Energy Infrastructure Development and Financing

(Uganda)Prepared By

Sasaenia Paul Oluwabunmi, PMP, MIET

for the

Financing For Development (World Bank MOOC)

8th of December, 2015

Overview

• The Country - Uganda• Uganda’s Energy Profile• Uganda’s Current Energy Situation• Energy Financing Situational Analysis• Energy Financing Institutional Framework• Energy Sector Policy• Energy Sector Funding• Developmental Funding Constraints• Proposed Responses to Energy Sector Issues• Conclusions

The Country - Uganda• In 2012, according to World Bank

estimates, Uganda's gross national income (GNI), was USD 17.6 billion, equivalent to USD 480 per capita.

• Uganda has established a strong record of prudent macroeconomic management and structural reform over the past two decades.

• Uganda is regarded as having an open, deregulated economy, with conditions favourable to investment especially in relation to developmental financing.

Uganda’s Energy ProfileSources: Encyclopedia of the Earth (2015). Energy Profile of Uganda.

Uganda Ministry of Energy and Mineral Resources (2012). Discovery of Oil in Uganda.Renewable Energy Focus (2010). Uganda’s Renewable Energy Potential.

World Bank (2013). World Development Indicators.United Nations Environment Program (2012). National Workshop on Promoting Sustainable Solutions for Africa.

ENERGY POTENTIALWind UnascertainedSolar 200 MW

Geothermal 450 MWPeat 800 MW

Biomass 1,650 MWHydroelectricity 2,200 MW

TOTAL 5,300 MW

ACTUAL INSTALLATIONWind NilSolar Negligible

Geothermal NilPeat Unascertained

Biomass 125 MWHydroelectricity 680 MW

TOTAL 810 MW

Uganda’s Current Energy Situation• Despite, its abundant

energy potential, Uganda is an energy poor nation with limited access to electricity.

• The sector provides a major contribution to Uganda’s Treasury.

92%

2%6%

Current Energy Supply Mix in Uganda

BiomassHydro PowerFossil Fuels

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

0

5

10

15

20

25

Uganda Oil Consumption

Uganda Oil Consumption (thousand barrels per day)

Energy Financing Situational Analysis• The current energy financing

pattern is not sustainable because it relies heavily on non-renewable energy which is costly, limited, and has serious environmental effects.

• This pattern further denotes the low level of industrialization and commercial production in the country.

• In order to create a favorable investment climate and attract heavy investments in the industry sector, there is also a need for policy reform to ensure sufficient electricity generation capacity is created.

Electricity Generation Projections (Ugandan Govt.)YEA

RCONSUMPTION (KWH/CAPITA)

CAPACITY (MW)

2010 75 425

2015 674 3,885

2020 1,273 8,601

2025 1,872 14,670

2030 2,470 22,222

2035 3,069 31,252

2040 3,668 41,738

Energy Financing Institutional FrameworkSource: Ugandan Electricity Regulatory Agency

Energy Sector Policy

• Uganda currently has one of the lowest per capita electricity consumption (70 kWh/year) in the world.

• The end user tariff was USD 0.18/kWh for domestic consumers and the difference between the cost effective tariff and the end-user retail tariffs was met through a government subsidy.

• The 2002 national energy policy sets the main policy goal in the energy sector as being: “to meet the energy needs of the Ugandan population for social and economic development in an environmentally sustainable manner."

Energy Consumption in Uganda

71%

14% 4%

10%

4%Domestic UseCommerceTransportationIndustryOther Purposes

Energy Sector FundingSources: UNIDO and ISCHP Paper (2013). World Small Hydro-Power Development Report

International Energy Agency (2011). World Energy Outlook 2011.Uganda Ministry of Energy and Mineral Resources (2002). The Energy Policy for Uganda.

• The Government of Uganda, with support of the World Bank, funds the Energy for Rural Transformation (ERT) Program that aims to increase access to modern, clean and affordable energy to rural areas.

• There are many multilateral and bilateral donors funding the energy sector in Uganda. These multilateral institutions include: the World Bank, IFC, and the ADB which are investing in geothermal and hydropower generation.

• Bilateral donors include KfW, the Netherlands, the United States, and the United Kingdom which are in investing in small hydro-power plants.

• OFID has invested in Uganda’s energy sector through the funding of rural electrification projects. Other members of the Arab Coordination Group that have also contributed to Uganda’s energy sector include BADEA and Kuwait Fund.

Developmental Funding ConstraintsElectric power shortage remains the single greatest obstacle to the country's economic growth; although, access to electricity is one of the key tools to national development. In order to evolve relevant policies and enhance investment in the energy sector, the following have been identified as the key issues that affect the supply and consumption/demand for energy in the country:• Financing was identified as the most significant constraint

for the development of energy sector projects.• Inadequate public sector financing and private sector

partnership to develop electricity supply projects to match the growing demand for the service.

Proposed Responses to Energy Sector IssuesIn order to address these challenges and in full recognition of the strategic role that electricity plays in socio-economic development, the following power sector reforms with the following key objectives are proposed:• Make the power sector financially viable.• Increase the sector's efficiency.• Improve the sector's commercial performance.• Attract private capital and entrepreneurs.• Take advantage of energy financing opportunities from DFIs.• Ensure energy tariffs are set through only sound economic

principles and not through politics.

ConclusionsUganda faces the challenge of accelerating access from its current average of 60,000 new connections a year, to a pace that will ensure universal access by 2030.The average yearly growth of the total energy demand is 4%, incorporating a population growth rate of 3.1% and adjusting these values for the new power plants under construction based on government measures afore-mentioned, show that electricity consumption would grow at a rate of 9% by the year 2020 which is rather high.Thus, energy development should be prioritized as a high level issue for Uganda with a considerable investment from bilaterals, multilaterals and the private sector to be channeled towards the development of an adequate energy infrastructure for Uganda. The provision of adequate and reliable power supply can mainly be achieved by the development of large hydro and several renewable energy projects. There is also a need to invest in both the exploration and development of new energy sources and technologies to meet the future demand.