Govt sending mixed messages on energy

Last month, President Museveni used back-to-back national addresses interspersed by a few days to talk about the cost of living crisis.

One of the solutions that the President proffered was urging citizens to swap automobiles powered by dirty fuels such as petrol and diesel with electric cars.

“Electric vehicles are cheaper, cleaner, have no pollution, and apparently have less maintenance cost,” Mr Museveni said, adding, “This fuel is likely going to remain high. Even when our petrol is here, we will have to sell it at the world price minus the transport costs.”

To achieve the transition away from dirty fuels, the government will have to invest billions to harness alternative energy sources.

Uganda, so far, has also not invested in the critical infrastructure and supportive environment needed to have the transition, and there is an absence of a steady charging network, which is a major ingredient in rolling out electric vehicles (EVs).

Speaking to PhD fellows at Makerere University on August 11, Dr Monica Musenero—the Science, Technology and Innovation minister—revealed that an electric car mass transit is in the offing. Four electric buses with a capacity to carry up to 90 people per journey will provide transport at what the minister called “an affordable rate.” The buses will, Dr Musenero added, use a charging station in Bugolobi, a suburb in Kampala.

“We shall have planning of the roads so that other vehicles do not block them, because, if they get stuck in jam, then it won’t help or work,” Dr Musenero said of the buses that will be called the Kayoola EV, adding, “These buses will have schedules because we want our buses to move on time so that the public can know where the buses are at a particular time. For example, if the bus is setting off at 6am, then 6.30am, you know it’s in this place so that people can organise themselves…”

The government’s investment in renewable energy—which experts say can help combat climate change—have, however, been pitiful. In this fiscal year’s Budget, a measly Shs628b was allocated to combat climate change. The money, according to Finance minister Matia Kasaija, will mitigate environmental degradation after the government set a target to increase the national forest cover from the current 12.4 percent to 15 percent.

A tale of contrasts

While the shift to clean energy operates off a shoestring budget, the government has invested trillions in the country’s budding oil and gas sector. The mile the government is willing to go in order to put up oil infrastructure was shown on December 19, 2016, when Mr Patrick Ocailap—the Deputy Secretary to the Treasury—outed a correspondence to all accounting officers.

In it, he asked them to cut their budgets. The money diverted from different ministries and government departments, Mr Ocailap said, was to be used to fund food production, food security, and value-addition and also bankroll oil roads and bridges in order to achieve oil production by 2020.

After failing to meet the 2020 deadline, the government said in 2021 it was seeking a $117m (Shs453b) loan from China to construct oil roads.

These included Masindi-Biiso, Kabaale-Kiziranfumbi and Hohwa-Nyairongo-Kyarusesa-Butoole.

Early this year, Uganda National Roads Authority (Unra) said oil roads are still the priority and that they are to be completed before commercial production of oil starts in 2025. At a media briefing, Unra executive director Allen Kagina revealed that the completion rate of Buhimba-Kakumiro and Masindi-Bukedea—which are categorised as oil roads—stands at 70 percent and 60 percent respectively.

Unra also said it is constructing the Kabwoya-Buhuka (43km) and Karugutu-Ntoroko (56.5km) roads. It has also prioritised the construction of Lusalira-Nkonge-Lumegere-Sembabule upgrades, Masindi-Biiso, Hohwa-Nyairongo-Kyarusheesha-Butoole, and Kabaale-Kiziranfumbi roads.

If there is any doubt as to how Mr Museveni’s government is serious about extracting dirty fuels, the fight over the East African Crude Oil Pipeline (Eacop) extinguished reservations.

The 1,443km pipeline that will transport oil from Hoima in mid-western Uganda to Chongleani terminal, at Tanga port at the Indian Ocean in Tanzania, is estimated to cost $3.55b (Shs13.4 trillion).

Following pressure from environmental activists, western banks such as BNP Paribas, Société Générale, and Crédit Agricole, as well as Credit Suisse of Switzerland, ANZ of Australia and New Zealand, and Barclays, said they wouldn’t be financing the project. They said the project doesn’t dovetail with their environmental, social, and governance (ESG) framework.

One forward, two steps back

Nevertheless, with the help of South Africa-based Standard Bank, Industrial and Commercial Bank of China Limited (ICBC), and the Sumitomo Mitsui Banking Corporation (SMBC) of Japan—who are lead advisors for the Eacop financing—the Ugandan government has said it will persist with the project until it reaches a logical conclusion.

“These activists should know that our policy emphasises the need to utilise the resources to create value for the citizens and the region,” Ms Ruth Nankabirwa, the Energy minister, recently said of Eacop.

The Eacop holding company owners—as detailed in the Shareholders Agreement signed on April 11 at State House, Entebbe—include Uganda National Oil Company (Unoc) with 15 percent, Total Holdings International B.V. with 62 percent, Tanzania—through its national oil company, Tanzania Petroleum Development Corporation (TPDC)—with 15 percent, and China National Offshore Oil Corporation or Cnooc with eight percent.  The construction of the pipeline is expected to start later this year following the formation of a holding company that will accelerate its creation.

Whereas Mr Museveni—without saying when the money will be available—has said Uganda needs Shs20b to develop its electric automotive industry, Shs904.1b has been set aside this fiscal year towards the development and commercialisation of oil and gas.

“While there have been negative campaigns against the development of the crude oil pipeline, the government will develop Uganda’s oil and gas resources in a responsible and sustainable manner for the benefit of all Ugandans,” Mr Kasaija said when allocating the funds.

When production starts, Uganda plans to sell a fraction of its oil daily through Eacop to the world market. Another fraction will be available to the refinery project that has failed to take off thus far. The government is struggling to gather adequate interest from the private sector partners to finance the ambitious project located at Kabaale in Hoima District. This has also impacted storage projects in Mpigi District where refined products will be stored before distribution.

Arrested development?

The contract to construct the refinery was first awarded to RT Global Resources, a state-owned Russian Consortium in 2015. In 2016, the Ugandan government pulled a plug on the deal on grounds that the Russians were making additional demands deemed untenable.

The Plan B for the Ugandan government was South Korean consortium SK Energy. Once SK Energy was given the contract, it pulled out on grounds of the high risk of taking up 60 percent as the private lead investor.

In 2018, Albertine Graben Refinery Consortium (AGRC)—owned by Italians and Americans—was awarded the contract. Ugandan officials have, however, been forced to explore alternatives, thanks to AGRC’s state of inactivity.

“Government’s commitment is up to 40 percent [with the possibility of the East Africa Community partners taking up some equity].  Government and the AGRC will work to raise the required financing,” Ms Gloria Sebikari, the Petroleum Authority of Uganda (PAU) spokesperson, said, adding, “This requires the conclusion of the technical studies mentioned and the announcement of the Final Investment Decision, and then the partners will go out to the market to raise the required financing.”

The Ugandan government is looking for about $480m (Shs1.8 trillion) to $500m (Shs2 trillion) for its stake, but officials in charge of the sector say this could change depending on the project attracting new local and regional investors.

The $4b project will be funded through a debt-to-equity ratio of about 70:30, with the lead investor, AGRC, responsible for raising the $2.8b debt as loans for the project. PAU says AGRC will also contribute 60 percent of the $1.2b in equity.

Renewable energy

While the government is pouring trillions into the oil sector, not much has been invested in solar energy. This has been the case despite the Energy ministry saying Uganda is endowed with 5-6 kWh/m2 radiation per day on flat surfaces.

“The insolation is highest at the Equator. However, varies up to a maximum of 20 percent from place to place away from the Equator, the dryer areas (north-east) have the highest temperatures and the lowest in the mountainous areas (south-west) of the country. The total estimated potential is about 5,300 MW,” the Energy ministry’s renewable energy profile reads.

The government has been quick to shoot down claims that it pays clean energy lip service.

Government functionaries cite investments in hydropower projects such as Isimba (183MW) and Karuma (600MW) dams.

“When it comes to clean energy, Uganda doesn’t need lectures because it’s up there with Norway,” Ms Irene Batebe—the Energy ministry’s Permanent Secretary—said in reference to the Scandinavian country’s 1,681 hydropower plants.

Mr Museveni’s insistence on EVs has been buoyed by the hybrid five-seater Ugandan assembled Kira (EV). The automobile, however, costs well over Shs100m, a sum few Ugandans can afford.

Although EVs are expensive, Mr Museveni says this is offset by the fact that such cars are easy to maintain. He, for instance, says the electric bus uses Shs360 per kilometre. This, he adds, is almost five times cheaper than a similar fossil fuel bus, which uses Shs1,600 per kilometre.

Yet with 85 percent of Ugandans living in rural areas, EVs and indeed renewable energy sources will be the last thing they think about.

“Majority of rural households use firewood for cooking and less than 10 percent of the population employs clean cooking practices. Uganda’s forested land is shrinking by two percent a year. Only 15 to 26 percent of the total land area is still covered by forest and nearly 22 percent of the population lives in areas without trees,” one of the Energy ministry’s policy documents reads in part.

To foster investment in clean energy, the ministry has suggested ideas such as implementing public-private partnerships (PPP), innovative financing mechanisms, including targeted subsidies to stimulate the market penetration of renewable energy technologies;  introduction of specific regimes that favour renewable energy, including preferential tax treatment, tax exemption and accelerated depreciation; implementation of innovative risk mitigation mechanisms and credit enhancement instruments to provide comfort to project lenders. It remains to be seen whether any of these will come to fruition.