Renewable Energy Investment Guide

8/12/2019 Renewable Energy Investment Guide

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The Republic Of Uganda

Ministry of Energy

&

Mineral Development

RENEWABLE ENERGY INVESTMENT GUIDEMay 2012


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1 Contents

1 Introduction to Uganda................................................................................................. 6

1.1 Country and people...............................................................................................................8

1.2 Administrative Regions.........................................................................................................8

1.3 Demographics.......................................................................................................................81.4 Ethnic groups, Language and Religion...................................................................................8

1.5 Literacy .................................................................................................................................9

1.6 Employment .......................................................................................................................10

1.7 Poverty Incidence ...............................................................................................................10

2 Political situation ........................................................................................................ 11

2.1 Structure of Government....................................................................................................11

2.2 Political History and Current Political Situation....................................................................12

2.3 Economic environment ....................................................................................................... 12

2.4 The Private Sector...............................................................................................................13

2.5 The Investment Climate......................................................................................................13

3 Status quo of the energy sector .................................................................................. 15

3.1 Overview ............................................................................................................................ 15

3.2 Electricity market demand and supply side..................................................................... 16

3.3 Characteristic of the electricity grid ....................................................................................17

3.4 National Energy Policy.........................................................................................................22

3.5 Government Priorities (Regulatory Framework) ..................................................................22

3.6 National Energy Policy 2002............................................................................................... 22

3.7 The Renewable Energy Policy 2007......................................................................................23

3.8 Rural Electrification Targets................................................................................................24

3.9 FIT scheme.......................................................................................................................... 243.10 Market Players and Responsibilities.....................................................................................26

4 Regulatory Framework................................................................................................ 27

4.1 Market Access (Conditions for Market Entry) ......................................................................27

4.2 Privatisation, limitation and exclusion .................................................................................27

4.3 Economic Freedom .............................................................................................................27

4.4 Imports/ exports.................................................................................................................27

4.5 Fiscal and financial incentives (taxation, FIT)......................................................................28

4.6 Standards and quality.........................................................................................................29

5 Starting a Business Entry Options and Barriers ........................................................ 29

6 The Financial Sector .................................................................................................... 307 Renewable Energy Sector............................................................................................ 31

7.1 Overview............................................................................................................................. 31

7.2 Biomass...............................................................................................................................31

7.3 Solar Energy (Thermal and PV) ............................................................................................31

7.4 Hydro..................................................................................................................................32

7.5 Wind ...................................................................................................................................34

7.6 Geothermal......................................................................................................................... 34

7.7 Municipal Waste .................................................................................................................35

7.8 Investment Potential ...........................................................................................................36

7.9 Outlook............................................................................................................................... 36

7.10 Areas of Opportunity........................................................................................................... 36


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List of Abbreviations

AFD French Development Agency

BECS Bundibugyo Energy Cooperative Society

BEL Bujagali Energy Limited

CFR Central Forest Reserves

CIC Community Information CentresCOMESA Common Market for Eastern and Southern Africa

CSF Credit Support Facility

EAC East African Community

EE Energy Efficiency

ERA Electricity Regulatory Authority

ERT Energy for Rural Transformation

EU European Union

FDI Foreign Direct Investment

FIs Financing Institutions

FTA Free Trade Area

GDP Gross Domestic ProductGOU Government of Uganda

ICT Information and Communication Technologies

IP Investor Perception

IREMP Indicative Rural Electrification Master Plan

KCC Kampala City Council

KIL Kilembe Investment Ltd

MAAIF Ministry of Agriculture Animal Industries and Fisheries

MEMD Ministry of Energy and Mineral Development

MFIs Microfinance Institutions

Mtoe Million Tonnes of Oil Equivalent

NFA National Forest AuthorityNRM National Resistance Movement Party

O&M Operation and Maintenance

PACMECS Pader and Abim Community Multi Service Cooperative Society

PAYE Pay As You Earn

PPA Power Purchase Agreement

PPP Public Private Partnerships

PREEEP Promotion of Renewable Energy and Energy Efficiency Programme

PSFU Private Sector Foundation Uganda

PSIS Private Sector Investment Survey

PV Photovoltaic

PVTMA Photovoltaic Targeted Market ApproachREA Rural Electrification Authority

REB Rural Electrification Board

REF Rural Electrification Fund

REFIT Renewable Energy Feed-in Tariff

RTAP Regional Technical Assistance Program

SACCOs Savings and Credit Cooperatives

SHS Solar Home System

TIN Tax Identification Number

UBOS Uganda Bureau of Statistics

UEB Uganda Electricity Board

UECCC Uganda Energy Credit Capitalization Fund

UEDCL Uganda Electricity Distribution Company


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UEGCL Uganda Electricity Generation Company

UETCL Uganda Electricity Transmission Company

UIA Uganda Investment Authority

UNBS Uganda National Bureau of Standards

URA Uganda Revenue Authority

VAT Value Added TaxWENRECO West Nile Rural Electrification company


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FOREWORD

Uganda needs a renewed growth momentum to achieve its vision of attaining middle income status

in 10 years. This will only be achievable if the economy can grow at annual rates above 10 percent.

One of the methods envisaged to drive economic growth is value addition through primary

processing and manufacturing, however power shortages, high electricity prices and financing

constraints have curtailed growth in the energy sector. This underscores a dire need to attract more

investment in the energy sector given that energy consumption rates stand at 10% growth rates

outstripping energy generation and supply in the country. Ugandas competitive advantage in

renewable energy production has not been fully exploited. The role of energy in Ugandas economic

development need not be emphasized especially as the country seeks to transform its population

from subsistence production to commercialised producers with capacity to carry out agro-

processing to add value to their products.

The Ministry of Energy and mineral Development in a joint effort with The Royal Netherlands

Embassy (EKN) and Deutsche fuer Internationale Zusammenarbeit(GIZ) have produced a RenewableInvestment Guide to highlight the investment opportunities in the renewable energy sector and

hopefully attract more investments in renewable energy generation. Ugandas energy sector boasts

of enormous renewable energy potential which remain untapped The public sector which initially

undertook all energy generation projects has opened up to private investors that are not only

willing but have the capacity to undertake energy generation projects In Uganda. The government

of Uganda is committed to improving the supply of energy throughout the country and has put in

place an environment to facilitate investment through Private Public Partnerships.

Ugandas economy will continue to grow and attract Foreign Direct Investments (FDI) due to its

land-linked position within the Great lakes region with direct access to markets in South Sudan,Democratic Republic of Congo, Central African Republic, Rwanda and Burundi with a total

population of not less than 250 million consumers. AS food basket for the region, agro processing

industries are increasing in number with an insatiable need for electricity. According to the World

Bank (2013).Uganda needs to adopt a multi-pronged approach to raise productivity in order to rip

the benefits of regional trade. Increasing electricity supply is not an option but a must-do for

Uganda.

The key areas with strong investment potential include grid connected renewable, electricity

distribution, and energy products and services. There are several market development

opportunities in Power Investment Plan, ERT, and PV targeted market approach, UECC, Regionaltechnical assistance program and Promotion of Sustainable supply of biomass energy.

Government would like to express its gratitude to the continued collaboration with the multilateral

and bilateral development partners, EKN and GIZ in particular for facilitating this guide amongst

others. I hereby welcome all intending international and local investors in the renewable energy

sector

For God and my country

Hon. Eng. Irene Muloni,Minister for Energy and Mineral Development.


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EXECUTIVE SUMMARY

The contribution of renewable energies to the bigger energy sector in Uganda has not been

harnessed fully .However the growing population as well as the emerging manufacturing sector all

point to a need to increase investments in the energy sector to avoid a repeat of the economic

slowdown in 2011 due to power shortages. Attracting investments into the energy sector requires

elaborate and decisive actions which create awareness about Ugandas potential in producing

renewable energy. This is one of the key reasons that informed the publication of this renewable

energy investment guide to act as a critical resource tool for potential investors in the sector.

The general investment climate in the country is discussed comprehensively, with a particular focus

on business activities in the field of renewable energy providing a quick start for a potential market

entrant in the energy sector in general. The government of Uganda provides for the different

renewable energy generations to be added onto the national grid to increase available enough forconsumption. From the guide we get a general overview of the countrys geography, economic

environment and a precise insight into Ugandas political and administrative set-up.

Ugandas nascent energy sector is characterized by low levels of modern energy consumption and

heavy reliance on biomass energy. While the government of Uganda has put in place some long

term measures to address the current energy deficit and thus meet the countrys long term needs,

many times the efforts have not realised the expected impact. A critical assessment of the

government investment policies, the guide points to an array of opportunities in the renewable

energy sector.

Improved public-private investment partnerships in power generation and supply in the power

sector will enhance power production which is in tandem with Ugandas energy Policy (2002)whose overall objective is to meet the energy needs of the Ugandan population for social and

economic development in an environmentally sustainable manner. This guide discusses in specific

terms how several opportunities that exist in energy sector can be taken advantage of, with a

particular focus on renewable energies to reduce the overwhelming electricity supply deficit

National statistics indicate that 80% of Ugandans reside in rural areas and predominantly use

rudimentary and inefficient technologies in their energy consumption. It is therefore deduced that

investment in this area will go a long way in satisfying the general demand.

Whereas the Renewable Energy Policy of 2007 reinforces the governments commitment to the

development and utilization of renewable energy resources and technologies, little has been done

in attracting investment in this area, despite the several opportunities in the sector. The overall aimis to make renewable energy a substantial part of the national energy consumption and increase its

availability. It thus makes a case for stronger investment in the sector, while revealing the relevant

aspects of the legal regime governing the sector and the challenge of the un-updated laws.

On the regulatory framework, the guide outlines the conditions for market entry for private

entities, while giving provisions for the fiscal and other incentives available. Several opportunities

available in the sector are covered in this guide, in addition to potential financing options

In conclusion, the guide makes substantial recommendations to the government and other actors

to ensure that the different laws governing the sector are up to date with the emerging market

trends in the sector ., it is hoped that this guide will serve as an important tool in improving

investment in the sector.


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Introduction to Uganda

1.1 Country and people

Uganda is a landlocked country in Eastern Africa; bordered on the east by Kenya, on the north by South

Sudan, on the west by the Democratic Republic of Congo and on the south by Rwanda and Tanzania. Uganda

averages about 1,100 metres above sea level, and this slopes very steadily downwards to the Sudanese Plainto the north.

Ugandas total area is 241,550km2. It contains many large lakes; Lake Victoria, Lake Kyoga, Lake Albert, Lake

Edward and the smaller Lake George. It lies almost completely within the Nile basin. The Victoria Nile drains

from the Lake Victoria into Lake Kyoga and then into Lake Albert on the Congolese border before running

northwards into South Sudan.

Ugandas climate is equatorial; generally rainy with two dry seasons (Dec Feb and Jun Aug). Lake Victoria

influences the climate in the south; southern Uganda is wetter with rain spread throughout the year. Most

important cities are located in the south, near Lake Victoria, including the capital Kampala and the city of

Entebbe. The north east part of the country is semi-arid.

Ugandas natural resources include arable land, regular rainfall, and deposits of copper, cobalt and gold. The

country has largely untapped reserves of both crude oil and natural gas estimated at over 1 billion barrels of

oil and 14 million cubic feet per day of natural gas1. Agriculture is the most important sector of the economy,

employing over 80% of the work force. In 2005, cultivated land cover was estimated at 99,018.4km2. Coffee

accounts for the bulk of export revenues. Other key exports earners are tea, tobacco and fish and fish

products2.

1.2 Administrative Regions

Uganda is divided into districts, spread across four administrative regions: Northern, Eastern, Central and

Western as indicated in Figure 1 below. The districts are subdivided into counties. There are over 100

districts; most are named after their main commercial and administrative towns. Each district is divided into

counties, sub-counties, parishes and villages.

1.3 Demographics

According to the 2002 Uganda Population and Housing Census, the population was 24.2 million persons. The

annual population growth rate between 1991 and 2002 censuses was 3.2%. Nearly half of the population

was below the age of 15 in 2002 and the population structure is expected to remain youthful for the next

fifteen years. At 3.2% growth rate, the current population is estimated at 33.2 million. The majority of thepopulation lives in rural areas; only 12% of the population in 2002 was living in urban areas. Kampala is the

prime urban centre; it had 40% of the total urban population (1.2million persons) in 20023. Figure 2below

shows Ugandas population density map.

1.4 Ethnic groups, Language and Religion

Uganda is home to many different ethnic groups, none of whom forms a majority of the population. Around

forty different languages are regularly and currently in use in the country. English is the official language and

1

Tullow Oil estimates2 Statistical Abstract 2011 Uganda Bureau of Statistics3

2002 Uganda Population and Household Census


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Luganda is the most widely spoken local language in Uganda. Luganda is spoken predominantly by the Ganda

people (Baganda) in the urban concentrations of Kampala, the capital city.

Figure 1: Ugandas Administrative Regions4

1.5 Literacy

Literacy rate among persons aged 10 years and above has increased by 4% from 69% in 2005/06 to 73% in

2009/10. The male literacy rate (79%) is higher than that for females (66%). Kampala had the highest literacy

rate (92%) compared to other regions. Excluding Kampala, the Central region had the highest literacy rate

(83%) while the Northern region had the lowest (64%)5.

In terms of religious affiliation, Christians made up about 84% of Uganda's population, with Muslims

representing 12%. The remainder of the population follow traditional religions, non-Christian religions or

have no religious affiliation (0.9%)6.

4

http://www.nationsonline.org/oneworld/map/uganda-administrative-map.htm5 Uganda National Household Survey 2009/106

Statistical Abstract 2011 Uganda Bureau of Statistics


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1.6 Employment

In 2010 the labour force was estimated at 11.5 million persons reflecting an annual growth rate of 4.7% from

2005/2006 and the Labour Force Participation Rate7

was 79%. 76% of the labour force was self-employed

while 24% was in paid employment. The primary sector (agriculture, mining and quarrying) employed 66% ofthe working population while the service and manufacturing sectors engaged 28% and 6% of the labour

force respectively. 67% of the working population in the non-agricultural sector were in informal

employment8. Kampala district together with the rest of Central region had the highest proportion of the

working population (30%), while Northern region had the least (19%)9.

Figure 2: Uganda Population Density Map10

1.7 Poverty Incidence

Rural poverty rates in Ugandas sub-counties range from 60% of the population as illustrated in the

Figure 3below. Brown areas indicate higher poverty levels and green areas represent lower poverty levels.

There is a high geographic concentration of poverty in northern districts (e.g., Gulu, Amuru, Kitgum, Pader,

7This is a measure of the extent to which a countrys working age population (14-64 years) is economically active

8Informal employment identifies persons who are in precarious employment situations irrespective of whether or not

the entity for which they work is in the formal or informal sector.9 Statistical Abstract 2011 Uganda Bureau of Statistics10

2002 Uganda Population and Household Census


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Moroto, and Nakapiripirit Districts) and low poverty in the southwest and central part of the country (e.g., in

parts of Mbarara, Bushenyi, Isingiro, Kibaale, and Wakiso Districts). The reasons for this spatial pattern

include factors such as rainfall and soil quality (which determine agricultural potential), land and labour

availability, degree of economic diversification, level of market integration, and issues of security and

instability (the latter is especially relevant for the northern parts of Uganda).

Figure 3: Poverty Rate in Uganda: Percentage of rural sub-county population below the poverty line,200511

2 Political situation

2.1 Structure of Government

Uganda is a presidential republic, in which the President of Uganda is head of state, head of government and

head of the armed forces. Executive power is exercised by the government and legislative power is vested in

both the government and the National Assembly. The system is based on a democratic parliamentary system

with universal suffrage for all citizens over 18 years of age.

11http://www.wri.org/map/poverty-rate-uganda-percentage-rural-subcounty-population-below-poverty-line-2005


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2.2 Political History and Current Political Situation

Since the late 1980s Uganda has rebounded from civil war and economic catastrophe to become relatively

peaceful, stable and prosperous. However, the north of the country still remains blighted due to the war

counflicts that raged on for some time in that region. Since becoming president in 1986, Yoweri Museveni

has introduced democratic reforms and has been credited with substantially improving human rights. Inaddition, Western-backed economic reforms produced solid growth and falls in inflation in the 1990s.

Although the country is still grappling to industrialise, the discovery of oil and gas in the west of the country

has boosted confidence in the economy. The oil industry in the country is expected to propel a number of

other industries in the country thus a greater need for a conducive environment for the same.

A constitutional referendum cancelled the 19-year ban on multi-party politics in July 2005 and parliament is

currently made up of representatives from 6 political parties and 30 independents. The National Resistance

Movement party (NRM) has 263 seats and currently dominates parliament. The leading opposition party is

the Forum for Democratic Change with 34 parliamentary seats.

There has been some public dissatisfaction due to the unstable commodity prices at times when the Ugandashilling is stretched against more stable currencies. In the recent past, issues around land ownership have

sparked off confrontations which have led to riots, especially in 2009 and 2010. The discovery and

development of oil reserves in western Uganda could also increase political tensions with local communities

in western Uganda. Local opposition has already arisen over land rights and forced displacement, the oil

development companies employment of foreigners rather than natives, and concerns over how the wealth

will be distributed12.

2.3 Economic environment

Uganda has experienced sustained economic growth averaging 7% annually over the past 15 years. In 2010,

the economy grew at about 6% while core inflation remained low, falling to 2.5% by the end of the year.

From the beginning of 2011, the country experienced price increases for food crops, fuel and most consumer

goods. The countrys headline inflation started soaring in the middle of last year touching 30.4% in October.

The price of food crops rose dramatically, reaching an annualized inflation rate of 42% in July while prices for

Electricity, Fuel and Utilities items increased by 9.1% for the year ending September 2011 before it started to

decline. Inflationary pressures were the result of a number of factors; 16% output reduction by the

agricultural sector partly due to a prolonged dry season in most parts of the country, increased global

commodity prices and the depreciation of the Uganda Shilling. Furthermore, at regional level, countries in

the East African Community all suffered high food inflation as a result of drought and the high global food

prices and increasing the demand for food from Uganda.

Since that period, year-on-year inflation has been reducing marginally. The Bank of Uganda raised the

central bank rate from 13% in July last year to 23% in October and started easing when inflation slowed. The

Bank kept the rate unchanged in April 2012 at 21% to further discourage access to bank credit and fight

inflation. Government officials to predict that inflation will be in single digits by the end of 2013.

The broad sector composition of Ugandas Gross Domestic Product (GDP) during 2010 was; Services (46.2%),

Industries (25.4%) and Agriculture (22.5%). The largest sub-sector contributors in 2010/2011 were food

crops, trade and construction. Nominal Per Capita GDP increased by 7.5%13.

12Uganda Humanitarian Profile - 2012

13Statistical Abstract 2011 Uganda Bureau of Statistics


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The countrys trade deficit continued to deteriorate during the 2010/2011 period. Overall trade deficit grew

to 14 2,107.6 million in 2010 from 1,541 million in 2009. In 2010, all traditional exports15 recorded a

significant increase in export receipts except cotton. Coffee remained the main foreign exchange earner for

the country, although its share to total export earnings declined marginally. In 2010, petroleum and

petroleum products took the highest import bill of 716 million followed by road vehicles with 327 million,

then telecommunications instruments with 178 million and iron and steel value estimated at 178.6million.Table 1below presents major imports and exports by percentage value.

Table 1: Formal exports and imports by percentage value

Major Exports Major Imports

Coffee 17.5% Petroleum and petroleum products 19.7%

Fish and fish products 7.9% Road vehicles 9%

Cellular telephones 4.9% Machinery for specialized industries 5%

Petroleum products 4.5% Iron and steel 4.9%

Cement 4.4% Telecommunications instruments 4.9%

Tea 4.2% Medical and pharmaceuticals 4.4%

Tobacco 4.2% Cereals and cereal preparations 4.0%NB: Total formal export revenue 1.25 billion; total formal import bill 3.64 billion

2.4 The Private Sector

Ugandas total business population in the country is estimated at about 500,000 (although most are micro

and small businesses)16. This represents a growth of 185% percent since 2001/02. Most of these businesses

are fairly new; 50% are less than 6 years old. Majority of businesses are in the trade (61%) and hotels and

food services sector (14%).

Information about the legal ownership of businesses shows that the majority of businesses are sole

Proprietorships. Businesses that operated as Partnership or Private Limited Companies each accounted foronly 2%. With only 2% of the businesses reported to be members to any association, business advocacy is

still in its infancy.

2.5 The Investment Climate

Strong economic growth, open markets, and abundant natural resources provide good opportunities for

knowledgeable investors in Uganda. The results of the 2010 Private Sector Investment Survey (PSIS)17

indicate that foreign private capital inflows to Uganda began to recover in 2009 following the slowdown

which had occurred in 2007 and 2008. Foreign direct investment (FDI) rose by 12% in 2009, to over US$800

million. The sectors which attracted most of the FDI were financial services, manufacturing, Information and

Communications, Technology and mining.

Table 2: Value of projects licensed by the Uganda Investment Authority18 (listed in million $)

141= 1.279US$

15Coffee, tea, tobacco and cotton

162010 Census of Business Establishments Report

17The 9

thPrivate Sector Investment Survey (PSIS) 2010 was conducted by the Bank of Uganda in collaboration with

Uganda Bureau of Statistics and Uganda Investment Authority (UIA). PSIS provides annual information on the: scale of

investment, composition, causes, sustainability and macroeconomic implications. The 2010 survey targeted a sample of

698 enterprises drawn from; enterprises with foreign assets and liabilities from the investor register, the Top tax payersand enterprises which were newly licensed by UIA.18

Uganda Investment Authority


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Sector 2006 2007 2008 2009 2010

Agriculture, Hunting, Forestry and Fisheries 72.21 28.99 60.89 203.27 664.55

Community, Social and Personal Services --- 41.06 34.10 66.35 32.57

Construction 32.46 223.83 58.10 175.88 125.70

Electricity, Gas and Water --- 742.50 173.34 69.93 12.57

Financing, Insurance, Real Estate, Tourism, and BusinessServices

351.6 109.9 380.89 309.84 294.97

Manufacturing 291.2 325.36 641.23 577.36 327.20

Mining and Quarrying 10.48 88.25 30.36 53.8 103.31

Transport, Communication and Storage 468.6 444.81 946.12 84.65 49.33

Wholesale & Retail Trade, Catering & Accommodation

Services

--- 218.33 55.90 31.04 62.85

Total 1226.55 2223.03 2380.93 1571.82 1673.03

The Investor Perception (IP) rating, undertaken as part of the PSIS, indicated good prospects for private

sector growth in the medium term. The factors considered to have promoted favourable business

environment included domestic and international market size; availability of local credit facilities; cost andefficiency of support services such as telecommunication, banking, insurance, and internet; availability and

productivity of skilled and unskilled labour and efficiency of some regulatory and government agencies.

However, the private sector also identified a number of constraints particularly related to effects of

exchange rates, inflation and corruption; cost and efficiency of electricity and road transport, and the effect

of the financial crisis on turnover and import costs.

Uganda is open to foreign investment and provides attractive incentives for medium and long-term foreign

investors. The Heritage Foundation's 2010 Index of Economic Freedom ranked Uganda's economy 76 of 179

countries, and as the fifth freest economy of 46 countries in sub-Saharan Africa based on the ease of doing

business, openness to trade, property rights, and fiscal and monetary policy.

In 2001, Uganda created the Uganda Investment Authority (UIA) to assist foreign and domestic investors.

The Investment Code allows foreign participation in any industrial sector except those touching on national

security or requiring the ownership of land. The Investment Code also allows licensing authorities to impose

performance obligations on foreign investors to which nationals are not subject. While the Code does not

specify these obligations, UIA imposes requirements based on the size of investment, staff training, local

employment, local procurement and environmental protection.

A revised investment code is still under review. Once adopted, this code will turn the UIA into a one-stop

shop for investors by granting the UIA new powers to obtain secondary permits for investor operations,

allocate government resources for investment, and provide government incentives for rural investment.

Uganda is moving away from a much-criticized emphasis on ad hoc, venture-specific incentives for potential

investors in favour of an approach aimed at levelling the playing field for all investors. Uganda now offers

investment incentives and is implementing reforms to ease business transactions. The UIA is implementing a

plan to construct industrial parks19 in the country's largest population centres. The government is financing

the project with a 21 million World Bank loan and 7.8 million budget allocation. The first park is located

eight miles east of Kampala in Namanve, with electricity, sewage systems, roads, and telecommunications

infrastructure jointly funded by the World Bank and the government.

Ugandan policies, laws, and regulations are generally favourable towards foreign investors, though revised

legislation is needed. Uganda is revising more than 20 commercial and bankruptcy laws to reduce

19http://www.ugandainvest.go.ug/index.php?option=com_k2&view=item&layout=item&id=27&Itemid=236


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administrative delays and the cost of doing business. This includes plans to revise the Companies Law,

modernize and speed up bankruptcy procedures, strengthen intellectual property rights protections, expand

and clarify provisions on mortgages, update commercial contract law, and modernize provisions for e-

commerce and electronic signatures. Most of these laws are either still in the drafting phase or awaiting

Parliamentary review20.

3 Status quo of the energy sector

3.1 Overview

Ugandas energy sector is undeveloped and characterised by among other things, extremely low levels of

modern energy consumption and heavy reliance on biomass energy which account for 93% of total energy

consumption. It is envisaged that this trend will continue in the foreseeable future. Petroleum accounts for

6% while electricity account for 1% of the total national energy balance.

Biomass is predominantly used at the household level for cooking and heating applications. In addition, a

considerable amount of biomass is also used in the services/commercial, institutional, cottage industry andindustrial sectors.

Electricity access is currently about 5.91%; 2% in rural areas 21. Uganda's power sector is suffering from a

shortage of generating capacity due to prolonged drought, inadequate investment in least cost generation

capacity and a relatively high load growth; the power deficit is currently estimated at 130MW22. This has

resulted in massive electricity rationing and has forced the country to resort to expensive thermal

generation. The country currently depends on hydroelectricity for around 60% of its total power generation

output; the remainder of Uganda's power generation comes from thermal power stations, fired by bagasse

and diesel.

Electricity has been heavily subsidized by the government; the Ministry of Energy estimates that since 2005the government has spent about 390 million on power subsidies. The subsidies were used to minimize the

shock of high tariffs when thermal generation was introduced in 2005. Although the subsidies have not been

completely scrapped, it is anticipated that subsequent rounds of price hikes will be implemented in the near

future. The decision will encourage the increase of private sector investment in the power supply sector and

also enable the Uganda government to invest in large hydro power projects.

The government has put in place a comprehensive plan to address the current energy deficit and meet the

long term energy needs. The plan is to enhance public-private partnerships in power generation and supply

and the sustainability of the power sector. The strategies include: energy loss reduction in the power system,

procurement of additional thermal generation capacity, energy efficiency/demand side management,

renewable energy generation projects including small hydro, cogeneration in sugar mills and biomass-gasification plant, promotion of solar water heating in both homes and commercial enterprises and

construction of Bujagali (250MW) and Karuma (150-200MW) projects. The long term measures include

development of four large hydro power sites, use of indigenous petroleum resources for thermal generation;

Interconnection of the regional power grid; Use geothermal, peat and other renewable sources of energy.

20

2011 Investment Climate Statement Uganda (Source: US Embassy Uganda)21 Uganda Accelerated Rural Electrification Project Report 201122

The Electricity Distribution Utility Umeme


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3.2 Electricity market demand and supply side

The enactment of the new Electricity Act in 1999 provided the legal basis for the privatisation of Uganda

Electricity Board (UEB). The unbundling of UEB into the segments of generation, transmission, and

distribution was effected in March 2001. The successor companies were registered in accordance with the

Companies Act under the following names: Uganda Electricity Generation Company (UEGCL);

Uganda Electricity Transmission Company (UETCL); and

Uganda Electricity Distribution Company (UEDCL).

In 2003, after a competitive bidding process, UEGCL concessioned out its hydro generation assets at

Nalubaale and Kiira to Eskom (U) Ltd23. In March 2005, UEDCL also concessioned out its distribution assets to

Umeme Ltd24.Both concessions are for 20 years. UEGCL and UEDCL remain asset owners for generation at

the two hydro dams and for the distribution assets (33kV and below) which are leased to Umeme. UETCL

remained a government company in charge of the transmission network maintenance, system operation and

dispatch, and bulk purchase and supply of electricity.

Uganda operates a single buyer market model; UETCL purchases all the generated electricity and sells to

electricity distribution concessionaires. The bulk supply tariff is currently 6.48 compared to an average

weighted generation cost of 9.76.

Even with suppressed demand total energy purchases have been increasing by an average of 14.7% over the

last four years.Table 3below shows the trend in energy purchases from 2006-2010.

Table 3: UETCL Energy Purchases (GWh)252006 2007 2008 2009 2010

Eskom 1,160.45 1,263.54 1,373.44 1,234.98 1,254.80

Aggreko 1 (Lugogo) 319.95 272.80 141.39 - -Aggreko 2 (Kiira) 50.03 266.21 239.59 126.34 150.98

Aggreko 3 (Mutundwe) 99.52 395.14 417.78

Jacobsen (Namanve) 116.57 353.09 372.58

Kinyara 4.47 4.80

Kakira 80.31

Electromax 0.28 82.56

Bugoye 15.91 66.36

Backflows to UETCL 19.98 11.63 130.68 346.10 331.20

Electrogaz 2.18 1.84 2.29 2.33 2.93

Kasese Cobalt Company Limited 1.53 0.74 1.80 1.31 3.42

Kilembe Mines Limited 28.05 29.64 29.80 28.35 22.31

KPLC(IMPORT) 46.73 58.25 40.92 25.06 29.21

TOTAL 1,628.90 1,904.66 2,175.99 2,533.37 2,819.25

Annual Percentage Change 16.93 14.25 16.42 11.28

Table 4: Installed Electricity Capacity (MW), 2008-201026

23Eskom Uganda Limited (EUL) is a subsidiary company of Eskom Enterprises (Proprietary) Limited. South Africa. Eskom

Enterprises Proprietary Ltd is the investment arm of Eskom Holdings Ltd, a leading electricity generation company in

Africa with its head office located in Johannesburg South Africa.24

Umeme is owned by Actis, a private equity firm based in the UK.25 Uganda Electricity Transmission Company26

Uganda Electricity Transmission Company


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Plant Name 2008 2009 2010

Installed Capacity 527 492 539.5

Hydro Electricity 315 328 352.5

Kiira 120 120 120

Nalubale 180 180 180

Kasese Cobalt 10 10 10.0Kilembe Mines 5 5 5.0

Bugoye Tronder Power - 13 13

Mpanga - - 18

Ishaha Ecopower - - 6.5

Thermal Electricity 200 150 170

Lugogo 50 - -

Electromax - - 20

Kiira 50 50 50

Jacobsen Plant- Namanve 50 50 -

Mutundwe 50 50 -

IDA Plant - - 50

Aggreko II - - 50

Bagasse Electricity 12 14 17

Kakira 12 12 12

Kinyara - 2 5

UETCL currently purchases electricity from the hydro and thermal power plants shown inTable 4above. For

a long time, Uganda relied solely on the hydropower generation from the Owen Falls Dam as the sole source

of grid electricity. Whereas the installed capacity of the complex is 380 MW (180 MW at Nalubaale and 200MW at Kiira power plants), the effective capacity of the complex has been as low as 100 MW due to frequent

droughts in the region resulting in chronic power shortages since 2005. As part of the short term solution to

the power problem, the government of Uganda contracted Independent Power Producers to supply

electricity from diesel fired generators; this began with an initial 50MW in May 2005 and has grown to

170MW.

The future outlook is optimistic; private sector players generating cheaper power are anticipated e.g.:

Bujagali Energy Limited (BEL) will be launched in October 2012;

Several small scale power generation plants (from hydropower and cogeneration) are under different

stages of development and these may, in aggregate, result in as much as 100 MW of generating capacity;

Other large hydropower stations on the Nile River are being considered by Government: Isimba, Ayago,Kalagala, Murchison Falls, etc;

Other renewable energy sources like geothermal, solar, biomass, peat and wind will also be developed.

Tullow Oil (an international oil and gas company) conducting oil exploration in the Lake Albert western

region and has applied to the Electricity Regulatory Authority for an electricity generation license for a

57 MW power plant.

3.3 Characteristic of the electricity grid

Transmission Network

As illustrated inFigure 4below major developments and investments are being undertaken to strengthen

Ugandas transmission network. Projects are being developed to transmit electricity from upcoming power


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plants, to improve the electricity access, reliability, and quality of supply to consumers in the country and for

regional interconnection projects.

These projects include evacuation of power from Bujagali Hydro Power Station, mini-hydro power plants in

the Western region, a thermal power plant in Mputa near the Lake Albert oil fields, as well as a transmission

line to Lira, to serve the growing energy needs of the north eastern region of the country. UETCL hasdeveloped a 10-year grid investment plan estimated at US$1.2 billion to implement these projects; details of

these projects are presented in UETCLs business plan27. To facilitate power exports and imports; 220kV

interconnection projects with Kenya and Rwanda are under development. In addition, a feasibility study for

interconnection with Tanzania has been completed while the feasibility study for interconnection with the

Democratic Republic of Congo is ongoing.

27http://www.uetcl.com/UserFiles/File/Businessplanannextures.pdf


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Figure 4: UETCL electricity transmission network28

28Uganda Electricity Transmission Company Limited


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Distribution Network

There are 5 electricity distribution concessionaires, the largest of which is Umeme. The other

concessionaires include Ferdsult Engineering Services (3 concession areas, 8 field offices), Kilembe

Investment Ltd (KIL), the Bundibugyo Energy Cooperative Society (BECS), and the Pader and Abim

Community Multi Service Cooperative Society (PACMECS). Each of whom serve about 1,500 consumers in

each concession area. Outside the Umeme concession area, grid extensions are financed by the RuralElectrification Agency (REA) with the funding support of several donors. The network in these areas is owned

by REA.

Umeme, the national electricity distribution company, supplies over 450,000 customers. Of these, 2,000 are

large and medium-scale enterprises; 90,000 are small businesses and 350,000 are "domestic" or household

consumption. 60% of total electricity is consumed by the 2,000 large industrial and medium scale

enterprises. Distribution tariffs range from 7.8-17.2 per kWh. The West Nile region29 is not connected to

the national grid. In 2003, government established the West Nile Rural Electrification company (WENRECO)

and leased it to Industrial Promotions Services with a mandate to construct a 3.5MW mini hydro power

project on River Nyagak to be completed in 2006. WENRECO serves about 3,000 consumers principally in the

towns of Arua and Nebbi. The proposed hydro project has delayed for 6 years during which time the townshave been unreliably supplied with power from a 1.5MW diesel generating plant.

Off-grid stations were not part of the concessioned assets and were retained by UEDCL to manage and

operate. UEDCL operates diesel powered off-grid stations in Moyo and Adjumani (in the West Nile region),

Moroto (in the North East) and Kalangala (on Bugala Island within Lake Victoria). These stations are operated

on non-cost reflective tariffs. These off-grid stations are all likely to be interconnected with the national grid

system and would fall under Rural Electrification Authoritys management system for the on-grid

electrification program.

One of the objectives of privatising UEDCL through a 20 year concession was to bring on board private

investors to rehabilitate, upgrade and expand the distribution network. Since 2005, Umeme have reduced

energy losses from 38% to 27.7%; replaced over 120,000 poles, 2,000 transformers and 40 sub-stations;

refurbished over 1,500kms of medium voltage (MV) and low voltage (LV) lines; and introduced SCADA 30, a

prepayment system and automated meter reading.

29West Nile sub-region is a region in north-western Uganda that consists of the districts of Adjumani, Arua, Koboko,

Maracha-Terego, Moyo, Nebbi and Yumbe. The sub-region received its name from being located on the western side of

the White Nile30 Supervisory Control and Data Acquisition (SCADA), a computer systems that monitor and controls electric power

distribution infrastructure


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Figure 5: Access to grid electricity by district31

31Uganda Accelerated Rural Electrification Project Report 2011


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3.4 National Energy Policy

3.5 Government Priorities (Regulatory Framework)

3.6 National Energy Policy 2002

The Energy Policy for Uganda which was approved by Cabinet and published in September 2002. The goal of

the Energy policy is to meet the energy needs of the Ugandan population for social and economicdevelopment in an environmentally sustainable manner.

The energy policy seeks to meet the following broad objectives:

1. To establish the availability, potential and demand of the various energy resources in the country i.e.:

Prepare a database on all the available energy resources and energy consumption patterns in order

to have a long term perspective of the options for demand/supply matching; and package

information on potential projects for investment.

Build the necessary local capacity to acquire the required data and assess and evaluate the

resources.

2. To increase access to modern affordable and reliable energy services as a contribution to poverty

eradication i.e.:

Attract private capital and management in the energy sector; promote competition between energy

service providers and promote the development of markets in energy technologies and services.

Put in place a conducive environment to accelerate rural energy supply and access by:

(i) Applying subsidies exclusively on capital investment;

(ii) Applying light-handed regulation to facilitate investment in rural energy projects

(iii) Having differentiated tariffs for different areas or projects to reflect investment and supply

costs;

(iv) Exploring schemes to assist consumers to purchase appliances thereby increasing the speed at

which the load of new consumers matures; and(v) Formulation of guidelines on organising rural communities to enable them access better

provision of energy services

Intensify provision of consumer information, education and technical advice in the use and

conservation of energy.

Work with financial institutions to establish sustainable financing mechanisms for energy

programmes.

3. To improve energy governance and administration in order for the energy sector to operate efficiently

and play its role in the socio-economic development of the country i.e.:

Clarify the roles and functions of the various institutions involved in the energy sector increasing the

role of the private sector and other NGOs and communities; Create a transparent legal and regulatory framework for the sector;

Build capacity at the national and local levels for better formulation and implementation of energy

policies and programmes;

Build the capacity of regulatory agencies to provide even handed and predictable regulation;

Develop incentives to retain local human resource for the energy sector; and

Involve all stakeholders in the formulation of new policies in the energy sector.

4. To stimulate economic development by ensuring that energy plays a central role in the economic

development of the country and in the region i.e.:

Encourage competition within the energy markets to achieve efficiency.

Attract investments in energy services provision by providing appropriate incentives. Ensure energy supply security and reliability.


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Promote energy trade within the region.

5. To manage energy-related environmental impacts. Government will ensure that environmental

considerations are given priority by energy suppliers and users to protect the environment and put in

place a monitoring mechanism to evaluate compliance with established environmental protection

guidelines i.e.:

Promote the use of alternative sources of energy and technologies which are environmentally

friendly;

Sensitise energy suppliers and users about the environmental issues associated with energy;

Work towards the establishment and acceptance of broad targets for the reduction of energy-

related emissions that are harmful to the environment and energy users;

Promote efficient utilisation of energy resources; and strengthen the environment-monitoring unit

in the energy sector.

3.7 The Renewable Energy Policy 2007

Whereas the 2002 Energy Policy laid down Governments commitment to the development and utilization of

renewable energy resources and technologies. The Renewable Energy Policy, which was approved by

Cabinet on the 29th March 2007, reinforced that commitment.

The Governments policy vision for Renewable Energy is to make modern renewable energy a substantial

part of the national energy consumption. The 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 2017.

In order to achieve the Policy Vision and Goal, the following supporting objectives will be pursued:

Maintain and improve the responsiveness of the legal and institutional framework to promote

renewable energy investments.

Establish an appropriate financing and fiscal policy framework for RET investments.

Mainstream poverty eradication, equitable distribution and gender issues in renewable energy

strategies.

Acquire and disseminate information in order to raise public awareness and attract investments in

renewable energy sources and technologies.

Promote research and development, international cooperation, technology transfer and adoption of

standards in renewable energy technologies.

Utilize biomass energy efficiently, so as to contribute to the management of the resource in a

sustainable manner.

Promote the sustainable production and utilization of bio-fuels.

Promote the conversion of municipal and industrial waste to energy.

Some key strategies elaborated in the policy include:

Publish a standardized Power-Purchase Agreement (PPA) with feed-in-tariffs.

Develop appropriate regulations for grid connections and wheeling of electricity generated from

renewable energy

Implement, through public-private partnerships (PPP), innovative financing mechanisms, including

targeted subsidies.

Introduce fiscal measures that favour renewable energy investments.

Implement innovative risk mitigation mechanisms and credit enhancement instruments.

Continuously acquire data on the renewable energy resource availability.

Promote, in collaboration with NFA32 and MAAIF33,the growing of energy crops.

Provide incentives for farmers to establish commercial woodlots.

32National Forest Authority

33Ministry of Agriculture Animal Industry and Fisheries


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Develop appropriate legislation for the use of bio-fuels.

Provide incentives for the conversion of wastes to energy.

Put in place fiscal measures that will discourage open burning or disposal of wastes without extracting

their energy content.

3.8 Rural Electrification Targets

Statutory Instrument No. 75 of 2001, The Electricity (Establishment and Management of the Rural

Electrification Fund) Instrument 2001, established three inter-related mechanisms for management of

Ugandas rural electrification program namely, the Rural Electrification Fund (REF), the Rural Electrification

Board (REB) and the Rural Electrification Agency (REA) all supervised by the Minister responsible for Energy.

REA serves as the Secretariat to the Board whose principal responsibility is to ensure management of the

Fund for equitable promotion of rural electricity access and connectivity. REA prepared a 7-year Strategic

Plan covering the period 2005/06-2014/12 to provide a clear decision platform for carrying out its mandate

The main goal of the REA/REB Strategic Plan is to facilitate achievement of Ugandas target of 10% RuralElectrification Access by 2012.This goal is the first main target in the long process of fulfilling REAs vision

which is: Universal access to electricity by 2035.

The Plan seeks to achieve the following specific objectives:

1. Facilitate an average connection rate of at least 1 percentage point of rural consumers per annum over

the Plan period - This rate translates into connections of between 40,000-50,000 consumers every year.

REAs projections anticipated that growth would initially be slow but pick up rapidly starting FY2007 to

reach an average of 74,000 connections per year by 2012.

2. Promote equitable rural electrification access having special regard to those areas of the country thatare currently marginalized - REA will initiate and promote affirmative measures intended to enhance

investment for RE generation and distribution in the 19 districts currently disadvantaged in terms of

socio-economic development by the long drawn conflicts. These areas include Northern and North-

Eastern Uganda as well as the Rwenzori region in Western Uganda.

3. Establish and maintain a comprehensive database on Ugandas Rural Electrification sub-sector to

facilitate informed decision-making - Prepare, maintain and publicize locally, regionally and

internationally, a user friendly National Rural Electrification Database. The database will be an

information platform on Ugandas rural energy potential (hydro and other renewable sources), supply

and demand, completed and ongoing projects, tariff levels, environmental considerations, etc.

4. Enhance the available financial resource base for Rural Electrification - It has been estimated that as

much as374 million may be required in subsidies to realize the connection of 400,000 consumers.

3.9 FIT scheme

Under the Renewable Energy Policy (2007), a Renewable Energy Feed-in Tariff (REFIT) was initially

established in Uganda which ran from 2007 to 2009. Due to limited uptake by project developers, the REFIT

was reviewed in 2010 and a new tariff was developed based on updated levelised costs of production.

In consultation with the ERA, the system operator (currently UETCL) shall publish the REFIT tariffs for priority

technologies as approved by the ERA. Under its mandate as single buyer, UETCL will issue and sign

standardised Power Purchase Agreements (PPA) with qualifying renewable energy generators. Under the


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PPA, UETCL shall be obliged to purchase power generated under the REFIT from licensed renewable energy

electricity generators subject to fulfilment of all necessary licence conditions.

UETCL shall be obliged to connect licensed renewable energy electricity plants to the grid and to transmit

purchased electricity from renewable energy electricity generators licensed under the REFIT.

Qualifying renewable energy generators shall be defined as:

Priority technologies i.e. small hydro, geothermal, bagasse, landfill gas, biogas, biomass, wind and solar

(considered priority 2).

Projects of 0.5- 20MW. Projects with an installed capacity greater than 20 MW will be required to

negotiate a tariff and PPA with UETCL, on a case by case basis.

Plants including additional capacity resulting from project modernisation, repowering and expansion of

existing sites, but excluding existing generation capacity.

Projects connected to the National Grid; off-grid projects may be included in future developments of the

REFIT, although this would require collaboration with REA to develop the technical and operational

modalities. In particular, this will require the establishment of a mechanism for the monitoring and sale

of power to the System Operator as the Single Buyer

Priority technologies shall include:

Priority 1 technologies for which the levelised cost is below or close to the avoided cost

Priority 2 technologies for which the levelised cost is significantly above the avoided cost and therefore

limited annual allowable installed capacities shall apply.

The tariffs for each priority technology are determined using a US$/kWh levelised cost approach, based on

the electricity generation costs from the renewable energy sources. The key inputs are based on general

investment assumptions and specific assumptions for each of the priority technologies that influence the

power generation costs.

The tariff shall be set according to the year in which the licence is issued and are provided in Table 5below.

The tariff will be paid for a guaranteed payment period of 20 years, with O&M costs adjusted on an annual

basis for inflation. The REFIT tariffs are listed in the table below. They are currently undergoing revision.

Table 5: REFIT Phase 2 tariffs, O&M%, capacity limits and payment period34

011 2012 2013 2014 (Years)

Technology Tariff

(US$/kWh) O&M %

Cumulative Capacity Limits (MW) Payment

Period (yrs)2011 2012 2013 2014

Hydro (9 >


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3.10 Market Players and Responsibilities

In order to achieve Government of Ugandas policy objective for renewable energy resources, a number of

institutions, each with its own legal mandate, are involved. These include

The Ministry of Energy and Mineral Development (MEMD), which is responsible for the overall

management of the sector, dealing specifically with energy policy formulation, implementation and

monitoring.

The Electricity Regulatory Authority (ERA) is responsible for regulating the electricity sector. Some of

functions of the ERA are: to issue licenses for the generation, transmission, distribution or sales of

electricity in the country; to establish a tariff structure and approve rates and tariff charges.

The Rural Electrification Authority which has a broad mandate in rural electrification which includes

providing policy advice to the Rural Electrification Board35, operationalization of Ugandas Rural

Electrification Strategy and Plan and administering the Rural Electrification Fund (REF)

The Uganda Electricity Transmission Company Limited (UETCL) is the System Operator and owns

transmission lines above 33kV. UETCL is the bulk supplier and single buyer of power for the national grid

in Uganda. It is the purchaser of all independently generated power in the country that is fed into the

national grid.

Uganda Electricity Distribution Company Limited (UEDCL) is the owner of the electricity distribution

network, which has been leased by UMEME Ltd.

Uganda Electricity Generation Company Limited (UEGCL) is the owner of Kiira and Nalubaale

Hydropower Stations in Jinja, which were concessioned to ESKOM

TheElectricity Disputes Tribunal is a mechanism through which any of the entities regulated by ERA or

other persons can appeal the decisions of the Electricity Regulatory Authority.

The Uganda Energy Credit Capitalisation Company (UECCC) is a GOU owned company set up for

purposes of managing and administering the Uganda Energy Capitalisation Trust. The objectives of the

UECCC are: to serve as a credit support institution and to promote private sector led renewable energy

infrastructure development; to provide transaction advisory services to independent power producers;

to introduce into the Ugandan financial market new and innovative financing modalities directed at

reducing real or perceived risks faced by financial institutions participating in the renewable energy

sector.

The Uganda Investment Authority (UIA) is an agency set up to promote and facilitate private sector

investment in Uganda. The agency serves to: provide information on investment opportunities; issue

investment licenses; assist in securing licenses and secondary approvals for investors; help investors to

implement their project ideas through assistance in locating relevant project support services; provide

assistance in acquisition of industrial land; help to obtain work permits and special passes for investors

and their expatriate staff; arrange contacts for potential investors; assist investors in seeking joint

venture partners and funding and review and make policy recommendations to government about

investment

35The Rural Electrification Agency serves as the secretariat of the Rural Electrification Board


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4 Regulatory Framework

4.1 Market Access (Conditions for Market Entry)

4.2 Privatisation, limitation and exclusion

The Government of Uganda (GOU) began a privatization program in 2001 that has resulted in the sale of 128

public enterprises, with 30 remaining in State hands. Of these, 15 are scheduled for divestiture in the next

three years. State-owned enterprises currently exist in the mining, hotel & hospitality, agro industry,

housing, and transport sectors. In some of these sectors, the GOU is not directly involved in the running of

the business but remains a shareholder and is open to competition from private investors in all of these

sectors. In the electricity sector a concessional approach has been used to privatise the government owned

electricity generation and distribution companies as well as off-grid isolated power stations.

Businesses generally deem acquisition of land with a clean title as one of their biggest challenges. Foreign

companies or individuals may not own land, but they may hold it under long-term lease. Foreigners must

seek Cabinet approval through the UIA to lease land over 50 acres to be used for agricultural or animalproduction purposes. Uganda has not initiated any changes to allow foreign investors to purchase freehold

property.

4.3 Economic Freedom

Ugandas economy is fully liberalized and investment and marketing are allowed in all sectors of the

economy36. Ugandas economic freedom score is 61.9 and it is ranked 8th out of 46 countries in the Sub-

Saharan Africa region, and its overall score is above the world average37

.Continued economic expansion has

been facilitated by open-market policies related to global commerce. The financial sector is relatively well

developed for the region and there is countrywide access to financial services.

Despite some progress, institutional shortcomings continue to undermine prospects for dynamic long-term

economic expansion. The trade weighted average tariff rate38 is relatively high at 8.2%, and non-tariff

barriers further constrain freedom to trade. However, Uganda has attempted to update various commercial

laws to reduce administrative delays and the cost of conducting business.

4.4 Imports/ exports

Uganda is a member of the World Trade Organization. Uganda is also a member of the East African

Community (EAC) along with Kenya, Tanzania, Burundi, and Rwanda. While the EAC has passed protocols

establishing a Customs Union and Common Market among the five countries, numerous exceptions,unchanged regulations, and bureaucratic inefficiencies still hamper the free movement of goods, capital, and

people. Uganda, along with its counterparts in the EAC signed a Trade Investment Framework Agreement

with the United States in July 2008. Uganda is a member of Common Market for Eastern and Southern Africa

(COMESA), but not a participant in the COMESA Free Trade Area.

Uganda has also negotiated bilateral tax treaties with several nations, including China and South Africa. The

EAC signed an Economic Partnership Agreement with the EU in 2007. Uganda was among 26 countries which

signed onto an initiative aimed at establishing an African free trade zone stretching from Cairo to Cape Town

in October 2008. According to the initiative, the members of the EAC, COMESA, and the Southern African

36

Uganda Investment Authority37 2012 Index of Economic Freedom (http://www.heritage.org/index/pdf/2012/countries/uganda.pdf)38

Calculated as the ratio of total tariff revenue to total value of imports


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Development Community will draft a roadmap for creating a single trading bloc that would speed economic

integration and therefore help African economies compete in the global economy.

The Free Zones Bill of 2002, which will authorize the creation of Free Trade Areas (FTA) within Uganda, is still

awaiting final Cabinet approval. The Ugandan government is using a 19 million credit from the World Bank

to create three FTAs: the Kampala Industrial and Business Park (open), Luzira Industrial Business Park andthe Bweyogerere Industrial Estate.

4.5 Fiscal and financial incentives (taxation, FIT)

Ugandas fiscal incentive package for both domestic and foreign investors provides generous capital recovery

terms, particularly for medium and long-term investors whose projects entail significant plant and machinery

costs and involve significant training. In Kampala, 50% of allowances for plants and machinery and 100% of

training costs are deductible on a one-time basis from a company's income. A range of annual deductible

and depreciation allowances also exist, resulting in investors normally paying substantially less than the 30%

corporate tax rate in the early years of their investment. In order to promote export-oriented manufacturing

investment, the GOU included several tax incentives in the 2008/2009 budget. These included a removal ofthe import duty on plant and machinery imports, as well as for schools, hotels, hospitals, agro-processors,

and heavy truck transporters. The GOU also provides a 10-year tax holiday for investors engaged in export-

oriented production and, if the investment is located more than 25km away from Kampala, for agro-

processing investors. In the 2009/2010 budget some of these incentives were enhanced and others were

introduced. Import duty on trucks with a carrying capacity of at least 5 tons was reduced from 25% to 10%

and trucks with a minimum capacity of 20 tons now have no import duty. Taxes on spare industrial parts

were also removed.

Below are listed a number of investment incentives offered by the GOU 39:

a) Investment Capital Allowances These allow investors to deduct from their net income a certain

percentage of their investment capital e.g.: Initial allowance on plant and machinery of 50-75%; the higher value for investments outside

Kampala. This applies for the 1st year only

Start up cost spread over 4 years 25% p.a.

Scientific research expenditure 100%

Training expenditure 100%

Mineral exploration expenditure 100%

Initial allowance on hotel, hospitals and industrial buildings 20%

Deductible annual allowances (depreciable assets) 20-40%

Depreciation rate for hotels, industrial buildings and hospitals 5%

b) Investors who register as investment traders are entitled to VAT refund on building materials for

industrial/commercial buildingsc) Duty and tax free import of plant and machinery

d) Export promotion incentives and facilities

Manufacturing under bond

Duty exemption on plant and machinery and other inputs

Stamp duty exemption

Duty draw back a refund on all or part of any duty paid on materials and inputs imported to

produce for export

Withholding tax exemptions on plant and machinery, scholastic materials, human and animal

drugs and raw materials

Ten year tax holiday

39Uganda Investment Authority


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Duty remission scheme for exporters involved in value addition

The Law Reform Commission has proposed draft legislation on investment incentives, but further steps have

not been approved. The draft legislation would include an exemption on withholding tax on interest on

external loans, repatriation of dividends to provide relief from double taxation, exemptions from duty on

raw materials, and a waiver of export tax. Foreign investors should consult the UIA and carefully evaluatedepreciation allowances by region and sub-sector prior to investing. The GOU will often work with foreign

investors to provide additional incentives, including further tax reductions, government subsidies, or the

provision of land.

4.6 Standards and quality

The Uganda National Bureau of Standards (UNBS) is mandated to develop and promote standardisation,

quality assurance, laboratory testing and metrology. UNBS carries out the following activities:

Standards development: Carried out through Technical Committees which consists of representatives of

consumers, traders, academicians, manufacturers, government and other stakeholders

Product testing: Domestic and imported products are tested by UNBS laboratories for conformity toUganda Standards and other specifications.

Market surveillance to rid the market of dangerous, counterfeit and substandard products

Verifying accuracy of weighing and measuring instruments used by traders and consumers in commercial

transactions and calibrating measuring and testing equipment used in industry;

Carrying out shipment inspection and conformity assessment for exports, imports and tender supplies;

e.g. UNBS has in place an Import Inspection and Clearance Scheme. The scheme requires imported

products be inspected for conformity to the relevant Ugandan Standard by UNBS before release onto

the Ugandan market. Quality inspection is done by UNBS at the entry point during the customs

verification exercise.

Assisting the private sector, procurement agents, government and the general public in conformity

assessment of goods by testing , measuring and inspection against standards and or specifications; Carrying out factory inspection to evaluate conformance with standards; and

Liaison with national, regional and international standardisation and related bodies.

5 Starting a Business Entry Options and Barriers

To start a business in Uganda, investors are required to40

:

1) Register the company in Uganda The registration process includes the following:

Reservation of a company name at the Office of the Registrar.

Filling of incorporation forms i.e. statement of nominal capital, declaration of compliance with

the requirements of the Companies Act (before a Commissioner of Oaths), particulars of

directors and secretaries, consent to act as director of company, notice of situation of the

registered office and postal address

Registering the company at the Uganda Registration Services Bureau. As part of the registration

companies are required to develop and submit a Memorandum and Articles of Association and

pay registration fees and stamp duty. Registration fees depend on the amount of share capital.

Applying to the Uganda Revenue Authority (URA) for a tax identification number (TIN) for each

director and a VAT number. Applications can be done online. An inspector from URA inspects the

business premises.

Applying for pay-as-you-earn (PAYE) tax; to be paid by employees upon the company becoming

operational but collected by the employer.



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Applying to the relevant local authority for a trading license. This a general business license

required for all companies. A license fee is required whose amount varies depending on the

nature of business. The licensing officer arranges an inspection of the premises and fills out an

assessment form.

Filing a form with the National Social Security Fund (NSSF). NSSF is a compulsory savings scheme

that covers all employees in the private sector. Every employer must register the company withthe NSSF when it has 5 or more employees.

Making a company seal.

2) Apply for an investment license Foreign investors require a minimum of78,200 in planned investment

in order to secure an investment license from the Uganda Investment Authority. For local investors, the

minimum planned investment requirement is 39,100. These amounts represent the value of fixed

assets as determined from the investors business plans, which they are required to submit when

applying for an investment license. Local investors may proceed with their investment without licensing

from the UIA. However the license is mandatory for foreign investors as it legalizes their investment in

Uganda. Traders do not require a license from UIA but must demonstrate operating capital of78,200

before trading licenses and entry permits are issued by local authorities. Investors must have registeredtheir companies before applying for an investment license

3) Secure necessary secondary clearances Certain sectors require other secondary licenses e.g. mining,

forestry. Where required, UIA provides assistance for securing these licenses

To save investors time, UIA has implemented a one stop shop that enables investors to obtain most licensing

services at the UIA. UIA assists investors in identifying suitable land and work permits for expatriate staff.

Representatives from URA, Department of Immigration and Ministry of Lands are housed at the UIA for this

purpose. UIA also offers professional advice and facilitation services to access other government sister

agencies.

6 The Financial Sector

Uganda keeps open capital accounts, and Ugandan law imposes no restrictions on capital transfers in and

out of Uganda. Investors can obtain foreign exchange and make transfers at commercial banks without

approval from the Bank of Uganda (BOU, the Central Bank) in order to repatriate profits, dividends, and

make payments for imports and services. The BOU prefers that investors make large transfers through the

Central Bank itself in order to help it monitor and maintain the stability of the Ugandan shilling, though this

is not a requirement. Investors have reported no problems with their ability to perform currency

transactions.

Overall, the banking industry is well capitalized and has no serious non-performing loan problems. Followinga decade-long moratorium on new bank licenses, the BOU provided licenses to seven new institutions in

2007, bringing the number of banks in Uganda to 22. The total size of the commercial banking system has

risen to 3.6 billion in 2009, up from 3 billion in 2008. Most banks are foreign owned, including major

international institutions such as Citigroup, Barclays, Stanbic, and Standard Chartered. Interest rates for 12-

month corporate loans generally run between 19% and 25%.

Foreign investors can apply for loans from the local banking sector. Investors can also list their companies on

the local stock exchange. A number of financial support initiatives exist to support investors in given sectors.

UIA can advise potential investors on the how and where to access existing financing options for their

planned investments41.



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7 Renewable Energy Sector

7.1 Overview

Uganda is endowed with abundant energy resources which are fairly distributed throughout the country.

These include hydro, biomass, solar, geothermal, peat and fossil fuels. The energy resource potential of the

country includes an estimated 2000MW of hydro power, 200MW of mini-hydro, 450 MW of geothermal, 460

million tonnes of biomass standing stock with a sustainable annual yield of 50 million tons, 5.1 kWh/m2 of

solar energy, and about 250 Mtoe42 of peat (800MW).

7.2 Biomass

Biomass contributes over 90% of the total energy consumed in the country and provides almost all the

energy used to meet basic energy needs for cooking and water heating in rural areas, most urban

households, institutions, and commercial buildings. Biomass is the main source of energy for rural industries.

Limited availability of electricity and high prices of petroleum products, constitute barriers to a reduction in

the demand for biomass. Trade in biomass especially charcoal is a large contributor to the rural economy.

The per capita consumption of firewood in rural and urban areas is 680kg/yr and 240kg/yr respectively. Per

capita charcoal consumption is 4kg and 120kg in rural and urban areas respectively. Current charcoal

consumption in Uganda is estimated at 580,000 tons per annum the biomass equivalent is about 6 million

tons of wood, based on the conversion efficiency of 10% for the charcoal kilns in use. According to the

Uganda Bureau of Statistics (UBOS) population projection data, about 80% of the current population of

reside in rural areas and predominantly use firewood; their biomass consumption can be estimated at 18

million tons. The combined annual biomass consumption (firewood and charcoal) is estimated at 24 million

tons. Cottage industries account for about 20% of total biomass use, adding a further 5.5 million tons;

bringing the total biomass demand to about 29.5 million tons countrywide.

In addition to household and cottage industry applications, there is biomass for industrial applications i.e.tea processing, cement manufacture and agro-processing. Fuel wood is used by tea factories to provide

thermal energy for withering and drying operations; where available it represents a significantly cheaper

alternative to furnace oil. Fuel wood is sourced from tea estate plantations dedicated for this purpose or is

purchased from farmers in the vicinity of the tea factory. Small holder tea factories often lack sufficient land

to develop dedicated fuel wood plantations and therefore most of the fuel wood they source and use is

unsustainable. Hima Cement factory is another example of biomass use for industrial applications; the

factory is currently using biomass waste i.e. coffee husks to substitute 30% of its fuel consumption. With

these trends likely to continue and grow, there is need to develop sustainable biomass resources.

The 2007 MEMD, Report on The Renewable Energy Resource Information Development and Capacity

Building Assessment in Uganda projected that the woody biomass demand and supply balance scenario wasset to move into a deficit (4 million tonnes) by 2011 and one of acute deficit by 2016 (10.7 million tonnes).

7.3 Solar Energy (Thermal and PV)

Uganda has an average daily insolation of 5-6 kWh/m2. It is estimated that about 1.1 MW of solar PV power

is installed throughout the country. This includes both institutional and solar home systems with the former

accounting for a greater portion of that installed capacity.

The solar PV market in Uganda has steadily grown over the last 15 years with new players entering the

market that include foreign investors. While ten years ago there were a handful of solar companies mainly

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engaged in institutional solar PV installations, there are now over thirty companies involved in the solar

business (both PV and solar thermal). The market is in a state of transition where different players are yet to

find their optimum servicing levels within the market43. The prevailing market conditions in the PV sector

are: ease of importing solar PV products, tax exemptions, and high margins.

Institutional public procurements account for the biggest portion of the installed solar PV systems, usuallyproject or donor supported through government. The applications are mainly in the following sectors:

health, water, education and local government. An on-going World Bank funded rural electrification

programme, Energy for Rural Transformation (ERT), is currently the main driver behind most of the public

procurements. ERT provides support under a strategy that has been referred to as the Photovoltaic Targeted

Market Approach (PVTMA) which provides solar PV subsidies and facilitates access to consumer finance.

The solar home systems (SHS) market is one of the biggest areas for commercially driven solar PV business.

The largest demand is for small PV systems ranging from 10 50W; annual SHS sales estimates are in the

range of 12,000. Pico PV systems, 0.5-5W and costing 15-40per system, are significantly more affordable

and are becoming increasingly more popular. Solar PV systems under various schemes initiated by REA and

other donor agencies energized around 5,587 households, 416 small commercials and 1,729 institutions.Field verification found that a significant portion of gridconnected consumers also utilize solar PV systems in

their homes and businesses as backup.

The solar thermal business in Uganda is relatively small in comparison to solar PV. Growth in this subsector is

slow because of limited effort towards creating awareness, lack of a clear government policy to support

growth and comparatively high initial investment costs.

7.4 Hydro

The large-scale hydropower potential along the River Nile has been estimated at about 2,000 MW including

six potential major hydropower sites: Bujagali 250 MW, Kalagala 450 MW, Karuma (Kamdini) 150 MW,

Ayago North 300 MW, Ayago South 250 MW and Murchison Falls 600 MW. Bujagali and Karuma sites havebeen significantly studied and are being developed on a Public Private Partnership (PPP) basis to generate

electricity in the medium term.

More than 60 mini hydropower sites with a to

Renewable Energy Investment Guide

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