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ERA’s strong licensing regime brings credibility in the market

Bujagali dam

Bujagali dam

Uganda’s electricity generational capacity is set to go up with new official figures showing more developers undertaking feasibility studies than ever before.

As of September 2020, there are 19 proposed power projects at permit stage in different parts of the country, whose developers are undertaking feasibility studies for the proposed projects, according to the latest figures from the Electricity Regulatory Authority. The current proposed power projects are more than the six at the same stage a year ago.

Uganda’s Electricity Regulatory Framework was for the second time in a row ranked No. 1 in the Electricity Regulatory Index (ERI) for Africa, released by the African Development Bank in November 2019. The first edition of the index was published in June 2018 covering 15 countries, where Uganda ranked No. 1. Uganda scored favourably on the aspects of regulatory governance, regulatory substance and regulatory outcome.

An integral part of Uganda’s Electricity Regulatory Framework is the strict licensing regime that has enabled gradual growth of the electricity supply industry, one that has become easily predictable, where investors know what to expect.

While some business executives come with colourful proposals, promising heaven-on-earth power generation projects, where the megawatts to be produced are huge, they have found a calm and collected team at the Electricity Regulatory Authority (ERA), which does not fall easily to manipulation. Many of those executives and their proposals have had to abort their missions.

The Electricity Regulatory Authority insists that the days of speculators and rent-seekers in Uganda’s electricity supply industry (ESI) are over, and that investors must show legal, technical and financial capacity to handle the projects they are fronting. Electricity being a critical factor in Uganda’s industrialization journey, powering businesses - both small and big - ERA ensures that the developers of power projects can prove they can pull them off.

LICENSING REGIME

ERA draws its power of receiving an application, granting or denying one a license from Section 29 of the Electricity Act, 1999. Section 29 (1) of the Electricity Act requires a person who intends to establish an electricity project to notify the Authority about the project through submission of a Notice of Intended Application for a License. This notice in essence is an application for award of a permit to undertake feasibility studies in respect of a project.

According to Section 30 of the Electricity Act, on receipt of an Application for Award of a Permit, ERA is required to publish the application in the Uganda Gazette and a national newspaper of wide circulation, for purposes of inviting directly affected parties and affected public agencies to make written comments in respect of the application within 30 (thirty) days. Any comments received by ERA are shared with the applicant for a response.

After the consultation process, the Authority is required to evaluate the application (considering the legal, technical and financial capacity of the applicant to undertake the proposed project) together with the comments received from the public and the lead agencies in charge of managing the subject resource, before making a decision either to approve or reject an application. Further, the Authority considers the impact of a proposed project on private and public interests and the Environment, among others.

There are a number of risks that a power project can bring to a community. First of all, and in some instances, the local people are displaced from an area to pave way for the construction of a power project. Some communities might want to know the impact of a hydropower project on the water in the area. In other instances, communities worry that a project disrupts their social set-up especially when it comes to land ownership.

On the other hand, a proposed power project could come with opportunities such as new jobs, new infrastructure such as roads, the setting up of accommodation services like lodges, just to mention a few. The local population might want to know the size of these opportunities and how best they can tap into them.

Increasingly, investors have found out that they need the buy-in of the public and the communities where they are to establish their power projects before committing huge amounts of money on a plant. Getting the support of the local community means there would be little, if any interruption, to the project.

Issuance of a permit is an authorization for the developer to do feasibility studies and other activities relating to the proposed project for purposes of enabling the applicant to prepare for application for a license from the Authority. It does not authorize the applicant to start construction of the project.

THE LICENSING STAGE 

If the studies conducted establish that the proposed project is technically feasible and financially viable, the developer may proceed to submit to ERA an application for a license to develop, generate and sell electricity from the proposed project.

According to Section 33 of the Electricity Act, an application for a license must stipulate the legal, technical and financial capacity of the applicant to undertake the project; impact of the project on public and private interests and possible mitigation measures; results of technical and environmental assessments; and the required consents and permits under the law, among others.

Examples of the required approvals include approval by NEMA of the project brief, approval by the Department of Water Resources Management (DWRM) in respect to water obstruction; approval by the ministry of Defense for use of explosives in blasting stones; a no-objection from the ministry of Energy and Mineral Development to develop a large hydropower project, approval of land compensation costs by the Chief Government Valuer under the ministry of Lands, and Housing and Urban Development.

Section 35 of the Act requires the Authority to publish an application for a license for purposes of inviting directly affected parties and affected public agencies to make written comments in respect of the application within 30 days. Any comments received by ERA are shared with the applicant for a response.

Further, the Authority undertakes a public hearing in the vicinity of the proposed location of the project to enable the local community and local authorities to participate in the decision-making process. At the hearing, the applicant is provided with an opportunity to make a presentation in respect of the project and to address any questions from the public in respect to the application.

After the consultation process, the Authority is required to evaluate the application together with the comments received from stakeholders before making a final decision either to approve or reject the application. A decision to issue a license authorizes the applicant to proceed with financing arrangements and construction of the project.

There are, however, situations where ERA has not granted a license to a developer, especially where it feels there is not enough legal, technical and financial capacity to execute a project. For example, some investors have approached ERA seeking permits and licenses to undertake wind or solar power projects, but their requests have not been granted because of the intermittent nature of wind/solar power projects, and resultant disturbances to the national grid.   

Considering Uganda’s electricity licensing regime is by application, and not competitive bidding, ERA has employed a number of strategies to ensure that investors have the capacity to undertake a project. One strategy that ERA has used is the request to investors to post performance bonds for tracking key project milestones, such as financial close, construction start and commercial operations date.

As part of the regulatory framework, ERA applies a light-handed regulation mechanism through which prospective developers for power projects below a capacity of 2MW are granted a certificate of licence Exemption. This certificate exempts the holder from payment of annual License fees, quarterly performance reporting to ERA, and complying with other stringent standards applicable to licensed companies.

As a result of ERA’s predictable licensing regime, Uganda today has 47 licensed generation companies that use a combination of technologies, including hydro, solar, thermal and bagasse co-generation. The total installed generation capacity stands at 1,268 MW as at September 11, 2020.

jeff@observer.ug

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