Remarks at World Bank Energy Week

by
Syda Bbumba
Minister for Energy, Uganda

6 March 2006, Washington, D.C

The President of the Bank, colleagues and friends present here:  It is a great honor for me to have been invited to give the keynote address on Challenges Faced in Increasing Modern Energy Access:  The Case for Uganda.

It is an opportune moment to share Uganda's experience, but before I do so, to emphasize what Minister van Ardenne has said, Africa is in darkness, and the darkness is getting worse, as we speak now.  A few years ago, there were efforts introduced to increase access to reduce the darkness in Africa.  But as we speak today, due to climate changes, since most of the African countries rely on hydro for their power supply, the achievement which had been is getting reversed.  We have been in the single-digit numbers, but very soon we're going into the negative.

Having said that, I want to proceed with my paper, that Uganda has made the energy sector reforms in sub-Saharan Africa, and the aim was to create a financially viable and efficient power sector that could accelerate electricity access.

We're implementing large rural electrification projects with the support of the World Bank and other multilateral and bilateral lenders.  The national electricity taxes had gone up to 9 percent, and rural had increased to 3 percent, but with the current drought, the numbers have gone to 30 percent as we speak now.

The reforms involved the enactment of a new law in 1999 and later restructuring of the vertically integrated monopoly which was a government company and later the privatization of the generation and distribution businesses and set up an independent regulator as prerequisites for attracting the private sector.  Government's role was virtually restricted to that of creating an enabling environment through policy initiation, regulation, and general oversight.

But today, as I speak, we are still grappling with more questions than answers with regard to this route which we have chosen to take.  Have nuclear reforms created an impact?  Has there been an improvement in delivery of service since we started the reforms?  If not, why have we not been able to increase investments?  To increase generation capacity, we must both meet demand and confidently expand access.

Virtually, the answers to these questions are in the negative.  And why?  What has gone wrong?  Is it correct that the government's role should be confined to merely creating enabling environment?  Shouldn't there be some strategic interventions by government?  Because the pure private access we have taken has not yet delivered results for the last ten years.

To increase electricity taxes, there must be several prerequisites to realize the objective. First, there must be adequate generation capacity because if it's not there, what is to be the source of energy to distribute?

Secondly, there must be adequate and easily accessible financing to ensure that the required capacities viewed with associated access infrastructure is also put in place.

Thirdly, electricity services must be affordable, especially in sub-Saharan Africa where the income levels are quite low.

Following the reforms, our expectations were that the process of realizing projects by the private sector would be on a fast track, but that was never to be.  Today, apart from the two concessions of the existing generation and distribution businesses, there is negligible progress in new private sector projects in Uganda.

This is in spite of the fact that there has been a lot of private sector interest to participate in the development of large hydro projects and other small renewable generation projects.  Really, we are wondering why has this interest not been translated into the implementation of projects?

One of the main reasons, in our view, has been the difference in perception between ourselves and our development partners, especially the World Bank, and this is not unique to Uganda.  It's general to members of the Forum for Energy Ministers of Africa.

We are all raising the same concerns.  We are all suffering the same.  The government of Uganda tracks its three independent power producers  in Uganda 14 years ago, but our development  partners, especially the World Bank, are such that  Uganda's macroeconomic stability would be  overturned by such massive investments, so we are  forced to settle in for one little project.

One question one would ask, did Uganda have the demand to warrant even that small project of 250 megawatts?  On this, there were endless studies which were conducted without frank conclusions.

The little project became a subject of “demonization” by environmental groups which had an agenda.  This debate was allowed to derail the implementation of the project for seven years, and many projects in Africa have suffered the same here.  To the point when the impact of time eight years now without power was experiencing a financial squeeze, and that was the time of the--when many projects in the U.S. were suffering financial squeeze, and the company was forced to withdraw.  So, we had to go back to that drawing board after seven years.

The result of that is that Uganda is now experiencing an unprecedented energy crisis as the prolonged drought is playing havoc with developments of the lake.  If I develop this project, which is downstream, and the other two, we will not be in the same situation we are in today.  Currently, we're generating at 30 percent of this total capacity.  You can imagine, from the 9 percent who have now gone to 3 percent access.  And this is not unique to Uganda.  It is general.  In Tanzania--I have read reports Tanzania is also generating below 50 percent of installed capacity, hydro stations in Rwanda have closed, and many other African countries.

We have now been forced to go to the expensive thermal power, something that could have been avoided if our plan for hydropower projects had not been derailed by theoretical debates.  So, how can we talk of increased access with expensive and affordable thermal.  Because even with hydro it was expensive for people, but you can imagine with thermal, with the high unstable prices of oil, our poor governments have got to incur heavy subsidies  at the cost of development of other sectors.

Another challenge associated with generation projects has been difficulties in financial resource mobilization.  The project I have talked about took almost seven years to reach financial close before the promoter withdrew.

The government has promoted and received interest in small grid renewable energy projects to the tune of 100 megawatts consisting of mainly small hydros and cogen.  But because of the weak local financial markets, inadequate financial instruments, and the weak equitable positions of some of the sponsors, these projects have had to stall in implementation.

Mechanisms such as several credit support facilities to support local participating financial institutions are now being suited to enable these projects to move.  Therefore, while a lot of startup has been made, it has not translated into our expectations for the last ten years.

As we went about implementing the reforms, it was assumed that we would break away from the traditional public sector service delivery approach and go straight into the private sector delivery model.  That is why the Bank-supported Energy for Rural Transformation Program was designed.  Our experience to date has proven this assumption wrong.

It takes time, from our experience, to package good projects and arouse the interest of the private sector.  In addition, local business entrepreneurs required time for privatization and capacity building to be able to participate, plus the usual hedging that is common with investors entering uncertain capital-intensive and rural markets.

Our recommendation is that, in implementing reforms, there must be a recognized transition process.  Therefore, resources should be allocated to both the market-oriented reform initiatives as well as public sector delivery efforts.  The two vehicles in that transition should be allowed to run in parallel until the private sector vehicle has fully taken off

 It is established that electricity access to rural areas contributes to poverty reduction by catalyzing productive users of energy and increasing incomes.  Electrical services are also essential for improved social services, health.  I always tell people that, in Africa, we are still using the hurricane lamp for women delivering without even hot water.  Education, water supply, as well as general improvement in the quality of life.  I have referred about cases of women getting incurable bronchitis complications because of inhaling smoke from firewood.

There has been a debate between developing countries and our development partners as to what should come first:  Demand to justify extending electricity, or a supply to catalyze economic activities?  In our view, the two are not mutually exclusive.

Uganda's experience is that extension of  electricity in an area which does not have existing demand at that time excites demand because there is separate demand down there which cannot be evaluated unless  there is supply, and leads to creation of viable load centers within a short time.

Our development partners should therefore support an access planning approach that incorporates both aspects.  Where there is already a demand and it's attractive, the private sector can be supported to go there.  Where there is need to supply electricity fast in order to excite demand, resources should be channeled through the private sector, and the private sector at a later stage--the public sector can bring in the private sector by way of concessions.

And we have seen this in Asia.  We saw it in Bangladesh, in Sri Lanka, where the public develops the projects and concessions them after they have become economically viable.  Without looking at both approaches, we cannot achieve equitable distribution while we run the danger of keeping our people in perpetual poverty.

One of the major challenges now is to achieve equitable distribution, which is politically and socially available, where the reforms emphasize private sector infrastructure development and service delivery.

In sub-Saharan African countries, where the majority of the rural population is poor, there are two evident economic disparities.  In my country, recently we advertised for four concessions--five concessions in different parts of the country, and the response was such that those concessions for areas which are better endowed than others were quick to be picked up.  And among the five, nine months later, two of them have not been picked up by anybody.  So, what do we do in that case?  I think the public sector in that case is the answer.

We have found it prudent to make a determination of such disadvantaged areas and provide plans for their electrification on a non-profit basis, where communities can participate in installation, operation, and maintenance of the local infrastructure.  This could be through a grid connected or remote off-grid communities.  This would be a cooperative management approach or some other workable arrangements for the communities.

The next challenge in this aspect is how to appropriately design the system in such a way that the tariffs charged can cover all the operational and maintenance costs, and cover any loan repayments incurred.  This calls for appropriate local technology choices, so let's find  the poor and financing approaches that would include capitalization of community, in-kind contributions (like labor, materials), as equity, and also consider providing capital subsidies to these projects.

Another challenge has been that of accessing basic electricity services to the sparsely community--to the dispersed households which can only be subbed using solar systems.  In Uganda, half of the country, the nature of settlement, is by dispersing households.  These are areas which are mainly for cattle peoples.  They set off far from each other in order to allow sufficient land for grazing their animals.

The main issue is affordability.  In Uganda, we’ve piloted several approaches, that include direct commercial sales with a performance-based subsidy, promoting small systems, and medium consumer financing.  We have found a lot more promise in medium-term consumer financing.

The critical issue is to create the right synergies between large financial institutions, equipment suppliers, and rural-based micro-finance institutions.  In Uganda's case, realizing the lack  of scale-up using purely commercial sales by equipment vendors, a protracted negotiation with the World Bank has resulted in an argument in principle to use commercial banks to provide medium- to long-term financing to companies for leasing equipment or rural micro-financing institutions for providing solar systems.

And this follows a successful pilot which was conducted using funds from the global environmental fund.  To create a fund for the attendant risks, a guarantee fund for the banks is being established.  To increase the affordability, subsidies will be provided for targeted areas.  The bottom line, in our view, is that scaling up of PV access will require targeted incentives that bring services within the monthly budgets of consumers for needed energy services.

In conclusion, many countries in sub-Saharan Africa have taken, or are taking, up the challenge of implementing energy sector reforms.  In all this, the aim is to create a sector that can respond appropriately to the needs of increasing modern energy access, especially electricity services.

For those countries like Uganda, which heeded the reforms in the region, the reality on the ground does not show that there has been a tangible move forward.  The only conclusion that can be drawn is, therefore, that there is need to examine and redesign the strategies and the programs that were put in place with the help of our development partners, basing them on the realities of each reforming country, other than the one-size-fits-all prescription which apparently is now being applied.

Finally, I want to thank our development partners for the support they are giving us to get our Africa out of the darkness.  And I'm very, very  happy, and I would like to thank the President of  the World Bank and the Minister for Holland for the  commitments they have made in sharing   responsibility for getting Africa out of darkness,  and for the provision of funds to facilitate this.

But as I want to sit down, I want to sound a drum, to call for those who care for Africa, our friends, to come in quickly and assist us to get us out of the current crisis.  This crisis has now occurred in Africa over the last 50 years.  It's terrible.  Economic growth in Africa is coming to a standstill if we don't get assistance immediately from our friends.

So, please come to a resolution.  Come and support us on the short-term measures, and come and support us on the medium- and long-term sustainable measures to get us out of the current electricity and general energy crisis in Africa.  I thank you all for listening to me, and I thank the organizers for giving me this opportunity.  Thank you.