is currently in a process of revision. Part hereof is to establish a standardized feed-in-tariff based on the principle of avoided cost pricing, in accordance with the provision of the Electricity Act The tariff should be able to translate into a cash revenue that will not require the investor to resort to a capital subsidy. The feed-in-tariff will be part of the Standardized PPA. The feed in-tariff will be structured to differentiate between peak, shoulder and off-peak prices to reflect the higher value of power in the peak period; and between short-to medium-term prices and long-term prices to reflect the higher risk of load shedding in the short to medium-term. Concessions The Ministry of Energy and Mineral Development has put in place a programme of awarding concessions to private developers to generate and supply electricity direct to consumers. These concessions are based on taking over the existing isolated generation and distribution facilities and then increasing the number of customers connections in line with pre defined targets. This will require the concession holders to develop new generation sources to meet the load growth. Large Hydro Power Schemes Sites will be tendered according to the Electricity Act 1999 sections 29 and 32. The developer will arrange an appropriate financing package. Tariffs will be determined through negotiations on a case by case basis. Small Power Schemes More than 50 mini hydropower sites with a combined potential of 210 MW have so far been identified through different studies in Uganda. Currently small hydro only accounts for around 18 MW of electricity generation capacity. Some of these sites can be developed for isolated grids and others for electric energy sales to the grid. Basic studies of the various resources and sites are being caried out followed by promotion by the private sector foundation. This will cover mini-hydro schemes, biomass cogeneration, wind power, peat, geothermal and solar, but limited to 20 MW installed capacity per 9

11 plant. The feed-in-tariff will be determined by the Uganda Electricity Transmission Company Limited (UETCL). Rural and Urban-poor Electricity Access Programme The programme will enhance the on going procedures for community schemes, where the cost of connection to the community is subsidized. It will also support the development of independent grids supplied by micro hydropower and biomass gasifiers to be managed by communities in remote settlements. The programme will prioritize supporting electrification for productive uses and key social services. Biofuels Programme This program will support investments in production and use of ethanol, biodiesel, methanol and biogas. Specifically all dealers in petroleum products will be obliged to blend fossil fuels with biofuels up to 20% as appropriate. Wastes for Energy Programme This will cover the conversion of wastes to energy through direct combustion, gasification or bilogical conversion to biogas. Electricity Regulations The Electricity Regulatory Authority (ERA) is responsible for receiving and processing application and issuing of permits and licencing for generation, transmission, distribution or sale of electricity and prescribing conditions and terms of licences, including prices. ERA is also charged with establishing a tariff structure and to investigate tariff charges. ERA has by virtue of the Electricity Act issued the following statutory instruments: The Electricity (Installation Permits) Regulations, 2003 The Electricity (License Fees) Regulations, 2003 The Electricity (Primary Grid Code) Regulations, 2003 The Electricity (Quality of Service Code) Regulations, 2003 The Electricity (Safety Code) Regulations, 2003 The Electricity (Tariff Code) Regulations, 2003 Modern energy service programme This program will involve the promotion of renewable energy based technology for households, institutions, commercial buildings and small scale industries. In particular, these services will be for cooking, lighting, motive power, and ICT. Strategic Plan for the Uganda Power Sector, 1997 This is the strategic plan for the development of the power sector. Geothermal Development Plan Covers the period

12 B. PROJECT DEVELOPMENT GUIDELINES 1 Introduction This section of the document describes all relevant ministries, other government agencies, local authorities and regulatory authorities required for issuing licenses, permits and approvals for renewable energy electricity generating and distributing projects in Uganda. It also describes the procedural requirements and incentives to set up a renewable energy electricity generation plant or an electricity distribution company. 2 Generic Process Description Generally, a developer of an independent power producer (IPP) needs to conduct numerous activities to transform the initial idea into an actual generation plant. To benchmark the necessary activities to be carried out in each of the three countries, a typical process is described below. The consecutive order of the steps is not necessarily as presented here. Also, several steps are usually carried out in parallel. The description excludes required activities to develop the IPP as a CDM project. 1. Project identification and promotion: May need support from government or energy regulatory authority. 2. Obtain permit to conduct initial studies. Possibly, support from energy ministry or regulatory authority is required. 3. Feasibility analysis. For a renewable energy IPP this would typically include: Obtain external funding for the analysis, if possible Resource assessment; e.g. biomass, hydropower or wind energy resources Generation plant and grid connection layouts Preliminary environmental impact assessment Electricity generation estimate Potential buyers of electricity Full cost accounting; financial analysis of all costs and revenues; possibly also a socioeconomic analysis Risk assessment (financial, political, regulatory and licensing risks) Draft implementation plan; e.g. a Gantt Chart of all following activities 4. Institutional arrangement: Company structure, shareholders agreement, project management, administration, accounting and auditing. 5. Business plan. 11

13 6. Obtain business licenses and other business formation approvals, e.g. company registration license and trading license. This will usually require a due diligence report and business plan. 7. Secure the land through a lease or other agreement with the landowner. Acquire land use permit, including land for the access road. For hydropower projects, the water right also needs be secured. 8. Fuel purchase agreements, in particular for biomass and fossil fuels (in case fossil fuels are used as complementary fuels or for back-up). 9. Obtain pre-siting permit; local/regional government. 10. Obtain an electricity generation license / IPP license. Energy ministry or energy regulatory authority. 11. Ensure the right of access to the grid; transmission system operator. 12. Grid connection (power transmission and interface): Investigate power system capability and future expansion plans and technical barriers regarding grid connection at the site Selection of a site for a substation to connect to the grid Planning of the system Load flow studies, including transient and dynamic stability (if applicable) Assessment of power quality - both at consumers and at the system Metering scheme Co-generation protection and synchronisation schemes (if applicable) Establish bounds for the contractual agreements between the generator, the grid operator and the end user (if applicable) Design of electrical substructure, including transformers and hand-over station, taking into consideration primary network, protection, control, synchronisation schemes and metering implications. Prepare substation drawings and description for tender purposes, including protection, control, monitoring and metering systems. Prepare monitoring system for power quality at the customer s site (if applicable) as well as at the point of common coupling Enter into a connection agreement with the network service provider. 13. Negotiate and sign a Power Purchase Agreement (PPA): Reach a PPA with the buyer of electricity. The energy regulatory authority may have issued a standard format. Major contents: Energy and capacity charges, operation of the generation 12

14 plant, performance security, interconnection, use of system, metering, indemnities, insurance. The tariffs may be predetermined by the regulatory authority. Possibly secure a government guarantee, protecting investors against possible risks on feeding electricity into the national grid. The PPA may include negotiations with particular customers, e.g. neighbouring industries or green customers. It may also include power wheeling (the use of the grid as conduit for providing electricity from source of generation to the buyer) and power banking (electricity supplied to the grid can be taken back) possibly as separate agreements. Submit the power purchase agreement to the regulatory authority for approval. 14. If the project is eligible for any subsidies - e.g. investment grant, renewable electricity premium, tax or duty exemption - these shall be acquired. 15. Raise investment capital: Investment budget. Analysis of availability and accessibility of capital (equity and loans) Bilateral financial agreements Financial closure For rural electricity projects, public funding may be available. 16. Tendering to select contractor to build the plant. Sub-steps: 1. Prepare pre-qualification tender documents. 2. Announcement, pre-qualification. 3. Interested contractors deliver bids for pre-qualification within 3 weeks. 4. Short list, 1 week. 5. Prepare tender documents. 6. Invitation to tender. 7. Preparation of proposals: Minimum 45 days, preferably 60 days. 8. Evaluation and selection, 1-2 weeks. 9. Contract negotiations, 1-2 weeks. 10. Letter of Credit to contractor 11. Mobilisation. Steps 1-4 may be dropped in a completely open tender. Then step 8 would usually require more time. 17. Employment of consultants and contractors/investors may have to be sanctioned by the energy regulatory authority. 18. A go/no-go decision needs be taken at various stages of the development; e.g. after completed feasibility analysis, after completed tendering and prior to financial closure. 13

15 19. Environmental impact assessment (EIA) The EIA process typically has three main phases: Screening (to determine whether an EIA license is required); scoping (to focus the EIA on the key issues); EIA study. Outputs: EIA ready for approval by authorities; national environmental agency Environmental management plan for the construction phase Environmental management system for the operational phase, including an impact monitoring guideline. The EIA process may be very time-consuming, a.o. due to public consultation. 20. Obtain approval of environmental terms and conditions; local/regional government. 21. Obtain construction/installation license; local/regional government. 22. Obtain other permits from regional government and local authorities; e.g. land planning, approval of intervention on public land, building construction, safety and security measures. 23. Employment of consultants and contractors/investors may have to be sanctioned by a public authority. 24. Risk coverage and insurance. 25. Some authorities, e.g. the energy ministry or the energy regulatory authority, may need to appraise the project at various stages of the development, e.g. after completion of feasibility analysis and after completed tendering. 26. Apply for operation license; regulatory authority or regional government. 27. Establish generation plant: Set up project management Design review: Contractor scrutinizes design layouts and elaborates detailed designs. The Contractor may opt for other designs than those developed earlier. Approval of final detailed design. Civil works: Access road, internal roads and site preparation, geotechnical investigations, foundations, manpower facilities, supply of electricity and water to construction site, cable trenching, fencing, buildings construction. The civil works is usually the responsibility of the main contractor, but may be sub-contracted to a local company. Electrical works: Generation plants own consumption, substation, central monitoring and control facilities. 14

16 Procurement of equipment; may include tailor-made manufacturing. The national bureau of standards may have issued procurement standards. Major equipments may have to be tendered. Equipment procurement standards may be set by the national bureau of standards or the energy regulatory authority. Delivery of equipment: Transport to harbour; shipment; customs clearance; transport to site. Installation of equipment. Commissioning of plant: Testing of all equipment; performance testing (do components perform as guaranteed?); safety certificates. 28. Operation of generation plant: Operation, monitoring (power generation, EIA etc); maintenance. Al three activities may be contracted to third parties. The regulatory authority may request regular monitoring reports. 29. Arbitration; in case of disputes concerning investments. 15

17 3 Key Stakeholders in Rural Electrification and Renewable Energy 3.1 Public Authorities Ministry of Energy and Mineral Development (MEMD) The Ministry is responsible for energy policy formulation, and oversees the operations of the electric power sub-sector. The Energy Resources Department has 3 divisions: Electric Power, New and Renewable Sources of Energy, and Energy Efficiency. In consequence of the Renewable Energy Policy, March 2007, a new Renewable Energy Department is being created. Address Plot No. 29/33, Amber House Kampala Road, P.O.BOX. Kampala Telephone (256) Homepage Electricity Regulatory Authority (ERA) Established in April 2000 by virtue of the Electricity Act 1999 as an independent sector regulator. Its budget is separate from that of MEMD. Its main function is to regulate the generation, transmission, distribution, sale, export and import of electricity. ERA reviews and approves electricity tariffs. ERA has elaborated a Strategic Plan Address Plot 15, Simoni Road, P.O. Box Nakasero, Kampala Telephone (256) / Homepage Electricity Tribunal This is a body concerned with the arbitration of cases in the electricity sector. Any stakeholder, who may not be satisfied with ERA s decisions, can appeal to the Tribunal. Address Plot No.29/33 Amber House Telephone (256) Homepage None 16

18 3.1.4 Rural Electrification Board (REB) This was established in 1998 to manage the Rural Electrification Fund (REF). The Secretariat of the REB is REA. Address Plot 1 Pilkington Road, 10 th Floor, Workers Hse. P.O.Box 7317 Kampala Telephone (256) Homepage Coming soon Rural Electrification Agency (REA) This was established in 2003 to be in charge of managing the rural electrification projects. Its key role is to increase the electricity grid coverage from the present 3% to 10% by Address Plot 1 Pilkington Rd, 10th Floor, Workers Hse P.O. Box 7317, Kampala Telephone (256) /2; (256) Homepage Ministry of Water, Land and Environment The Directorate of Water Development (DWD) is responsible for issuing permits for water extraction for hydropower schemes. Address Tbc Telephone /3 Homepage mwle@mwle.go.ug National Environment Management Authority (NEMA) Established by the National Environment Statute, 1995, to be in charge of managing the natural and environmental resources, including the conducting of Environmental Impact Assessments. Address Plot No.17/19/21 Jinja Road, P.O.Box Kampala Telephone (256) / 5 / 8 Homepage Ministry of Finance, Planning, and Economic Development (MFPED) This is a government ministry in charge of finance, planning and economic development of the country. Address Plot 1/12 Apollo Kagwa Road P.O. Box 8147 Kampala Telephone (256) Homepage www@finance.go.ug 17

19 3.1.9 Uganda Revenues Authority (URA) URA is responsible for preferential tax treatment, tax exemptions, tax holidays, accelerated depreciation etc. Uganda s tax system is divided into Central Government and Local Government tax structures. The principal taxes levied and administered by the Central Government (URA) are income tax both on individuals and companies; Value Added Tax; Import Duty and Excise Duty. Taxes levied by the Local Government include Graduated Tax, Ground Rates, and Trading and Operational Licenses. Address Nakawa Industrial Area, Kampala, P.O.BOX 7279, Kampala Telephone /1 10 Homepage Uganda Investment Authority (UIA) The Investment Code, which became law in 1991, established UIA as the autonomous regulatory body to promote and facilitate investments in Uganda. The UIA is a good source of essential information and free advice relating to investments in Uganda and will advise and assist investors obtain licenses relating to their type of business (e.g. mining, banking, fisheries). It is advisable that before an investor begins the investment process (s)he approaches the UIA for free advice and information. Address Plot 28 Kampala Road P.O. Box 7418, Kampala Telephone (256) /5, , /3 Homepage Uganda Registration Services Bureau Registration of companies, trade marks, patents etc. Address Plot No. 5, Registrar Amamu House, George Street Telephone Homepage Procurement and Disposal of Assets (PPDA) The Public Procurement and Disposal of Public Assets Authority (PPDA) is the regulatory body for public procurement and disposal in Uganda. It is responsible for drawing guidelines for procurement and disposal of government Assets. It was established through the Public Procurement and Disposal of Public Asset Act of

20 Address Plot 1 Pilkington Rd, 14th Floor, Workers Hse P.O. Box 3925, Kampala Telephone (256) Homepage Uganda National Bureau of Standards (UNBS) This is a regulatory body which is responsible for enhancing development through application of standards in trade, Industry and consumer protection. It was established by act of parliament of June Address Plot 28 Nakawa Industrial Area, Kampala Road P.O. Box 6229, Kampala Telephone (256) , Fax Homepage Parastatals Until 1999, the Uganda Electricity Board (UEB), the national utility company, enjoyed a monopoly on the power sub-sector, which covers electricity generation, transmission and distribution including rural electrification. This monopoly was terminated through the enactment of the Electricity Act, 1999, which created the Electricity Regulatory Authority (ERA) and liberalized the sector. Consequent to the Electricity Act, 1999, Uganda Electricity Board (UEB) was unbundled to create different business entities for generation, transmission and distribution known as Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL) and Uganda Electricity Distribution Company Limited (UEDCL) respectively Uganda Electricity Transmission Company Ltd. (UETCL) UETCL was established in 2001, in the process of unbundling the previous Uganda Electricity Board. UETCL is publicly owned, but operates as an independent and profit making business unit. The key roles are: Owner, investor and operator of transmission power lines above 33 kv in the country System operator Single buyer for grid connected generation, which is sold on to the distributors Export to neighbouring countries Power expansion planner 19

21 Address Plot N0. 29/33, Umber Hse Kampala Road, P.O. Box 7625, Kampala Telephone (256) / Homepage Uganda Electricity Generation Company Limited (UEGCL) This is a generation company owning the two generating power stations at Jinja, ie Nalubale and Kiira power stations. In November 2002, the UEGCL was privatized through a long-term concession of 20 years with ESKOM Enterprises (U) Ltd. Address Plot 2 Farady Road, Umber Coat P.O.Box 1101 Telephone (256) , , Homepage Still working on it Uganda Electricity Distribution Company Limited (UEDCL) UEDCL owns the distribution infrastructure operating at 33KV and below. It is responsible for the retail of electricity including metering and billing of consumers. UEDCL buys bulk power from UETCL in accordance with terms set in a Power Purchase Agreement. Address Plot 29/33 Umber Hse, Kampala Road P.O. Box 7390, Kampala Telephone (256) Homepage UEDCL has granted a concession ( ) to UMEME (a venture by ESKOM and Globeleq) to manage and operate the national distribution grid Uganda Energy Capitalisation Trust Includes a Credit Support Facility (CSF), a public trust entity, to facilitate rural electrification and renewable energy investments. Participating financial institutions include commercial banks, development banks and microfinance institutions. Contact details? Bank of Uganda The Bank s Refinance Facility forms together with the above-mentioned CSF - the two existing financial instruments to hedge private investors long term borrowing from local financial institutions. The detailed operational modalities of these instruments can be accessed from the various legal documents that established them. Address Plot 37/43, Kampala Road P.O. Box 7120, Kampala Telephone (256) /6 Homepage info@bou.or.ug 20

22 3.3 Technical and Other Services Private Sector Foundation of Uganda (PSFU) This is a private sector group concerned with the development of the private sector in facilitating and financing their development programmes. PSFU is managing support to project development (prefeasibility and feasibility studies) financed by ERT. Address Plot 43 Nakasero Road P.O.Box 7683, Kampala Telephone (256) Homepage Makerere University Address Makerere Hill,P.O.Box 7062 Kampala Telephone (256) Homepage Uganda Renewable Energy Association (UREA) Address Plot 27/29 Kampala Road P.O.Box Kampala Telephone (256) Homepage Still being worked on Uganda Manufacturers Association (UMA) Address Lugogo UMA Trade Fare Jinja Road P.O.Box 6066, Kampala Telephone (256) Homepage Uganda Small Scale Industries Association (USSIA) Address Plot 43 Nakasero Road P.O.Box 7683, Kampala Telephone (256) Homepage 21

23 3.3.6 Uganda Consumer Protection Association This is a non governmental organisation concerned with the interests of consumers in general. It carries out opinion surveys on tariff increases and protects consumers against undue increases. Address Plot 43 Bugada Road P.O. Box 67418, Kampala Telephone (256) Homepage Still being worked on Cogen for Africa The initiative, running , is implemented by UNEP/GEF and AfDB and executed by AFREPREN/FWD. It supports cogeneration in industries, primarily agro-industries, by pre-feasibility studies, feasibility studies, assistance to PPA negotiation and mobilizing investment finance. Address P.O. Box 30979, Nairobi Telephone ( ) Homepage 22

24 4 Procedures for Developing Power Projects A developer of an independent power producer (IPP) needs to conduct numerous activities to transform the initial idea into an actual generation plant. The major steps are presented below. The numbering does not reflect a necessary sequence it is merely for reference. 1. Business Registration with the Uganda Registration Services Bureau. 2. Investment License: Uganda Investment Authority (UIA). UIA intends to become a one-stop shop for private investors and can therefore provide information and guidelines on many pertinent aspects. The Danish embassy in Kampala (Danida) has made (September 2004) an extensive Investing in Uganda A practical guide for investors, which is available at UIA. Main chapters: Immigration, setting up a business, investing, labour law, taxation, land tenure, accessing utilities, financial services, and environmental protection issues. 3. Project identification and promotion. Currently, this is being done by the investors with the support of MEMD. 4. Expression of interest on concept development and site: REA. 5. Obtain a permit to undertake studies: ERA. 6. Acquire land use permit. The entry point is the District Land Board of the actual location. Lease of government owned land is managed by Uganda Land Commission. Also, UIA can acquire land and lease it to investors. 7. Water use permits (for hydropower projects): Ministry of Water and Environment. The Water Resources Management Department (WRMD) will provide technical advice to the developer in early stages of EIA and of the initial project development. The developer will have to obtain a permit from the Department of Water Development (DWD), before the developer can undertake any construction on water resources. 8. Application for subsidies and tax exemptions: o Grant for project development (pre-feasibility and feasibility) from the Private Sector Foundation (BUDS/PSFU). A subsidy of 50% may be granted, up to a ceiling of USD 50,

25 o Investment subsidy from REF/REA; application shall include studies and business plan indicating subsidy requirements. o Preferential tax treatment, tax exemption, accelerated depreciation etc are described in the Finance Bill Harmonized Tariff Code published regularly by the Ministry of Finance, Planning, and Economic Development. 9. Preparation of feasibility studies. 10. Project appraisal: This is currently being done by REA /REF in collaboration with ERA. 11. Electricity sale. On-grid generators (bigger than 0.5 MW): o A standard Power Purchase Agreement (PPA) is annexed to the Renewable Energy Policy, March o Feed-in tariffs for hydropower and cogeneration based on bagasse are annexed to the Renewable Energy Policy, March Tariffs for generators are developed by UECTL and approved by ERA, then published by UETCL and ERA. Power wheeling: The wheeling charge is determined by ERA, based on length of transmission/distribution line and voltage level. Off-grid systems: o If a concession is required, this needs also be applied to ERA. Often, concessions are advertised for bidding. o Tariffs are approved by ERA, based on full-cost accounting. 12. IPP License (construction and operation): ERA grants the licence, provided the PPA, EIA and other essential approvals have been completed. The process comprises the following main steps (more details in figure below): 1. A person who intends to establish a project for which a licence is required shall notify ERA of the intended project. 2. If the notification meets the requirements, ERA will publish it in the Gazette and at least one newspaper of wide circulation within 30 days. ERA shall invite directly affected parties and affected public agencies to make comments on the notice within a fixed period but not less than 30 days after the publication. 3. ERA may, in not more than 30 days after the receipt of comments, issue a permit allowing the intended applicant to carry out studies and other activities required to prepare an application. 4. ERA shall through a fair, open and competitive process invite applications for any licence. 24

26 5. ERA shall within 45 days after receiving the application cause a notice of the application to be published in the Gazette and at least one national paper of wide circulation. Directly affected parties and local authorities shall be invited to lodge with ERA an objection within a specified time being not less than 30 days after the publication. 6. ERA shall process all applications for licences expeditiously and in any case not later than 180 days after the receipt of a complete application. Application forms are available at ERA also issues Power Distribution and Sales Licenses. 13. Access to grid and connection: This has to be negotiated with Uganda Electricity Distribution Company, and then approved by ERA (in agreement with the Grid Code, which can be downloaded from ERA s website). 14. Environmental Impact Assessment certificate. NEMA has issued an Environmental Impact Assessment Guidelines for the Energy Sector, June From the point-of-view of the project developer, the main stages of EIA are: 1. The developer submits a Project Brief (including a description of mitigation measures) to NEMA. NEMA will then initiate a screening process to determine, whether the project is exempt from EIA During the screening process, there may be uncertainty on the nature and magnitude of impacts some energy projects can cause. These projects require an Environmental Impact Review (EIR) to determine if adequate mitigation measures have been identified 3, or whether a more detailed Environmental Impact Study (EIA Study) would be required. 3. The developer submits a scoping report to NEMA to focus the EIA on the key issues. Stakeholder consultation is an important part of the scoping process. The report includes Terms of References for the subsequent EIA Study. 4. The developer submits the EIA Study to NEMA, including an Environment Management Plan (EMP). NEMA will then, in consultation with MEMD and by inviting stakeholders comments, review and possibly approve the EIA Study. 5. After project commissioning, the developer will monitor the environmental impacts and submit monitoring reports to NEMA and MEMD. 15. Local environment conditions: The EIA will have taken care of the local environmental conditions and the District Environment Officer will be consulted. 2 Projects normally exempt from EIA are: Solar energy (PV) < 10 kw; stand alone wind turbine < 100 kw; household biogas unit; household generator < 5 kw. 3 Such projets are: Hydro power < 500 kw; stand alone wind turbine > 100 kw; wind farm < 15 machines; stand alone gasifier < 50 kw; stand alone generator < 500 kw; cogeneration < 500 kw. 25

27 16. Local permits have to be obtained from the local government, where the project is located. Investors should note that under the 1997 Local Government Act, government has decentralised powers, including the power to levy, charge and collect fees, taxes, rates, royalties, stamp duty and registration / licence fees. Local Authorities issue Trading licenses for all businesses that wish to establish within their jurisdiction. The objective is to regulate businesses with respect to public health, safety, national security, environmental and natural resources protection, and land planning or zoning. 17. Project Financing: Equity and Loan from financial institutions is usually done at negotiated interest rates. Currently, these range from 18% to 23% for Uganda Shillings. Most rural projects are either funded by the government or donors. The private sector with the help of government subsidy drawn from the REF and ERT are accessing the funds for developing the rural areas. The amount of grant is dependent on the nature of the project and availability of funds as well as the decision of the Rural Electrification Agency. See further details in the MIRREIA report on mitigation of financial risks. 18. Tender project: Procedure and requirements are set by the PPDA. 19. Labour relations; social security, hospital insurance, pension, etc: Ministry of Labour. Residence permits for foreign staff are issued by the Directorate of Citizenship and Immigration under the Ministry of Internal Affairs. 20. Employment of consultants and contractors/investors need be handled by the ministry of internal affairs by issuing working permits by the immigration department. 21. Equipment procurement standards have to be confirmed by the Procurement and Disposal of Assets (PPDA) in consultation with the Uganda National Bereau of Standards (UNBOS). 22. Monitoring and evaluation of is carried out by ERA, implementation and operation (quarterly). If REA has supported the project, they will also monitor the project implementation. The main tasks of ERA are to make sure that licences are issued and monitor that all requirements and conditions are fulfilled: 26