Uganda to Give $10.7m Subsidies to Investors in Rural Power

Source from:  The East African (Nairobi) November 15, 2005 David Malingha Doya, Special C 11/16/2005

Uganda plans to have 480,000 rural clients connected to electricity by 2012, according to the country's Rural Electrification Agency. The government has earmarked Ush20 billion ($10.7 million) in subsidies on capital investment for investors in the project this financial year. The Energy Ministry is wooing manufacturers to take advantage of various financial incentives to invest in the rural electrification campaign. Only two per cent of the rural population uses electricity, compared with eight per cent in the urban and peri-urban areas of Uganda. The Industrial Promotions Services (IPS), the industrial sector-operating arm of the Aga Khan Fund for Economic Development, is so far the ministry's biggest success story, with its project in north-eastern Uganda that now serves over 1,500 rural clients. The Rural Electrification Agency, which operates on a public-private partnership basis, is currently selecting energy projects that manufacturers can take up. Godfrey Turyahikayo, its executive director, said the agency needs $500 million for the project. Of this amount, $375 million is expected to come from investors, while $125 million will take the form of government subsidies on capital investment to investors. Mr Turyahiko said the World Bank - through the Energy for Rural Transformation programme - is supporting the initiative. There will also be donor grants and soft loans from the Swedish International Development Agency, the Japan International Co-operation Agency, the Norwegian Agency for International Development and the Chinese government. Mr Turyahiko said his agency was liaising with commercial banks to give loans to organisations taking part in the programme at interest rates as low as 10 per cent compared with open market rates of 15 per cent. The programme will have five standard project types. These are a national grid extension, power generation for sale either directly to the existing grid or combining generation with transmission. The national grid is owned by the Uganda Electricity Distribution Company Ltd and operated by Umeme. The other project types are mini-grids - around power generation sources - small systems in productive end-usage for specific purposes in agriculture, and the smaller systems such as solar energy, said Mr Turyahiko. The models of operation will include long-term concessions of up to 20 years on a build, operate and transfer or build, own and operate basis. But manufacturers say they are concerned about the cost of power, since after liberalisation of the power sector, the system of having a standard national tariff was replaced by tariffs reflecting the investors' cost of supply. However, Mr Turyahiko said this would be addressed by the subsidy on capital investment in power generation. For example, he said, IPS's West Nile Rural Electrification Company (Wenreco), which operates on a BOO basis, cost a total of $14.75 million. The government, with support from the World Bank, provided a subsidy of $7.5 million. Dr Kevin Kariuki, head of infrastructure at IPS, said before implementation of the project, West Nile had only four hours of electricity supply per day, which was inadequate considering the huge potential in the region for processing farm produce like coffee, tobacco and fruits in the region. The Wenreco project cu- rrently operates a 1.5 megawatt plant supplying power to over 1,500 rural clients for 18 to 24 hours per day. Dr Kariuki said one of the company's main clients in the region - the National Water and Sewerage Corporation - used to spend Ush20 million ($11,430) on diesel for power generation, but now spends Ush5 million ($2,857) per month after they signed a supply contract with Wenreco. Arua hospital, which used to spend Ush5 million ($2,857) now spends Ush1.2 million ($685) per month. Grania Rubomboras, a Rural Electrification Agency manager, said that projects in the programme include Kakira Sugar Works, which will be commissioned by the end of the year. It is expected to produce 14 megawatts of power and will receive a subsidy of $3.3 million. Kisizi Hospital will start a micro hydropower project to generate 60-290 kilowatts at a cost of $690,000 and with a subsidy of $421,000. There are 10 other projects either being studied or mobilising finances before they take off. Syda Bbumba, the Minister of Energy and Mineral Development, said that rural electrification is part of a sector-wide approach for rural transformation. "We cannot hope to achieve rural development without providing electricity and other modern forms of energy to create small industries that add value to production locally and create jobs for the rural people," she said. Ms Bbumba said the move to involve the private sector was prompted by the chronic problem of shortage of public finances to develop power infrastructure. Enditem