Investment Guide for Rural Electrification

Table of Contents:ACRONYMS...........................................................................................................2

EXECUTIVE SUMMARY......................................................................................2

1 INTRODUCTION..........................................................................................2

2 INVESTING IN UGANDA...........................................................................22.1 Introduction to investing in Uganda..................................................22.2 Procedures for investing in Uganda...................................................2

3 INSTITUTIONAL FRAMEWORK FOR RURAL ELECTRIFICATION. . .23.1 Overview of the power sector............................................................23.2 Power sector reform and restructuring...............................................23.3 Rural electrification strategy and plan...............................................23.3.1 Project approaches.........................................................................23.3.2 Tariffs and subsidies......................................................................23.4 Institutional set up and funding for rural electrification....................23.4.1 Rural Electrification Agency.........................................................23.4.2 Rural Electrification Fund.............................................................23.5 Regulatory framework for rural electrification..................................2

4 INCENTIVES AND GUARANTEES...........................................................24.1 The current incentive regime.............................................................24.1.1 Tax incentives in Uganda..............................................................24.1.2 Foreign exchange...........................................................................24.2 Investment protection and guarantees................................................24.3 Specific incentives accorded to investors in rural electrification......2

5 INVESTMENT OPPORTUNITIES...............................................................25.1 Investment opportunities in rural electrification................................2

6 PROCEDURES FOR INVESTING IN RURAL ELECTRIFICATION.......26.1 Environmental and other permissions and authorisations.................2

ANNEX: CONTACT INFORMATION..................................................................2

AcronymsBOO Build, own, operate

CDM 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

1

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

2

Executive SummaryThe 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 400 000 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 scopeThe 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.

3

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”

4

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 electrificationThe 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 GuaranteesThe 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.

5

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.

6

IntroductionUganda 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 400 000 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% 60 000New customers through grid extensions 40% 160 000

New customers through isolated grids 25% 100 000New customers through solar-PV 20% 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.

7

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.

8

Investing in Uganda1.1 Introduction to investing in Uganda Uganda has a total landmass of 241,000 square kilometres, 18 percent of which is covered by freshwater bodies. Lying astride the equator, Uganda combines some of the best features in Africa, including River Nile (the second longest river in the world), and Lake Victoria (the second largest freshwater lake in the world). According to the figures of the last census in 2002, Uganda has a population of 24.7 million people with a per capita income of US$367, higher than most countries in the region.

Stable macroeconomic frameworkUganda’s political and economic development in the past 20 years has been remarkable. The country has risen from ruinous times in the 1970s and 80s to become one of the most dynamic economies in Sub Saharan Africa.

GoU today is focused on a policy of poverty alleviation. The Poverty Eradication Action Plan (PEAP) 2002 provides a framework to guide policy formulation. According to PEAP, the highest priorities are roads, security, agriculture research and extension, primary education, primary health, water and sanitation.

With respect to macroeconomic policies, the Government’s strategy is to modernise the economy by relying on the private sector, with the government providing the necessary legal framework, policy and physical infrastructure. The central objective is to provide sustainable and rapid and broad based growth by guaranteeing security, the rule of law and the appropriate structural reforms.

An integral part of the strategy is the removal of bottlenecks to growth of the private sector in order to raise productivity and output. A key bottleneck in that respect is the energy sector, which is currently suffering from capacity constraints (supply shortfall) and low network coverage. Reforms in these areas are being carried out through a Medium Term Competitiveness Strategy (MTCS) for the Private Sector.

Conducive investment frameworkThe government of Uganda has been promoting a private sector led development as key to the recovery process. The legal and institutional framework has been appropriately adapted to encourage and promote private sector investment by both foreign and local investors. The country is clearly poised to become one of the leading investment destinations in the eastern and southern Africa region.

9

The government of Uganda strongly encourages both foreign and domestic investment and has steadily pursued a policy of improving the investment climate by reducing bureaucracy, streamlining the legal framework, fighting corruption and stabilising the economy.

Central location in the regionAlthough the market is still relatively small, the Uganda market is growing. Moreover, it is centrally located in the Eastern and Southern Africa, allowing firms to service a number of markets directly bordering the country with an estimated combined population of over 400 million people. Uganda is poised to become the regional hub for firms targeting the East and Central African region. In that respect, Uganda has entered in regional integration initiatives.

Recently in 2005, Uganda signed a Custom Union treaty with the other two member countries for the East African Community; Kenya and Tanzania offering a common external tariff effective 2005 to gradually develop into a free trade area. Investors can now take advantage of the much wider market provided by the East African Community. Uganda is also a member of the Common Market for East and Southern Africa (COMESA).

Why invest in Uganda? Uganda has had as strong and stable government committed to creating a

market- friendly environment

Uganda is one of the most dynamic economies in Sub Saharan Africa with an average growth rate of six percent over the past eight years.

Uganda has access to a regionally growing market.

Uganda has trainable low cost labour

Uganda has some of the best climatic conditions in Sub Saharan Africa (SSA).

1.2 Procedures for investing in UgandaThe Uganda Investment Authority (UIA) is the statutory agency responsible for promoting and facilitating investment in Uganda. The law governing investment in Uganda is the Investment Code Act Chapter 92 of the Laws of Uganda that established the UIA as the agency to promote investments in Uganda, advice government on policies conducive to investment and to provide information on investment issues. One of the core functions of UIA is to attract Foreign Direct Investment (FDI) into the country as well as promoting domestic investment.

An investor is required to apply to the UIA for an investment license to start a business in Uganda. An investment license is issued within five working days if the application form is properly completed. The license is normally valid for a period not less than five years after the implementation of the project. Although there is no legal requirement in terms of minimum investment, in practice threshold of $100,000 has been applied to foreign investors and $50,000 to local investors.

The investment code allows foreigners to invest in all activities, except those relating to national security or requiring land. Foreign investors may however, lease land for up to 99 years. They can also participate in joint ventures. There is

10

no limit imposed on equity ownership and foreign ownership of up to 100 percent is allowed. Investors are also free to bring in and take out capital.

UIA is a one stop facilitator, its created network with all relevant government agencies to provide services to investors, like the department of Immigration, Electricity Regulatory Authority (ERA), Rural Electrification Agency (REA), National Environment Management Authority (NEMA) in the electricity sector

ProceduresInvestors starting business in Uganda have to carry out a number of administrative steps:

Step 1 Registration of Business name

Registrar General

Investors must have a company and its name registered and this takes about 5-14 days.

Step 2: Investment License

Uganda Investment Authority

Investors can obtain an investment license from the Investment Authority. This licence eases bureaucratic procedure and will take about 1-5 days to process. It is processed free of charge.

Step 3: Sector Specific Licensing

In this case from the ERA

Investor may obtain sector specific license /secondary license. Details are available at UIA.

Obtaining a license may require approval of e.g. environmental permits by NEMA, Directorate of Water Development (DWD) etc depending on the nature of the project.

Step 4: Access to Utilities

Utilities: Electricity with UMEME Ltd, water with National Water and Sewerages Corporation, Telephone with any of the three telephony service providers, MTN, UTL and CELTEL.

Step 5: Work Permit

Immigration Authority

Work permits required for all foreign staff. It takes about 2-4 weeks to process.

Step 6: Tax Registration

Uganda Revenue authority

Registration as a tax payer, receive Tax Identification Number (TIN). This may take a period of 2-3 days to process.

11

Institutional framework for rural electrification

In 1999, Parliament enacted a new Electricity Act (http://www.energyandminerals.go.ug/regulations.html), which removed the Uganda Electricity Board’s (UEB) statutory monopoly and paved the way for industry restructuring and private sector participation. The UEB has now been unbundled into different companies, and new actors are beginning to assume an active role in the industry. A brief overview of the Ugandan power sector is presented in Section 1.3.

1.3 Overview of the power sectorCurrent opportunities and challenges of the Ugandan power sector are outlined below.1

Electricity supplyThe 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:

Nalubale has an installed capacity of 180 MW (10 x 18 MW units), and is an old power station that was built in the early 1950s and was subsequently rehabilitated and upgraded in the 1980s.

Kiira is an extension at the same site, and has been constructed for up to 200 MW, with five units of 40 MW each. The fifth unit is due for commissioning during 2006.

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.

1 Uganda’s Energy Policy is available at http://www.energyandminerals.go.ug/regulations.html.

12

Table 3.1 Installed hydro generation units in Uganda

Site MW CommentNalubale 180 Upgraded from old 150 MW plantKiira 160 Construction to expand to 200 MW on-goingOther 16 Primarily hydropower at KCCL & KilembeTotal 356

There is considerable hydropower potential for future development. Most of this lies in further developments on the Nile River, e.g. Bujagali and Karuma hydropower2 schemes and Busowoko a few kilometres downstream from Bujagali.3 In addition to hydropower, there is also potential generation capacity in the sugar industry as well as the possibility to exploit geothermal resources. One bagasse project (12 MW) at Kakira is under development. Uganda has identified geothermal resources, although the extent and costs of its development remains uncertain.

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.

The transmission system includes assets down to 66 kV, and links the Nalubale/Kiira generation sites to Kampala and on to the major towns in the country, including Masaka, Mbarara, and Kasese to the west and Tororo, Soroti to the east and Lira to the north.

The distribution system contains assets at 33 kV and below, and includes reticulation in the major towns. In addition, there are some isolated networks powered by diesel generators. These are located in the West Nile region in the north-west of the country (Arua, Nebbi, Moyo and Adjumani) and the Karamoja (Moroto) region in the north-east. The 33kV network also supplies the border town of Katuna in northern Rwanda and imports power from Rwanda to the extreme south west in Kisoro.

2 It should be noted that the actual size of Karuma depends on how many tunnels they drill. The latest information is that there are plans for a 4 x 50 MW design.

3 For more info see http://www.ich.no/kurs/he2002/uganda_fact.htm and http://siteresources.worldbank.org/EXTINSPECTIONPANEL/Resources/Map1.pdf.

13

Table 3.2 Potential large-scale hydro projects on the Nile River

Site Potential (MW)Bujagali 200-250Busowoko 160Kalagala* 350-450Karuma 200Ayago North & South 540(Murchison Falls** 520)TOTAL ca. 2000

* Committed as an off-set to Bujagali, i.e. will not be developed if Bujagali is. ** Murchison falls is a World Heritage site and not available for development.

Figure 3.1 Ugandan network

Source: UMEME Ltd.

Electricity demandElectricity end-user sales in Uganda in 2005 were around 1015 GWh, see Table3.3.

14

Table 3.3 Number of customers and end-use consumption in Uganda 2005

Customer numbers Consumption, GWhDomestic 263,262 331.75Commercial 27,838 128.13Industrial – Large Industrial

115 359.02

General – Medium Industrial

698 194.85

Street lighting 324 0.92TOTAL 292,237 1,014.67

Source: Umeme 2005.

Losses, particularly non-technical losses, are high and are in the order of 40 percent of power generated. Actual generation required to meet Ugandan consumption is in the order of 1 900 GWh per annum.

Exports over the past five years have averaged 200 GWh per annum, which is approximately 20 percent of end-use sales in Uganda. Export demand was primarily to Kenya, which accounts for 90 percent of exports – the remainder being exports to Tanzania. However, since power shortages began in Uganda, exports have come to a halt.

Over the past three years, the growth in Ugandan electricity sales has been particularly high – in the order of 14 percent per annum. This high growth rate reflects the suppressed demand that has been met as load-shedding was gradually eliminated in the period leading up to 2004. However, in the course of 2005, growth in demand combined with low water levels in Lake Victoria (that reduce hydropower output) led to a resurgence of load shedding. In response to this shortage, a 50 MW emergency diesel generator was commissioned in 2005. However, this remains inadequate to meet the supply-demand gap, and additional capacity is urgently required.

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.

1.4 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 background to the reforms was the urgent need to attract investment into the power sector, both in generation and distribution, to underpin economic growth in Uganda. 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.

A new Electricity Act was passed in 1999. This Act sets 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.

15

Sector organisationIn 2001, UEB was unbundled into three separate companies:

Uganda Electricity Generation Company Ltd (UEGCL): Took ownership and operation of generation assets.

Uganda Electricity Transmission Company Ltd (UETCL): Took ownership and operation of transmission assets.

Uganda Electricity Distribution Company Ltd (UEDCL): Took ownership and operation of distribution assets and customer services.

All three companies are subject to the Companies Act and all are 100 percent state owned. UEB continued in existence for a limited period to manage divestment of several non-core assets, including isolated networks.

Following the restructuring of UEB, Government has effectively privatized the generation and distribution assets through long-term leases. Hydropower generation assets have been leased to Eskom Uganda Limited, and the distribution network has been leased to Umeme Limited.

Figure 3.2 Electricity industry structure in Uganda

Generation

UEGCL (300 MW)

Eskom Uganda

Assets at Nalubaale & Kiiraleased to Eskom Uganda

Existing IPPsKCCL: 6.5 MW hydro

Kilembe : 3 MW hydro

Proposed IPPsBujagali : 200-250 MW hydro

Karuma : 150 MW hydro

Public assets

Kakira : 12 MW hydro

Several small-scale hydro

UETCL(Transmission &

Single Buyer)Exports to Kenya & Tanzania

UEDCL((Distribution assets)

Umeme(CDC Globeleq)

Distribution assetsleased to Umeme

PPAs

Bulk sales to Umeme

Transmission

Distribution

West Nile RECompany Ltd

Isolated grid operatedby private company

= Publicly owned

= Privately owned

Imports from Kenya & Rwanda

Aggreko : 50 MW diesel

50 MW thermal

100 MW thermal (UETCL)

Generation

UEGCL (300 MW)

Eskom Uganda

Assets at Nalubaale & Kiiraleased to Eskom Uganda

Existing IPPsKCCL: 6.5 MW hydro

Kilembe : 3 MW hydro

Proposed IPPsBujagali : 200-250 MW hydro

Karuma : 150 MW hydro

Public assets

Kakira : 12 MW hydro

Several small-scale hydro

UETCL(Transmission &

Single Buyer)Exports to Kenya & Tanzania

UEDCL((Distribution assets)

Umeme(CDC Globeleq)

Distribution assetsleased to Umeme

PPAs

Bulk sales to Umeme

Transmission

Distribution

West Nile RECompany Ltd

Isolated grid operatedby private company

= Publicly owned

= Privately owned

Imports from Kenya & Rwanda

Aggreko : 50 MW diesel

50 MW thermal

100 MW thermal (UETCL)

MEMD

Utilities

Government Agencies

ERA REA

Policy & planning

Regulation& tariffs

RE facilitation

16

Market arrangementsUganda has opted for the single buyer model of competition in electricity supply. The transmission company, UETCL, is designated as the single buyer of bulk generated electricity and manages imports and exports of power in the transmission system. The generation sector is open to new entrants, subject to the condition that they sell their power to UETCL, although embedded generators may be permitted to sell directly to distributors or end-use customers.

The license for the main distributor (Umeme) limits supply rights to within one kilometer of existing networks. Other companies have the right to bid for a license to expand the network to new areas. According to the Electricity Act, the ERA has an obligation to competitively tender new licenses.

1.5 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 (http://www.rea.or.ug/,) and presents information on electrification targets, the kind of projects being supported and eligible for subsidies and broad guidelines on tariff and subsidy approaches. Presented below, is a concise summary of each of these areas.

The RESP is the formal document, stipulated by the Electricity Act of 1999 and approved by Cabinet, on which the rural electrification process in Uganda is based. It is coordinated with the national strategy for poverty eradication and development, the national energy policy and the power sector strategic plan. 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”.4

More specifically, the objectives are to:

achieve equitable regional distribution access to electricity;

maximise the economic, social and environmental benefits of rural electrification subsidies;

promote expansion of the grid and development of off-grid electrification; and

stimulate innovations within suppliers.5

The aim of the RESP is to achieve for the year 2010 a rural electrification rate of 10 percent, meaning that 480,000 rural consumers, a net increase of 400,000 over the year 2000 figure are to be serviced.6

1.5.1 Project approachesAll project approaches should be least cost approaches to serving new areas with electricity. The different types of rural electrification (RE) projects covered by the RESP are outlined below. It should be noted that the approaches below could encompass several different technologies.

4 Rural Electrification Strategy and Plan, 2001, p. 11.5 Ibid.6 Rural Electrification Strategy and Plan, 2001, p.6 and 11.

17

Grid extensions are projects in which existing transmission and/or distribution lines are extended to cover new and or previously unelectrified areas. These types of project can be justified, as a least cost option, when the volume of demand is such that an extension of existing transmission and distribution lines to new areas implies savings on diesel operations. In cases of grid extensions, new concessions could be created from “old” UEB areas and could be bid out to private operators.

Mini grids or isolated grids are grids that are sufficiently far from the national grid to be cost effective solutions to providing certain areas with electricity. The least cost technology option could be renewable energy capacity (e.g. small hydro, biogas, biomass, wind), agro-industrial generating capacity currently used for self-generation (e.g. bagasse cogeneration), diesel or hybrid solutions depending on the specific context of the area to be served.

Stand alone systems e.g. photovoltaic (PV) systems have limited capacity and offer less scope for income generating activities that the two previously mentioned approaches. However, in isolated and dispersed rural areas PV systems can be the only viable option for households, small commercial establishments, health centres, schools and community halls.

In addition to the approaches mentioned above, it is worth mentioning embedded generation, i.e. electricity generation connected to the distribution network rather than the (high voltage) national grid. Generally, embedded generation consists of smaller generators that use a variety of generation technologies such as diesel, natural gas, biogas, biomass, PV, wind turbines and small hydro.

1.5.2 Tariffs and subsidiesBulk tariffsThe February 2006 UETCL bulk supply tariff was 5.2 US¢/kWh.7

For power generation, where the installed capacity is less than 20 MW, there is a mandate for the UETCL to publish feed-in tariffs for renewable energy generators. According to Section 55(1) (g) of the Electricity Act, the system operator is licensed to

“In consultation with the Authority, to publish standardized tariffs based on the avoided cost of the system for sales to the grid of electricity generated by the renewable energy systems of up to a maximum capacity of twenty megawatts;”

End-user tariffsAll rural electrification projects must be commercially viable and the tariff revenue must cover costs to the service provider, allowing private capital a return on equity. Hence, different cost structures for different types of projects will imply different tariffs in different parts of the country, which is in line with the RESP. The tariffs suggested by a project developer must, however, be approved by the Electricity Regulatory Authority of Uganda (ERA).

Subsidies for rural electrificationThe RESP specifically mentions two types of subsides using grants from the Rural Electrification Fund (REF). Firstly, investment subsidies for grid based systems (including isolated grids) and solar-PV systems aimed at buying down high 7 Information from UETCL.

18

capital costs to make these investments more attractive to investors and end-user prices/tariffs more affordable to rural consumers.

Originally, grants from the REF were to be used to provide subsidies for solar-PV systems but this was changed and subsidies for solar-PV systems are now handled exclusively by the special arm of the Private Sector Foundation (PSF) called BUDS-ERT.

Second and in addition to the above, special subsidies for promotion of regional equity are mentioned in the RESP. These include bonus subsidy rates for specially identified poor and under-served areas and subsidised PV-based community packages for schools, clinics, public lighting, water supply etc. However, also in this case the PV-systems are handled exclusively by the BUDS-ERT.

The REA is currently working on the subsidy policy, which will present the subsidy award criteria and procedures in a clear and transparent manner.

1.6 Institutional set up and funding for rural electrification

The institutional mechanisms for funding, planning and coordination of rural electrification in Uganda are presented in Figure 3.3. The Rural Electrification Board (REB) was inaugurated in May 2002 but REA, which serves as the REB Secretariat, became operational in 2003 with the recruitment of the Executive Director.

Figure 3.3 Rural electrification institutional set-up

Rural ElectrificationBoard (REB)

RuralElectrificationFund (REF)

RuralElectrificationAgency (REA)

Trust Agent

REB governs REF

REA issecretariat to REB

REB appoints Trust Agent tomanage REF payments

Project Developers

Works with project developers

Ministry of Energy and Mineral Development (MEMD)

Minister established REA and REB, appoints members of REB

REA reports to REB

Electricity Regulatory Authority (ERA)

ERA plays an important role as regulator and as responsible for licensing

The REB consist of seven members as follows: The Permanent Secretaries for Energy (MEMD; Chairperson), for Finance (Ministry of Finance, Planning & Economic Development), for Local Government (Ministry of Local Government) respectively, plus Ministerial appointees representing the private sector (nominated by the Private Sector Foundation (PSF) Uganda), the financial sector (nominated by the Uganda Banker’s Association), the Non-Government/Civil

19

Society Organisations (nominated by the NGO/CSO community) and donors. However, donors have declined to take up the position and will be replaced.

1.6.1 Rural Electrification AgencyThe Rural Electrification Agency (REA) is responsible for development and promotion of rural electrification and renewable energy projects. REA is a facilitator and has a promotional role for both rural electrification and renewable energy projects (of 20MW or less) hence REA can provide assistance to the developer throughout the project development process.

1.6.2 Rural Electrification FundThe Rural Electrification Fund (REF) deals with grants/subsidies for investments in rural electrification only and not debt financing. Sources of funding for the REF include:

Money appropriated by Parliament;

Any surplus moneys made from the operations of the ERA (see details on the role of ERA in Section ) declared to the Minister of Finance and paid into the fund.

A levy of five percent on transmission bulk purchases of electricity from generation stations; and

Donations, gifts, grants and loans acceptable to the Ministers of Energy and Finance. At the moment there is financing from World Bank, Sida and NORAD and more funds are expected from the European Investment Bank and the EU.

The fund is used to subsidise technological approaches in rural electrification mentioned in Section 1.5.1 and hence include:

Expansion of the main grid;

Development of isolated and mini-grid systems for relatively concentrated areas with a potential for productive use; and

Renewable energy power generation for sale to the main grid and for mini-grids.

As mentioned previously, subsidies for solar PV systems for isolated settlements are handled exclusively by BUDS-ERT.

BUDS-ERTA separate arm of the Private Sector Foundation (PSF), called BUDS-ERT and which is the private sector component of the World Bank supported Energy for Rural Transformation Project in Uganda, handles subsidies/grants for all PV projects. In addition, BUDS-ERT provides grants to private entrepreneurs for pre-approved technical, market development and capacity building activities. These grants are cost-share grants by which BUDS-ERT undertake to pay 50 percent of the cost of any pre-approved activity. A maximum of US$50,000 can be granted to an eligible project. Application forms and guidelines can be obtained from the BUDS-ERT office or by visiting their website http://www.buds-ert.org/.

20

1.7 Regulatory framework for rural electrification

The ERA was established under the Electricity Act 1999, Chapter 145 of the Laws of Uganda and provides independent industry regulation at arm’s length from the political process.

The ERA is a Board comprised of five members with authority over all electricity undertakings in the country. All such undertakings require a license from the ERA, with the exception of very small systems (generation below 500 kW). The ERA employs a secretariat of some twenty persons.

The ERA awards licences to cover different functions in the electricity industry, including generation, transmission, distribution and retail (supply). For rural electrification projects, it would be normal for one licence to cover several functions. For example, in the case of an isolated network, a single licence would cover generation, distribution and retail activities.

Developers interested in a specific project may submit a notice of intent to study a specific site to the regulator and this also signals that they intend to apply for a licence.

The ERA must advertise any application for a licence and allow competing developers to apply for the licence. It is the policy intention that independent companies should develop both isolated (mini-grid) solutions as well as connection new areas to the national grid. Hence, while the main distribution concessionaire, Umeme, does have investment obligations, this does not preclude independently owned and operated grids.

The ERA both approves tariffs and monitors performance. For rural electrification projects, the policy intention is for more “light handed” regulation, implying less detailed oversight of tariffs and less detail required in reporting.

Section 113 of the Electricity Act provides that ERA may by Statutory Instrument and for the purposes of promoting rural electrification exempt a potential licensee for the generation/distribution and sale of electricity from the requirement to hold a license where such generation does not exceed two megawatts. It is anticipated that a lighthanded regulation regime would apply to such licensees.

Hence, tariff formulae can be built into the licence, allowing for automatic adjustment to factors such as inflation, foreign exchange rate, fuel costs and so on. However, there is little experience with these approaches to date, and the ERA addresses each licence application on a case by case basis.

21

Incentives and guaranteesIn the present Chapter incentives and guarantees of importance to an investor in Uganda are presented in a brief and concise manner. The objective is to provide an overview of opportunities and give details on where to obtain more information.

1.8 The current incentive regime The sections below outline the competitive incentives facing a private investor in Uganda. These incentives include tax incentives, accelerated depreciation, and foreign exchange repatriation measures.

1.8.1 Tax incentives in UgandaDepreciable assetsUnder section 27 of the Income Tax Act Chapter 340 of the laws of Uganda, a person is allowed a deduction for the depreciation of the investor’s depreciable assets during the year of income except for assets with a cost base of less than Uganda shillings One hundred thousand. The wear and tear are deductible using a reducing balance method.

Initial allowance

Section 28 of the Income Tax Act provides that an investor who places an item of eligible property into service for the first time during the year of income is allowed a deduction for that year of an amount equal to:

50 percent for prescribed areas (Kampala, Entebbe, Namanve, Jinja and Njeru).

75 percent in any other area.

“Items of eligible property” means plant and machinery used in the production of income but does not include goods and passenger transport vehicles, appliances of a kind ordinarily used for household purposes or office or household furniture, fixtures and fillings.

The depreciable assets are in four classes as set out below:

22

NO Asset Depreciation rate1 Computers and data handling equipment 40%2 Automobiles: Buses and mini buses with a seating capacity

of less that thirty (30) passengers: goods vehicles with a load capacity of less than 7 tones; construction and earth moving equipment.

35%

3 Buses with a seating capacity of 30 or more passengers; goods vehicles designed to carry or pull loads of more than 7 tonnes; specialized trucks; tractors; trailers and trailer mounted containers; plant and machinery used in farming manufacturing or mining operations.

30%

4 Rail road cars locomotives and equipment; vessels, Barger tugs and similar water transportation equipment; aircraft; specialized public utility plant; equipment and machinery; office furniture, fixtures and equipment; any depreciable asset not included in another class.

20%

The section 28 also provides for declining balance depreciation rate.

Start-up Cost

Section 30 of the Income Tax Act provides that a person who has incurred expenditure in starting up a business to produce income shall be allowed a deduction of an amount equal to 25 percent of the amount of expenditure in the year of income in which the expenditure was incurred over a four years spread period.

Scientific research expenditure, training expenditure and mineral exploration expenditure

These are allowed at 100 percent.

Other Capital allowancesThe start up costs and intangible assets allowances are on a straight line basis.

Import dutyCapital equipment is wholly exempted from duty.

Duty draw back schemeInvestors are entitled to a draw back of duties on imported inputs used in producing goods for export.

Tax holidaysAll incentives were harmonized in the Income Tax Act and Tax holidays have been abolished in Uganda.

Corporation TaxWith the exception of mining, there is a uniform corporation tax rate of 30 percent.

Value Added Tax (VAT)VAT is charged at 18 percent. There is no VAT on computers and accessories.

23

Withholding TaxWithholding tax is deducted by receivers and services provided by contractors, suppliers of goods and services and may be offset against future tax obligations.

1.8.2 Foreign exchangeUganda allows a fully liberalized foreign exchange regime with no restrictions on movement of capital.

1.9 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)

The first three organisations are detailed below.

MIGA Coverage – Uganda has since 1992 been a member of the Multilateral Investment Guarantee Agency (MIGA). This offers investors in Uganda insurance coverage against a wide range of non-commercial risks including expropriation, currency transfers, breach of contract. The Uganda Investment Authority can help investors obtain MIGA Support.

Overseas Investment Insurance Scheme – This Scheme offers coverage to United Kingdom Companies intending to invest in foreign Countries (including Uganda). The target coverage includes political risks.

Overseas Private Investment Cooperation (OPIC) - This United States Government Agency offers risk insurance coverage to United States business intending to invest in foreign Countries. Uganda signed the necessary agreements to guarantee such Americans Investments in 1998.

As indicated under Table 4.1 Uganda has signed Bilateral Investment Treaties (BITs) and Double Taxation Agreements (DTAs) with a number of countries

24

Table 4.4 Bilateral Investment Treaties (BITS) and Double Taxation Agreement (DTAs), as of December 2002

BITs DTAsEgypt South AfricaGermanyItalyNetherlandsSwitzerlandUnited KingdomFranceMauritiusIndia

November 4, 1995May 8, 2000November 29, 1966December 12, 1997February 14, 2000August 23, 1971April 24, 1998December 2002June, 20032004

KenyaTanzaniaZambiaSouth AfricaDenmarkNorwayUnited KingdomItaly Netherlands

April 14, 1999April 14, 1999August 24, 1968May 22, 1997December 22, 1954September 7, 1999December 23, 1959October6, 2000May 3, 2000

Source: UIA database 2002

Since 2002 Uganda has signed DTAs with Egypt, Mauritius, India and Belgium.

In addition to the countries above, Uganda is negotiating with Sweden, Malawi, Mozambique, Sudan and Eritrea.

100 percent ownership of projects and investments by investors (including foreign investors) is also allowed.

1.10 Specific incentives accorded to investors in rural electrification

Under Section 64 of the Electricity Act, 1999 Chapter 45 of the laws of Uganda the Minister (of Energy) shall 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.

The Government has also evolved other financial support mechanism that could be used to support investors in rural electrification.

These include:

The energy for rural transformation refinancing fund [ERTRF] currently managed by the Developed Finance Department of Bank of Uganda. However, only accredited financial institutions are eligible for financing arrangements through the ERTRF and currently these include:

Barclays Bank; Bank of Baroda; DFCU Ltd.; East African Development Bank; Orient bank; Stanbic bank; and Standard Chartered Bank (U) Ltd.

The Credit Support Facility (CSF) established as a corporate trust and expected to offer a variety of financial support instruments to financial institutions expected to offer long term debt financing to investors in rural electrification.

25

The Government of Uganda has also set up a mechanism for accessing support to the carbon credit fund (e.g. the clean development mechanism (CDM)) for renewable energy projects under the Kyoto Protocol. The Department of Meteorology is responsible for CDM in Uganda.

The BUDS-ERT support facility of up to USD 50,000 mentioned above, see page 20.

Under the Electricity Act, Section 45 (4) it is also provided that generation plants of a capacity not exceeding 10 Megawatts may be owned on build, own and operate (BOO) basis.

26

Investment opportunities The fourth section of the Guide should cover the following topics:

1.11 Investment opportunities in rural electrification

A more detailed list of projects of different technologies divided between PREPs, LIREPs etc. would be needed for the final report.

Current (i.e. February 2006) investment opportunities in rural electrification include development of mini-hydro potentials in various parts of Uganda. Status of identified such potential projects is presented in Table 5.5.

27

Table 5.5 Current status of identified mini-hydro potentials in Uganda

28

Project /Site Name

Location Estimated Capacity

Status

1 Manafwa Mbale District 0.75 MW Available

2 Chambura or Kyambura gorge

Bunyaruguru, Bushenyi

8.3 MW Available

3 Sezibwa River Sezibwa, Sezibwa Falls, Mukono District

0.25 MW Available

4 Nkusi at escarpment

Hoima /Kibale border at Lake Albert Rift escarpment

11 MW Available.

5 Mpanga at escarpment

Kasese/Kamwenge border. Flows into Lake George

14 MW Available

6 Nsongezi River Kagere on TZ/Uganda Border at Nsongezi

22 MW Available

7 Nkusi at Pachwa Hoima /Kibale border 0.06 MW Available8 Tokwe Bundibugyo 0.40 MW Available 9 Rwigo Bundibugyo 0.67 MW Available10 Nyahuka Bundibugyo 0.70 MW Available11 Siti falls Kapchorwa 3.3 MW/0.9 Available. Mt Elgon

Hydropower Company Limited used to have an exclusive permit whose validity expired.

12 Sipi falls Sipi-Chebonet 2.5 MW Available. Mt Elgon Hydropower Company Limited used to have an exclusive permit whose validity expired.

13 Muyembe Seremityo

Muyembe-Seremityo 2.6 MW Available. Mt.Elgon Hydropower Comany Limited used to have an exclusive permit

14 Ririma Plant River Ririma 1.2 MW Available. Mt.Elgon Hydropower Company Limited used to have an exclusive permit whose validity expired.

15 R Esia mini hydro Adjumani

River Esia 1 MW Adjumani Rural Electrification Project. Adjumani Rural Electrification Company Limited (ARECO) holds the permit up to July 2006.

16 River Ishasha and Rwimi

River Ishasha, Kanungu District

5 MW Applied for by Ecopower, Sri Lanka

29

and Jacobsen, Norway. Public hearing set for 12th December 2005 in Kanungu.

17 Kakaka Near Kakaka rest camp on River Rwimi in the Rwenzori ranges

7.2 MW/2.8 Applied for by Ecopower, Sri Lanka. Permit to be awarded.

18 Buseruka Mini Hydro Project.

River Wambabya near Buseruka, Bugahya County, Hoima District

10 MW Exclusive permit held by Hydromax Limited currently valid up to August 2006.

19 Mahoma On River Mahoma. Rutete Sub county, Bunyangabu

3 MW Exclusive permit held by Uganda Energy for Rural Development up to December 2005.

20 Rwebijooka On River Yerya. Buhesi sub county, Bunyangabu

1 MW Exclusive permit held by Uganda Energy for Rural Development up to December 2005.

21 Kikagati Hydropower Project

River Kagera on TZ/Uganda Border at Kikagati

6 MW/3.5 MW

Permit Granted to China Shang Sheng Industrial Intl Ltd on 29th July 2005 for 12 months.

22 Muzizi hydropower Project

River Muzizi in Kabarole District

10/20 MW Permit granted to SN Power in December 2004 for 12 months. Request for extension has been received.

23 Nengo Bridge Hydropower Project. Also known as Mobuku II

River Mitano at Nengo Bridge, bordering Rukungiri & Kanungu Districts:

7.5 MW Permit granted to SN Power in Dec 2004 for 12 months. Request for extension has been received

24 Bugoye Hydropower Project. Also known as Mobuku II

On River Mobuku, Bugoye sub county, Kasese District

11 MW Permit granted to SN Power in Dec 2004 for 12 months. Request for extension has been received

25 Waki Hydropower Project

On River Waki near bordering Hoima and Masindi District, near Butiaba on Lake Albert

5.0 MwPermit granted to SN Power in Dec 2004 for 12 months. Request for extension has been received

26 Nyamabuye Mini-Hydro Project.

On River Nyamabuye in Kisoro

2.2 MW0 Uganda Sustainable Energy Company Limited (USEC) holds exclusive permit currently valid up to February 2006.

Source: Rural Electrification Agency, February 2006.

30

In addition to the above, a number of potential hydro and geothermal sites are presented at http://www.buds-ert.org/investment.php.

31

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. In the present section, the different steps are outlined - first graphically in order to provide an illustrative overview and then followed by explanatory text. The objective is to provide the investor/developer with information on the sequencing of different steps and also what steps are critical in order to get the approvals and licenses without unnecessary delay.

32

Figure 6.4 Procedure for investing in rural electrification

2. Uganda Investment Authority(UIA)

An investment license from UIA will facilitate all business related activities in Uganda. It is not critical for local investors but highly recommended (2 weeks)

3. Project development stage

a) PREPs – initiated by REA

b) LIREPS/CIREPS – initiated locally or by foreign investor

Pre-feasibility studies can be carried out anywhere in Uganda without permits and/or licenses.

A notice of intent to study a site to feasibility level MUST be submitted to ERA (info can be obtained from both REA and ERA)4. ERA grants permit to study site

to feasibility level1 to 2 months

Contact BUDS-ERT. Critical to do this before commencement of studies.

5. Studies to be completed:Social and economic impactassessmentEnvironmental impactassessmment (EIA)Teachnical feasibilityLegal assessmentBusiness Plan

6. Submission of studies for approval to REA together with subsidy application to REB

Critical to get approval for studies from NEMA, DWD, Land Department etc. before submission to REA

When approaching completion of studies – commence negotiating a PPA if necessary. This is critical in order to get license from ERA.

7. Grant of license from ERA

Estimated time

12 months

2 to 3 months

1 month

1. Project conception Contact with REA or ERA

8. Monitoring & Evaluation by REA

1. Project conceptionBefore moving ahead, an investor should contact either REA or ERA for information on available projects.

2. Registration with UIA – not critical but will facilitateForeign investors should register with the Uganda Investment Authority (UIA) as they will provide investors with necessary information and application forms for e.g. company registration, TIN- numbers, work-permits, special visas, as well as contacts with other authorities.

33

However, even for local investors it is recommended to register with UIA as such a registration will facilitate business activities in Uganda.

3. Project development stageRural electrification project identification can be carried out in different ways.

a. Priority Rural Electrification Projects (PREPs) are identified by REA based on e.g. policy objectives and country priorities. A list of such projects can be found at the REA website http://www.rea.or.ug. A developer who is interested in a PREP should contact REA and submit a notice of intent to study the site further to ERA.

In addition to the PREPs identified by REA, any local or foreign investor/developer can identify a potential rural electrification project. Pre-feasibility studies can be carried out in any part of Uganda without any specific permit or license.

b. These types of project are called Locally Initiated Rural Electrification Projects (LIREPs) or Community Initiated Rural Electrification Projects (CIREPs). If a developer/investor wishes to develop the identified site/s further it is necessary to submit a notice of intent to ERA.

Notice of intent to ERAAfter a developer/investor has submitted a notice of intent to ERA it takes approximately one to ywo months before ERA has processed the notice and a permit to study the site can be awarded.

4. ERA grants permit to study siteThe award of a permit to study a specific site gives the developer/investor exclusivity in studying the specific site, the right to do necessary feasibility studies and the knowledge that no conflicting projects are being developed. It provides ERA with information about what projects are in the pipeline at all times. The permit is awarded within one to two months unless a competing application comes forward.

Contact BUDS-ERT As soon as an investor/developer has been awarded a permit to study a site it is critical that BUDS-ERT is contacted in order to get approval for e.g. costs, personnel and workplan associated with carrying out the necessary studies for which the permit has been granted. If BUDS-ERT is not contacted beforehand and an agreement is reached, then the investor/developer will forego the opportunity of receiving the cost sharing grant that can be provided by BUDS-ERT.

5. Preparation and completion of required studies It is estimated that completing the necessary studies takes approximately 12 months. After completion, the studies are to be submitted to REA for approval but before that approvals from NEMA, DWD, the Land Commission etc. are critical. For the environmental impact asseement (EIA) there are special guidelines to follow and cooperation with NEMA should be sought before commencing in order to smooth the process. EIA guidelines for the Energy sector as of June 2004 can be downloaded from http://www.energyandminerals.go.ug/EIA_Guidelines.pdf. The final

34

environmental and social safeguards framework has been developed by REA and information about this framework can be obtained by contacting the REA office.

When approaching completion of all studies it is important to commence negotiating a power purchase agreement (PPA) with UETCL if necessary. If the project depends on sales to UETCL the PPA is critical for getting a license from ERA.

6. Submission of studies to REA for approval and application for subsides to REBWhen having completed the studies and all approvals have been obtained the studies should be submitted to REA for approval together with the subsidy application. REA will evaluate the studies and subsidy request and recommend approval or non-approval to the REB who makes the formal decision. This process will take between 2 and 3 months provide that the studies are of good quality.

7. Grant of license from ERAAfter REA/REB has approved the studies and subsidy application, the final application for a license is submitted to ERA. However, to speed up the process it is recommended that the investor submit the license application simultaneously with submitting the studies and subsidy application for approval to REA.

ERA will evaluate the suggested tariffs and also advertise any application for a licence and allow competing developers to apply for the licence. The reason is that the Electricity Act requires all licences to be awarded competitively. It will take approximately one month to get a license from ERA.

It should be noted that for generation projects less than 0.5 MW, no licence is required, but the developer should register the project with ERA. In addition, for generation projects between 0.5 and 2 MW, the developer may apply to ERA for an exemption from the requirement to obtain a licence.

8. Monitoring & Evaluation by REAREA will continuously monitor and evaluate the projects.

1.12 Environmental and other permissions and authorisations

The following tables present an overview of the different permits and authorisations that are required for a rural electrification project. The tables include permits and authorisations that are needed from various institutions.

Uganda Investment Authority

Permit Purpose Legal Provision(a) Investment license A license to establish a

business enterprise in Uganda

S.15 of the Investment Code Act, cap 92.

The investment license is needed for a foreign investor and will facilitate procedures for local investors.

35

Labour permits

Permits Purpose Legal Provision(a) Entry / Work Permits

This is a permit allowing foreigners (non-Ugandans) to enter and remain in Uganda and or to engage in any form of employment while in Uganda.

Ss.11 and 12 of the immigration Act cap 65

Permit Purpose Legal Provision

Authorisation to insure with a foreign insurer

Allows for effecting insurance with foreign insurer in exceptional circumstances.

Section 28 (2) of the Insurance Act, cap 213.

Insurance commission

Permits and licenses required from the Electricity Regulatory Authority

Type of permit or license

Purpose Legal Provision

Notice[This notice is required from the applicant]

A person intending to establish a project (REP) is required to notify the Electricity Regulatory Authority of the intention to set up the project. The notice is required to be in a prescribed format.

S.29 of the Electricity Act, 1999 (cap.145)

(b) Permit The permit is issued by ERA to the intended applicant to allow the potential applicant carry out studies and any other activities that may be necessary to enable the intended applicant prepare an application for a license.

S.39 of the Electricity Act, 1999 (cap 145)

(c) Generation License

This licence is for the construction, ownership or operation of a generation station with a capacity of or exceeding 0.5 MWs.

S.51 of the Electricity Act, 1999 (cap 145)

(d) Distribution License

This licence is issued to a person intending to engage in the distribution of electricity.

S.57 of the Electricity Act, 1999 9cap 145).

(e) Sale License Any person intending to engage in the sale of electricity is required to obtain a license from ERA

S.59 of the Electricity Act, 1999 (cap 145).

36

Authorisation or permits required from the National Environment Management Authority (NEMA)

Authorisation or permit

Purpose Legal Provision

(a) Approval Certificate

The certificate is issued after review of the project brief / environment impact statement to certify that the proposed project has or has no significant environmental impacts. The certificate outlines any appropriate mitigation measures in the event the proposed project is classified in the category of projects with significant environment impact.

The environment impact Assessment Regulations 13/1998 – Regulation 26.

(b) Permits authorizing the use of wetlands and riverbanks

Any person intending to carry out an activity in a wetland (includes swamps – and banks of rivers) requires a permit issued by the Executive Director of NEMA.

The National (Environment (Wetlands, Riverbanks and lakeshores management) Regulations 3/2000.Regulations 12 and 22First and Second Schedule to the regulations.

(c) Written waiver for use of river water

A Written waiver is required for the use of erection, construction, tunneling, drilling etc over a riverbed and or blocking any river from its normal course

The National Environment Act, cap 153 – Section 34(2)

(d) Pollution license This license allows the holder to exceed the standards and guidelines under the Atonal Environment Act, cap 153

S.57 and parts V1 and V11 of the National Environment Act, cap 153.

Permits required from the Minister responsible for water

Permit Purpose Legal provision(a) A dredging license

A license required to dredge in a river. There has been controversy on whether this license is required in light of the requirement for water use permit under section 18 of the water Act, cap 152

The Rivers Act, cap 347 – section 5(1).

(b) Written permission to use water

This is a written permission by the Minister responsible for water for abstraction, damming etc of rivers.

The Land Act, cap 227 & Section 70 (1).

Directorate of Water Development

Permit Purpose Legal Provision(a) Surface water abstraction permit

This is a permit to construct hydraulic works and use of water

S.18 of water Act, cap 152

37

Permit Purpose Legal Provision (a) Riparian Consents Consent from neighboring

Countries on use of shared water resources. For hydropower projects in the order up to 20 MW, this will not normally be necessary unless the river flows directly into a neighbouring country

Principle and practice of international law..

Riparian consent

Construction permits

Permit Purpose Legal ProvisionLeave to construct access roads

This leave/permission to a land owner to construct an access road to a highway

S.2 of the Access to road Act cap 350.

Uganda communications commission

Permit Purpose Legal Provision(a) Telecommunication licence

This is a licence to maintain or operate telecommunications apparatus

Ss.23 and 24 of the Uganda Communication Act, cap 106

The various fees that apply for the different permits are presented in Table 6.6.

38

Table 6.6 Fees for permits required

Permit Category FeeUganda social & environmental clearance (NEMA)

Project value < 50 mnProject value 50-100 mnProject value 100-250 mnProject value 250-500 mnProject value 500-1,000 mnProject value 1,000-5,000 mnProject value > 5,000 mnPayment for any required advertisements

Ush 250,000Ush 500,000Ush 750,000

Ush 1,000,000Ush 1,250,000Ush 2,000,000

Project value x 0.1%Variable

Surface Water Permit (DWD)

Processing fee:Renewal fee:Annual fee:

Capacity 10-50 MWCapacity 50-100 MWCapacity >100 MW

Ush 450,000Ush 50,000

Ush 1,000,000Ush 5,000,000

Ush 20,000,000Construction Permit (DWD)

Processing fee: Ush 500,000

Licence(s) or exemption from licence (ERA)

Application processing fee:Generation Licence annual fee:

Capacity 25-50 MWCapacity 10-25 MWCapacity 2-10 MWCapacity 0.5-2 MWCapacity < 0.5 MW

Combined Generation, Distribution & Sales Licence annual fee:

Capacity: 10 – 50 MWCapacity: 2 – 10 MWCapacity: 0.5 – 2 MWCapacity: 0.5 – 2 MW

$2,000

$20,000$15,000$10,000$5,000$2,000

$10,000 + $5000 per 25MW

$10,000$2,000$1,000

Permit to undertake studies & other activities (ERA)

Application processing fee: $2,000

39

Annex: Contact information

40

Institution/organisation

Contact E-mail Phone

Rural Electrification Agency (REA)

Mr. Godfrey Turyahikayo, Executive Director

grturyahikayo@rea.or.ug +256 31 264095/6

Ms. Grabia Rosette Rubomboras, Manager Project Planning

grubomboras@rea.or.ug +256 41 346011/ 31 264095/6

Ms. Barbara N. Musoke, Manager Bublic Information and Outreach

barbaramusoke@rea.or.ug 256 41 346011/ 31 264095/6

Ministry of Energy and Mineral Development (MEMD)

Mr Fred Kabagambe Kaliisa, Permanent Secretary

kkaliisa@energy.go.ug Phone: +256 41 234 733/31 361 366

Electricity Regulatory Authority (ERA)

Dr Frank Sebbowa,Chief Executive Officer

f.b.sebbowa@era.or.ug +256 41 341 852

Uganda Investment Authority (UIA)

Dr Maggie Kigozi Executive Director

mkigozi@ugandainvest.com +256 41 251 561/250 906Mobile: +256 75 717 475

Mr. Arthur Bwire Tukahirwa, Director Investment Promotion

abwire@ugandainvest.com +256 41 301000+256 41 301181 (Dir.)

Ministry of Finance, Planning and Economic Development (MFEPD)

Mr. Moses Kaggwa, Commissioner, Tax Policy Department

Moses.kaggwa@finance.go.ug +256 41 707000 Ext. 149 / +256 41 234824

Privatisation and Utility Sector Reform Project (PUSRP)

Mr. Emanuel Nyirinkindi, Director Utility Reform Unit (URU)

enyirinkindini@perds.go.ug +

Mr. David Ssebabi, Team Leader, URU

dssebabi@perds.go.ug +256 41 256467, 256392, 230300

Bank of Uganda (BoU)

Ms. Ndagire Specioza, Development Finance Department

sndagire@bou.or.ug +256 41 258441/9 Ext. 2538

Uganda Electricity Transmission Company Limited

Mr Kiyemba Eriasi, Managing Director

e.kiyemba@uetcl.com Phone: +256 41 233 972/250 677Mobile: +256 77(2)

41

Institution/organisation

Contact E-mail Phone

(UETCL) transco@uetcl.com, www.uetcl.com

+256 41233433341799/542325

UMEME Limited – (the Distribution Concessionaire)

Mr Paul Mare,

Chief Executive Officer

mare@umeme.co.ug +256 41 344 760

Energy for Rural Transformation-Business Uganda Development Scheme (BUDS-ERT)

Mr Emmanuel Buringuriza,

Director ERT

eburinguriza@psfuganda.org +256 41 230 956/342 163

National Environment Management Authority (NEMA

Dr. Aaryamanya Mugisha Henry Executive Director

haryamanya@nemaug.org +256 41 342 758/9

Directorate for Water Development (DWD)

Eng. Sottie BumukamaDirector

director@dwd.co.ug +256 41 220374 / 505 942

Ministry of Local Government

Eng. Paul Kasule Mukasa Project Implementation Unit Coordinator

peri@imul.com +256 41 232 741

Mr. Tom Matte Director Local Government

info@molg.go.ug +256 41 254 501

42