Uganda has set up a $8.6 million fund to help finance new power projects.
The fund, a joint project with the World Bank to be managed by the Uganda Energy Credit Capitalisation Company (UECCC), is expected to help private sector invest in electricity generation projects through loans.
The projects include mini hydro power dams of up to 1MW, solar plants as well as other renewable energy projects to supply rural consumers.
Statistics show only 12 per cent of Ugandans are connected to the national grid, prompting the government to push through more projects to meet the energy shortfalls which are said to be denying the economy the much needed impetus to grow.
The fund has a seed capitalisation of about $7.2 million and a further $1.44 million in the pipeline from developing partners.
“Uganda’s banking industry has not been able to meet financing needs of the energy sector investments, which are long terms in nature. Yet commercial banks lend using depositors’ funds that can only be on short-term basis,” UECCC general manager Specioza Kimera Ndagire said, adding that her company will work with 10 banks that are participating in the administration of loans dispensed under this fund, to offer flexible terms for borrowers with 5-7 years repayment grace period.
With a partial risk guarantee of up to 50 per cent of the total project cost, technical assistance and flexibility of loan tenure to allow the investor cover cost overruns during construction of the project, it is envisaged that the fund will ease borrowers’ capacity to negotiate loan procedures.
The UECCC fund will provide subordinated debt — an instrument that tops up the bankers’ threshold for the borrower to meet the initial cost.
Uganda aims to generate 3,800MW in the next five years, with a mix of the big hydro projects, such as 250MW Bujagali which comes on line by end of the year as well as 600MW Karuma, whose construction starts early next year. This capacity should shore up the existing 380MW Owen Falls Dam and several smaller hydro power dams countrywide, now at different stages of planning, procurement or construction.
In addition, sugar millers Kakira, Kinyara and Sugar Corporation of Uganda produce varying capacities of electricity from bagasse for their own use, the remainder of which they supply to the national grid.
With UECCC, it is envisaged that up to five mini hydros will be established.
Experts say that even with the fund incentive and technical assistance from German agency GIZ, the challenge that remains in the sector is actualisation of projects.
“You are talking here about planning, doing the proper feasibility studies, and this process alone takes about a year. But as long as it is completed and the developer meets the benchmarks, we have sufficient money for now.
So, the issue for the private sector is to develop bankable projects,” UECCC transaction execution manager Roy Baguma said.
If implemented, the programmes will spare the country the current energy crisis, with 12-18 hour load shedding.