A.

Rugumayo Electricity Supply Situation in Uganda

The Electricity Supply Situation in Uganda and Future Direction

Dr. Albert Rugumayo

Coordination Manager, Energy for Rural Transformation
Ministry of Energy and Mineral Development
rugumayo@energy.go.ug

Abstract

Uganda is facing an acute power supply shortage which has affected all the sectors of the economy.
This paper presents the main causes of the electricity supply shortage and summarizes a plan for
short, medium and long term strategies for providing adequate and reliable power supply in the
country, in line with development of the different energy supply options. It points out the need for
public-private partnerships in power generation and supply, financial sustainability in the power sector
and concludes with the need to review of the tariff policy.

1. Introduction

Uganda is currently faced with an acute electricity supply shortage. The central grid connected
hydropower capacity is 300 MW with an additional 80 MW being installed in the course of this year.
However, due to the current drought, only 135 MW generated from the hydropower facilities in
Jinja east of Kampala (Nalubaale/ Kiira Power Stations). The current generation output might
reduce to 80-90MW depending on the weather situation. 50 MW is obtained from a thermal power
plant installed in May 2005 as a partial solution to the electricity supply problem.

The demand for electricity is 260 MW during day rising to 3501 MW in the evening. The evening
peak is mainly due to the domestic users who constitute the bulk of UMEME2’s customers. The
current power shortage has adversely impacted on the industrial and commercial sectors.
Production has been disrupted. As a result, the GDP, which was expected to grow at 6 – 6.5% this
year, has dropped to 4.5%.

1.2 Main Causes of the Electricity Supply Problem

1.2.1 Lack of New Generation Plants

In the mid 1990s, Government embarked on a drive to interest the private sector to participate in
Uganda’s power sector through generation of new capacity. An enabling environment for private
sector participation was put in place through the enactment of the Electricity Act 1999.

As a result, the Hydropower Development Master Plan prepared for Government by Kennedy and
Donkin consultants studied the various Victoria Nile hydropower sites to establish the least cost

1
Due to a shift in electricity use pattern the evening peak now reaches 380 MW as some of the medium scale industrialists have
shifted work to the evening whenever electricity is made available.
2
UMEME is the private operator of the distribution network.

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A. Rugumayo Electricity Supply Situation in Uganda

site for development after building the Kiira Power Station. The sites studied included Bujagali,
Kalagala, Kamdini, Ayago North and Ayago South as well as Murchison Falls. The analysis carried
out indicated that Bujagali was the least cost project to be developed after Kiira Power Station.

Three Victoria Nile sites were targeted for development, namely Bujagali (250 MW), Kalagala (450
MW) and Karuma (200 MW). Studies were carried out on the three sites by different developers but
in the end only the Bujagali Project was advanced to development stage with AES Nile Power as
the developer. Project agreements were executed with Government and preliminary construction
had started using the developer’s equity. However, due to internal and external factors, AES Nile
Power pulled out of the project in September 2003.

A consortium led by Industrial Promotion Services of Kenya (IPS) with Sithe Global was then
selected, through a competitive bidding process, as the new developer. Government executed a
Power Purchase Agreement and an Implementation Agreement with the consortium in December
2005.

This failure of Bujagali is a major setback to Uganda’s power sector as the project would have
come on line by end of 2004 and would have played a key role in mitigating the acute electricity
supply deficit caused by the drought.

1.2.2 Impact of the Prolonged Drought

For the past three years since 2003, the entire East African region has been faced with a drought
situation with the year 2005 being hit most severely. Since the end of 2004, the lake level of Lake
Victoria has experienced a sharp decline thus limiting the available electricity generation capacity
at the power plant in Jinja. The decline in lake level has had significant impacts on the livelihood of
the 30 million people who depend on the lake within the three East African countries. The table
below shows the extent of the drought situation in the last three years.

Table 1: Recent Net Basin Supply (NBS) compared to long term average
Period NBS NBS % of long term NBS
(million m3/year) (m3/sec)
Long term avg.
(1900 – 2005) 27,338 867 100%
2003 21,839 693 80%
2004 14,526 461 53%
2005 967 31 4%
Source: Bujagali II: Economic and Financial Evaluation Study – Power Planning Associates Ltd, 2006

1.2.3 Growth in Demand

From the several load forecasts for Uganda done in the past few years, the Government has
reviewed the latest load forecast prepared by Power Planning Associates as part of the due
diligence for the Bujagali Project.

Based on historical load growth trends, the limitations observed in the projections by PPA and
other considerations, Government prefers to use the BKS Acres demand projections (High case
scenario) as the planning tool for future power development.

The BKS Acres Load Forecast (2004), assumes:

ƒ GDP growth rate of 6.5% per year.
ƒ Rural Electrification target of 10% coverage by 2010 (55% will be grid connected).

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A. Rugumayo Electricity Supply Situation in Uganda

ƒ Observed consumption growth rate since 2001/2003, which have changed from –ve 0.1%
to 11.8% in 2003/2004.
The table below shows the corresponding predictions.
Table 2: BKS Acres Projections
Year Energy (GWh) Peak Demand (MW)
Low Medium High Low Medium High
2001 1,437 1,437 1,437 270 270 270
2002 1,458 1,506 1,544 274 283 289
2005 1,480 1,684 1,849 279 317 345
2010 1,703 2,280 2,751 310 418 496
2015 2,161 3,383 4,396 385 616 783
2020 2,841 5,007 6,961 496 902 1,219
2025 3,827 7,453 11,046 658 1,334 1,910
2002-25 4.28% 7.20% 8.93% 3.88% 6.97% 8.56%
Source: East African Power Master Plan Study

1.2.4 Limited public and domestic investments in the power sector

During the last 50 years, the country has invested in only two hydropower plants, Nalubaale and
Kiira. It had been assumed that direct foreign investments (DFIs) would replace public investment
in the power sector once the sector was reformed. However experience of the last 10 years shows
that foreign investment (both debt and equity) in the power sector is strongly influenced by external
factors like appetite of offshore capital markets, environmental lobby groups and world politics as
well as the country risk. The slow pace of developing large power infrastructure projects in
Uganda is in part due to the limited presence of public resources and total lack of domestic
institutional investors.

2. Objectives

The broad objective of this plan is to provide adequate and reliable power supply to the country
through increased generation capacity, demand side management and use of alternative sources
of energy. In particular, the plan has the following specific objectives:-
• To enhance public-private partnerships in power generation and supply: This will involve
mobilization of government budget resources and financial resources from domestic
institutional investors like the National Social Security Fund (NSSF) and local Bonds to co-
invest in hydropower projects.
• To enhance financial sustainability of the power sector in light of the high energy costs
arising out the escalating petroleum prices on the world market: This will call for review of
the tariff policy in order for the tariff to reflect the economic cost of supplying power.
• To increase inter-regional power trade given the recent declaration of the East African
Community summit which obligates Uganda to enhance the development of her
hydropower resources to supply the region: This will call for simultaneous development of
the hydropower sites in Uganda.
• To address the declining Lake Victoria net basin supply and to arrest any environmental
degradation: This will be addressed by an increased energy mix for electricity production.

3. Strategy for providing Adequate and Reliable Electricity Supply

Government has put in place short, medium and long-term strategies to address the power supply
problems.

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A. Rugumayo Electricity Supply Situation in Uganda

3.1 Short Term Measures

3.1.1 Reduction of System Technical and Commercial Losses

Technical losses within the transmission and distribution network need to be reduced by
rehabilitating the system. To address this UMEME will be investing at least US $ 65 million in
system improvements within a five year period. Currently investment of US$ 20 million (out of GOU
USD 11 million and UMEME USD 9 million) is being implemented to improve the network.

Commercial losses are also high and need to be effectively addressed. UMEME has instituted a
number of measures to reduce these losses and as a result, it is now estimated that the total
losses have reduced from 41% to about 36%. The 5% loss reduction has liberated 9 MW in
the system. The goal is to reduce losses to 20% within the next five years.
Given the significant benefits which will accrue to the country due to rapid reduction in energy
losses, government will discuss with the distribution concessionaire on the best way of reaching
the set goal within two years.

3.1.2 Energy Efficiency/ Demand Side Management

One of the immediate measures is to institute energy efficiency and demand side management
practices. This measure will involve installation of at least 1 million energy saver bulbs at an initial
capital cost Ushs.4.5 billion (USD2.5million). The measure will result into a saving of 50MW, which
translates into an annual saving of Shs.27.3 billion by replacing thermal generation.
Energy audits in industries, commercial buildings and institutions which the ministry has been
carrying out will continue both in the short and medium term. The work done so far indicates that
there are big opportunities for energy saving in the various sectors of the economy through
implementation of low and medium cost energy efficiency measures.

3.1.3 Procurement of Additional Thermal Generation Capacity

At least 100 MW of additional thermal capacity is being procured within 9 months to provide relief
to the consumers. The power plants will be located at the Mutundwe, Namanve and Nalubaale sub
stations. The plants will be acquired on lease basis. As an interim measure, Government will
secure financial support from the World Bank and other bilateral development partners to buy
down the high cost of thermal generation in order to avoid subjecting consumers to a high tariff
shock, since substantial resources are required to sustain thermal generation. While it is important
to keep the tariff at an affordable level by providing consumer subsidies, the cost is that
government will not be in position to invest in long term power infrastructure projects. In that
regard, thermal generation will be maintained through a cost reflective tariff in the medium term.
Subsidies will only be provided in the short term.

Table 3: Revenue requirements for the thermal projects.

Electricity Regulatory Authority
Revenue , Tariff And Subsidy Implications Of Thermal Interventions
Years 2005 2006 2007 2008 2009 2010
Revenue Requirement (bill.shs) 244 329 555 585 590 608
Current tariff revenue (bill.shs) 180 151 186 211 233 255
Shortfall/Subsidy requirement (bill.shs) 65 179 368 373 356 352

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A. Rugumayo Electricity Supply Situation in Uganda

3.2 Medium Term Measures (2006/07 – 2010/11)

3.2.1 Renewable Energy Projects

Several renewable energy projects including small hydropower resources, cogeneration in the
three sugar mills of Kakira, Lugazi and Kinyara as well as biomass gasification projects will be
developed in the medium term. Kakira Sugar Works Ltd will commence selling electricity to the
central grid starting with 6 MW next year (2007) to be expanded to 12 MW in 2008.
SN Power has finalized the feasibility studies on Waki (5 MW) and Bugoye (13 MW) and will start
construction of the power plants in December this year. Another firm, Hydromax is carrying out
feasibility studies on Buseruka (10 MW).
The goal is to produce a total of grid connectable 50MW from renewable energy sources. The
projects are estimated to cost a total of USD 108million. USD 65million will be from the private
sector and USD 43million as smart subsidies from the government/World Bank credit.

Production of bio fuels will also be pursued in the medium term. A number of companies have
expressed interest in producing bio fuels which can be used to run automotive generators for
production of electricity.

3.2.2 Use of Solar Photo Voltaic and Solar Water Heaters

As an intervention to reduce peak demand, installation of solar PV for lighting and solar water
heaters will be promoted. Estimates show that if a total of 100,000 grid connected consumers
install solar PV systems and use solar lighting instead of grid electricity (during the evening peak)
about 46 MW of grid power would be saved during the peak period.

The programme will be implemented in a phased manner whereby credit facilities are extended to
specific categories of consumers who are in position to meet the cost of the solar PV and solar
water heating systems. The programme will spread over a five year period. The PV component will
require an estimated total investment of US$118 million of which Government will contribute
US$53 million in phases starting with financial year 2006/07 up to 2010/11.

It is estimated that if 65,000 grid connected consumers currently using electric kettles, submersible
coils and electric water heaters convert to the use of solar water heaters, 46 MW of power would
be saved during the peak hours. This intervention would entail investment of US$91 million of
which US$ 41 million is subsidy from Government.

3.2.3 Use of Biogas, Improved Efficiency Stoves and Other Renewable Energy Initiatives
The other intervention is the use of various renewable sources of energy including biogas for
lighting and cooking as well as increasing the dissemination of improved efficiency stoves. This will
help to provide a holistic energy package for households.
The unsustainable use of this resource for providing fuel for cooking and heating as well as fuel for
small scale industrial application (brick and tile making, lime production, tea and tobacco
processing, restaurants, etc) has led to environmental degradation. Interventions in this area has
involved the dissemination of improved efficiency stoves for wood (Lorena and the Rocket stove)
and charcoal in several districts and also training trainers in the trade of constructing improved
efficiency stoves. A target of 100000 improved efficiency stoves are expected to be disseminated
within two years and will require Shs.1.0 billion to implement.

Biogas interventions have centered on the building local capacity to design, construct and maintain
biogas digesters. Popularizing the technology will however require credit facilities to enable users
to construct the digesters (estimated at Shs.1.5 million for a digester to serve a family of 5 people).

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A. Rugumayo Electricity Supply Situation in Uganda

Shs.2 billion, including a revolving credit of Shs.1.5 billion is required to increase the dissemination
of biogas technology.

Government is promoting the use of municipal waste as a renewable energy resource. A number
of companies have shown interest to generate electricity from solid municipal waste. The
technology has many advantages which include power production, fertilizer production and waste
management.

3.2.4 Bujagali Hydroelectric Project (200-250MW)

The project has been repackaged to be developed by Consortium with IPS as the lead
developer. The developer is finalizing the bidding process for the dam and power house
Engineering, Procurement and Construction (EPC) Contract as well as the economic, financial
and environmental appraisal for the project in preparation for financial closing which is scheduled
for October, 2006.
The total cost estimate for Bujagali project is USD 500 million. The main cost component is the
Engineering, Procurement and Construction (EPC) contract for the Dam and Power Plant, which
will be ascertained in June, 2006 once the EPC bids have been evaluated.

Financial Plan: The IPS Consortium proposed a Financing Plan with a total budget of US$500
million on an 80:20% debt-equity ratio. The proposed budget does not include the cost for building
the Transmission Line, which is to be financed by GOU with a World Bank Credit. The budget
covers Development costs, the Engineering, Procurement and Construction (EPC) contact for the
Dam and Power House, Financing costs, Operation and Maintenance costs and contingencies.

Project Implementation Schedule: The bidding process (International Competitive Bidding) for
the Dam and the Power Plant EPC is on going and it will be concluded in June 2006. This will allow
the completion of the Economic and Financial due deligence study. Financial close for the Project
will be reached in October, 2006 and the construction will commence in December, 2006. The
construction schedule is 44 months.

The key issue: The implementation schedule for the project might be delayed if the approval of
financing for the Dam and Power Plant is linked to the completion of the Environmental Impact
Assessment and Resettlement Action Plan for the Transmission Line. While the required studies
and other inputs to approve financing for the dam and power house complex will be ready in June
2006, acquisition of way leaves and drawing out the Resettlement Plan for the Transmission Line
will be ready in May, 2007. However, since the Transmission Line has a very short construction
time (about 12 months) compared to the main project, that delay will not create a mismatch
between the two projects. In that regard in order not to lose implementation time, the two projects
should be delinked. The Government of Uganda has requested the financiers to delink the
development process of the two projects.

3.2.5 Karuma Hydropower Project (150-200MW)

Government intends to develop the Karuma project in the medium term together with the
Bujagali project as a strong public-private partnership with the Norpak /SN Power
Consortium.

Project Costs and Financing Plan: The total cost to develop Karuma Hydro power project and
the associated infrastructure is estimated at USD 440 million. The power plant complex is
estimated to cost USD 345 million while the Transmission line and the substation will cost about
USD 95 million.

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A. Rugumayo Electricity Supply Situation in Uganda

In order to enhance the development of Karuma project to cater for both domestic and regional
power supply needs in the medium term, Government intends to develop the project on a private –
public partnership basis in which the private developer will contribute 30% of the project cost as
equity while Government will contribute the balance of 70% of the total project cost.

Government intervention will eliminate the financing costs which would have been incurred if the
sponsor were to borrow from commercial lenders, thus bringing down the total project cost. The
transmission line cost estimated at US$95 million will be covered by a soft credit from the
Norwegian Government and African Development Bank. The project sponsor will therefore bring
into the project US$103.50 million on which a return will be earned.

The Implementation Plan: Financial and economic due diligence as well as the Environmental
Impact Assessment for the project will be carried out during 2006/2007 financial year. The Power
Purchase Agreement (PPA) and the Implementation Agreement (IA) will also be negotiated and
concluded in 2006. The EPC will be tendered early 2007 and construction is expected to
commence in September 2007 and construction will take 36 months.

3.3 Long Term Measures

In the long–term the plan is to develop the other Victoria Nile, hydropower sites, effect grid
interconnection within the region, as well developing the renewable energy resources including
small hydros, biomass, peat and geothermal to meet the energy needs of the country.

3.3.1 Development of other Large Hydropower Sites

The other hydropower sites along the White Nile River suitable for power production include the
following:

Table 4: Schedule for Development of large hydropower sites

Project Capacity/MW Timing
Ayago North 300 2012-2020
Ayago South 200 2012-2020
Kalagala 600 2012-2020
Murchison Falls 450 2020-2025

In the long-term, appropriate interventions like degazetting corridors for the power plants and
transmission lines, will be made to develop the Ayago hydropower sites and Murchison (Uhuru).

3.3.2 Use of Indigenous Fossil Fuel for Thermal Generation

Government is pursuing a petroleum exploration and development program in the Albertine
Graben of Western Uganda. Four exploration areas have been licensed to oil companies
which are at different stages in the exploration program. Results so far obtained from drilling
operations in the Graben shows the presence of liquid hydrocarbons. One of the target areas is
being appraised. The ultimate goal is to produce indigenous fossil fuel which will among others be
used in power generation. At least 100MW of thermal capacity will be maintained in the system as
a peak plant. This will increase the energy mix in electricity supply and enhance energy security.

3.3.3 Interconnection of the Regional Grid System

Under the East African Power Master Plan efforts will be made to interconnect the regional
networks to facilitate power trade within the region. A feasibility study on grid interconnection is
already in progress under the Nile Equatorial Lakes Subsidiary Action Program (NELSAP).

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A. Rugumayo Electricity Supply Situation in Uganda

3.3.4 Renewable Energy Development and Energy Efficiency

In the long-term efforts will continue to develop renewable energy resources like geothermal so
that they contribute to the energy mix. The geothermal potential is estimated at least 450MW.
Currently shallow drilling is taking place in Kibiro and Katwe Kikorongo to determine the
temperature gradients.

The outcome of the current investigations will pave the way for the next steps. Since the private
sector is not interested in carrying out the feasibility part of geothermal development, Government
will have to secure funds, estimated at 4 – 5 million dollars per hole, to carry out the deep drilling to
ascertain commercial application of the resource

Studies have been carried out on the peat resources in the country and the estimated electricity
generation capacity from peat is about 800 MW. Due to the dispersed locations of peat resources,
electricity generation using this resource can be accomplished using small units of less than 20
MW.
As the search for sustainable energy supply options progresses, peat is viewed as one of the
resources which have a niche in the energy mix of the country.

4. Tariff Policy

The introduction of emergency thermal power plants to bridge the electricity supply gap caused by
the decline in hydropower production has necessitated provision of large consumer subsidies to
mitigate against the high cost of thermal power production. Such subsidies are not sustainable as
they consume funds which would otherwise be channeled into development of long term power
generation infrastructure.

In that regard, there is a need to review the tariff policy in order to minimize consumer subsidies
and instead channel public resources to long term infrastructure investments. Therefore, the tariff
has to progressively reflect the economic cost of power supply. Subsidies will be applied only in
the short term to avoid a tariff shock. The increase in tariff will be managed through demand side
management in households, industries and commercial enterprises. This will help consumers to
reduce on the quantity of electricity utilized with a net effect of having the final bills nearly equal to
what they were previously paying.

The policy measures outlined below are being adopted on the tariff:
• The preferential tariff for the industrial consumers will not be applicable in the medium term.
• The tariff will be increased in a stepwise manner to reflect the economic cost of providing
electricity services.
• Duty on fuel used for purposes of thermal generation will be waived.
• The resultant rise in tariff will be managed through energy conservation measures.

5. Cost Estimates and Financial Plan

Table 5. brings out a summary of the cost estimate and financing plan for the short to medium term
strategies. The table further shows the consolidated budget for implementation of the entire plan.
The total required investment up to 2025 is US$4.43 billion of which Government and local
institutional investors will contribute US$2.38 billion and the private sector US$2.05 billion.

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Table 5. Consolidated Budget for the Short, Medium and Long-term Power Supply in US Dollars Million
YEAR 2006 2007 2008 2009 2010 2012 2015 2020 2025 Total
US$ m
EMERGENCY
THERMAL
¾ GOU (Fixed 17 11 3 31
Cost) 5 30 30 65
¾ IDA (100 MW)
LARGE
HYDROPOWER
PROJECT
20 120 150 150 40 480
• BUJAGALI 20 20
¾ Private Sector 40 120 150 150 40 500
¾ GOU
¾ Total US$M
20 40 30 13.5 103.5
• KARUMA 42 80 80 40 242.0
¾ Private Sector 62 120 110 53.5 345.5
¾ GOU
¾ Total US$M
100 100 113 313
• AYAGO N+S 200 200 113 513
• Private Sector 300 300 225 826
• GOU
• Total US$M
150 30 180
• UHURU 200 70 270
¾ Private Sector 350 100 450
¾ GOU
¾ Total US$M
200 70 270
300 105 405
• KALAGALA
500 175 675
¾ Private Sector
¾ GOU
¾ Total US$
SMALL
RENEWABLES +
GEOTHERMAL,
Solar PV 24 25 25 29 31 20 18 18 18 208
(INCREMENTAL) 17 18 19 16 26 9 10 12 12 139
¾ Private Sector 41 43 44 45 57 29 28 30 30 347
¾ GOU
¾ Total US$M
TRANSMISSION &
DISTRIBUTION
¾ Private Sector 20 20 10 30 35 50 70 100 100 445
¾ GOU 20 20 30 55 50 70 90 135 113 588
¾ Total US$M 40 40 40 85 85 120 160 235 213 1,033
TOTAL ANNUAL
INVESTMENT
¾ Private Sector 64 185 225 239 119.5 170 188 581 218 1999.5
¾ GOU 79 120 162 151 116 279 300 760 300 2043
TOTAL US$M 143 305 387 390 235.5 449 488 1,341 518 4042.5

Key Assumptions
• For large hydros, 1MW is estimated to cost US$ 1.5 million, except for Bujagali and Karuma
projects whose estimates are derived from the detailed feasibility studies.
• For small hydros, 1MW is estimated to cost US$ 2 million.
• The additional thermal generation from municipal wastes or gas turbine has no impact on the
GOU Budget.
• Total Annual Investment of GOU includes identified resources from the sector and grants (GEF
etc). US$ 60 million will have to be invested from the budget, loans and local Institutional
Investors.

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6. Conclusions

In conclusion, the country is currently faced with an acute shortage of electricity supply, which is
affecting all sector of the economy. To address this problem, short, medium and long term
measures are proposed in this paper.

The short term measures include; energy efficiency measures, power system loss reduction
measures; procurement of 100 MW of new thermal generation capacity; use of solar PV and solar
thermal to reduce peak demand; waiving duty on fuel used by manufactures in standby generators;
and increased dissemination of improved efficiency stoves and biogas.

In the medium term, both Bujagali and Karuma projects will be developed. Renewable energy
projects including small hydropower projects, biomass generation, geothermal, peat will be
developed. Popularization of solar energy as well as energy efficiency measures will continue to be
implemented.

In the long term, other hydropower sites on the White Nile will be developed.
Implementation of the renewable energy development will also continue.
Thermal generation capacity using indigenous fossil fuels will be maintained
in the energy mix to ensure energy security.

Finally, the short, medium and long term plan to supply adequate power to the
country will involve the development of energy supply options like hydropower, renewable energy
resources and thermal generation. Energy efficiency measures will also be undertaken.
Hydropower will dominate the energy mix with Bujagali and Karuma hydroelectric projects being
implemented in the medium term. An investment of the order of US$4.43 billion is required for the
entire power sector in the short, medium and long term.

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