ELECTRICITY REGULATION AND DEVELOPMENTS IN UGANDA
22 April 2016
The Unbundling of Services
It is now several years since Uganda’s electricity industry was liberalised. The industry which since Uganda’s independence had been run under the monopoly of a statutory corporation, the Uganda Electricity Board (UEB) saw the passing of the Electricity Act Cap 149 in 1999, which provided the framework pursuant to which energy ownership was unbundled through the separation of production, transmission and distribution. The move was seen as a vehicle for fostering competition and increased investment in the sector, through greater private sector participation. The Electricity Act of 1999 (the Act) established the Electricity Regulatory Authority (ERA) to regulate the generation, transmission, distribution, sale, export and import of electrical energy in Uganda.
With the legal framework for unbundling of services in place, UEB’s generation assets, in particular the power plant assets at Owen falls dam were privatised in 2003 and a 20 year concession granted to a private entity, Eskom Uganda Limited. This has since been followed by the emergence of several Independent Power Producers (IPPs), who include Bujagali Energy Limited the developer of the first IPP in Uganda (the 250 MW Bujagali dam) and many other IPPs of varying generation capacity.
The unbundled transmission services were taken over by a new government owned company, Uganda Electricity Transmission Company Limited (UETCL), which remains the single operator of the transmission system and the executer of Power Purchase Agreements with power producers, while distribution was subsequently privatised in 2005 under a 20 year concession granted to a private company, Umeme Limited. Umeme Limited has remained the primary electricity distribution company in Uganda and despite being the subject of an on‐going parliamentary investigation, was able to issue its IPO on the Uganda Securities Exchange and also cross list in Kenya.
The Legal Framework
The primary instruments for the regulation of the electricity sector in Uganda include the Electricity Act 1999, the Energy Policy, the National Environment Act Cap 153 and Statutory instruments and Guidelines issued by ERA.
The Electricity Regulatory Authority
The ERA, which is responsible for the regulation of the electricity sector, is established as a body corporate with capability to sue or be sued. It consists of five (5) members appointed by the Minister responsible for electricity with the approval of cabinet.
As part of its mandate, ERA is (inter‐alia) responsible for the issuance and regulation of compliance with licenses, establishment of a tariff structure, approving rates of charges and terms and conditions of electricity services of transmission and distribution companies. In the conduct of its functions, ERA is charged with the duty to be open, objective, fair, reasonable, non‐discriminatory and to promote fair competition.
The Licensing Regime
Licenses are required and issued by ERA for the execution of any of the following activities in the electricity industry: the generation, transmission, export and import, sale, system operation and bulk supply of electricity.
Scope of Licenses
The Act provides for Licenses not to exceed a maximum period of forty (40) years, except licenses for hydro power generation of a capacity not exceeding ten (10) MW.
In respect of Generation Licenses, the Act provides for the reversion to the Government of any generation rights, property and installations upon expiry of a license for hydropower plants with a generation capacity exceeding 10MW, with no compensation payable. This however does not apply to power plants in which the Government owns 50% or more of the power plant.
Another aspect to note is that the requirement to hold a Transmission Licence applies to electrical facilities that include electrical circuits, transformers and substations operating above a voltage of 33 kilovolts but does not include: a) electrical circuits forming an immediate connection between generation and the transmission grid to the extent that such circuits are owned by the generator and are directly associated with the generation facilities; and b) specified facilities which ERA determines should be owned and operated by a Distribution License.
Licenses may be granted following an invitation of tenders by ERA or pursuant to an application by a person who intends to develop a project. ERA is required to process applications within a maximum of 180 days of receipt of an application. The process involves the advertisement of notices in the Gazette and a prominent newspaper, to solicit objections. A person aggrieved by the refusal of a license may appeal to a tribunal established under the Act.
Recent Trends and Developments
As the country sought to wean itself off of dependence on emergency thermal generation plants, it had the commissioning of the Bujagali as the first IPP, followed by several smaller renewable power projects, mostly funded by international development institutions (DFIs).
The country adopted a new energy policy that became the back‐bone of a drive to promote small renewable power plant with the benefit of a feed‐in tariff regime applied to power plants measuring between 0.5 MW – 20 MW. This has in recent years seen a rise in the number of such IPPs licensed by ERA, which projects have in addition to the feed‐in tariff benefited from a take‐or‐pay PPA with UETCL and government support through assumption of certain risks including the implementation of required transmission infrastructure to connect such projects to the grid.
Whereas the country has seen a surge in IPPs, a recent shift has seen the much larger hydro sites set aside for development through the public sector. The proposed 600 MW Karuma and 183 MW Isimba hydro plants are currently under construction through sovereign borrowing from China. The same approach has been applied to certain generation sites under UEGCL’s purview, which are to be funded by DFIs through the public sector.
It remains to be seen whether the big impact on‐going generation projects may have on the country’s achievement of its intended generation‐capacity targets, will not affect the government’s willingness to maintain various incentives for IPPs. It is also likely that in the short‐medium term, the government may elect to divert its greater focus to promoting investment in transmission infrastructure projects to boost grid capacity.
Uganda has certainly come a long way in developing its electricity sector. There is no doubt that with the existence of a robust legal framework, opportunities for further development and participation in the electricity industry can only grow, particularly in light of country and regional fast growing energy demands.
The information contained in this review is for general guidance and not a substitute for the need to get appropriate professional advice. If you require further information, please write to your usual contact person at Mukumbya Musoke Advocates or Julius M. Musoke