Uganda has unveiled plans to become East Africa’s top electricity producer

Uganda has unveiled plans to become East Africa’s top electricity producer through the development of some hydropower stations.

“Our strategy is to develop half a dozen hydropower stations on the Nile,” Ibrahim Kasita, Uganda’s director of communication in the ministry of energy and mineral development told African Business Magazine. In addition to the three existing hydropower stations – Owen Falls Dam, Nalubaale Power Station and Bujagali Falls Power station – all located near the source of the Nile in the industrial town of Jinja, the East African nation is planning to build more power projects in the Nile valley.

The entire cost of developing the planned hydropower projects along the Nile Valley is yet to be established, however, feasibility studies for some of the power stations is already underway. By 2019, Uganda, which currently generates 900MW of electricity, will see its power output outstrip that of Kenya and Tanzania, whose current output is 1,560MW and 1,200MW, respectively.

Uganda will add another 800MW to its current output through the development of the Ayago Hydropower project. The funding for the Ayago project – which will push the country’s electricity output to 1,700MW by the end of next year – will mainly be financed by Chinese investors, according to Kasita.

“The Chinese government has shown commitment to help Uganda develop the country’s hydropower potential along the Nile Valley,” he said. “We expect Beijing to fund these projects.”

Previous attempts

The previous privatisation policy aimed at attracting investors to exploit the vast hydropower potential on the River Nile valley failed in the early 1990s because the economy was in doldrums following the political violence of the 1980s. But after 1995, political stability spurred the economy to grow at an average rate of 6%, leading to the soaring of electricity demands.

However, President Yoweri Museveni’s government at the time could not raise the necessary funding to expand Uganda’s electricity output to meet demand. Instead, the state persuaded Industrial Promotion Services (IPS), which is owned by Kenya-based Aga Khan Fund for Economic Development, to build the $900m Bujagali Power station, which was constructed in 2007 and commissioned in 2012.

Funding for the project came from IPS, US-based Sithe Global Power LCC, International Finance Corporation (IFC), African Development Bank (Afdb), European Investment Bank and other financial institutions. The involvement of the various multilateral financial organisations, however, effectively drove electricity prices for consumers to $0.11/kwh, which made Uganda’s industrial output uncompetitive compared to other East African countries, such as Kenya, which charged customers about $0.075/kwh for electricity. Electricity prices in Uganda fell to 0.072$/kwh in 2016, after the government renegotiated loan terms with the Bujagali financiers.

Following the difficulties of the Bujagali power station, the Ugandan government has sought to negotiate bilateral arrangements with the government of China for long-term soft loans to ensure electricity prices are kept low.

Chinese finance

 Under the deal with China’s Exim bank, Uganda’s government has secured long-term concessionary loans to fund the development of its various hydropower plants. The $1.44bn 600MW Karuma project to be commissioned next year and the $590m Isimba 188MW power project to be commissioned at the end of this year are both funded through soft loans from the Chinese Exim Bank with the Chinese government guarantee.

Uganda plans to export electricity from the Ayago hydropower to Democratic Republic of Congo (DR Congo) and South Sudan, while the combined power from Jinja region, specifically from the Owen Falls Dam (managed and maintained by South Africa’s Eskom), Nalubaale and Bujagali, which will produce a combined total of 800MW, will be exported to Kenya, Tanzania and Rwanda. Uganda currently exports 50MW to Kenya under a colonial agreement signed in 1956. The East African nation also exports 8MW to Tanzania.

Solar projects

Uganda has also invested in developing the country’s solar energy capacity. East Africa’s biggest $19m solar plant with an installed capacity of 10mw has been built in the eastern town of Soroti.

Made up of 32,680 photovoltaic panels, the new 10-megawatt facility is the country’s first grid-connected solar plant. The project was developed under the Global Energy Transfer Feed-in Tariff (“GET FiT”), managed by Germany’s KfW Development Bank in partnership with Uganda’s Electricity Regulatory Agency (ERA) and funded by the Governments of Norway, Germany, the United Kingdom and the European Union.

–Africanbusinessmagazine | Epajjar Ojulu

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