PARLIAMENT OF

REPORT OF THE COMMITTEE ON NATIONAL ECONOMY ON THE PROPOSAL BY GOVERNMENT TO BORROW UP TO EURO 162,445,694.1 (US$ 178,276,66L.71 FROM THE INDUSTRIAL AND COMMERCIAL BANK OF CHINA TO FINANCE THE POWER SUPPLY TO INDUSTRIAL PARKS AND GRID UPGRADE AND POWER TRANSMISSION EXTENSION PROJECT

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OJJice of the Clerk to Parliament

Parliament Building ,lrtq

\wA- JANUARY 2O2O

.>. ft 1.O INTRODUCTION The Committee on National Economy considered the request by Government to borrow Euro 762,445,694.1 (US$ 17a,276,66L.7) from the Industrial and Commercial Bank of China to finance the Power Supply to Industrial Parks and Grid Upgrade and Power Transmission Extension Project in accordance with Rule 175 (2) (b) of the Parliamentary Rules of Procedure.

The request was presented to Parliament by the Hon. Minister of Finance, Planning and Economic Development on 4ft December, 2Ol9 and was accordingly referred to the Committee on National Economv for consideration.

The Committee considered and scrutinized the request, and now begs to report

2.O METHODOLOGY

2.1 Meetings The Committee held meetings with the following:

1 The Minister of Finance, Planning and Economic Development;

11 The Minister of Enerry and Mineral Development; and

111. Uganda Electricity Transmission Company Limited.

2,2 Documentary Review

The Committee studied and made reference to the following documents lfll,lt

The Minister of Finance, Planning and Economic Development's Brief on the Loan Request.

11 The Indicative Terms and Conditions between the Industrial and Commercial Bank of China and the Government of Uganda for Power Supply to Industrial Parks and Upgrade of Grids and Power Transmission at , Sukulu, Mbale, Wobulenzi, Nakasongola, Kaweeweta Industrial Parks and Wobulenzi-Kapeeka and Kapeeka-Kaweeweta Nakasongola Transmission Lines. .\ d*- 1 ( rl N+. w 6/ 111 The Contract between Uganda Electricity Transmission Company Limited and China CAMC Engineering Company Limited for the Electrification of Industrial Parks and Free Trade Zones Procurement of Plant, Design, Supply, Installation and Commissioning of Kapeeka 132kv, Sukulu, Mbale, Wobulenzi, Kapeeka 22OKv, Nakasongola, Kaweeta Industrial Park Sub-Stations and Wobuienzi-Kapeeka and Nakasongola-Kaweeweta Industrial Park Transmission Line. lv. The technical proposal for the electrification of industrial parks and free

trade zones (October, 20 1B) . Terms of Reference for the technical assessment, design study, environmental & social impact assessment (ESIA) & financing for RAP Study for Wobulenzi, Kaweweeta, Nakasongola, Kapeeka and Associated transmission line of power supply to industrial parks and grid upgrade and power transmission extension project (UECTL - October, 2018).

v1 The National Planning Authority letter on the clearance ol the loan for financing the Power Supply to Industrial Parks and Grid Upgrade and Power Transmission Extension Project (5tn December, 2}l9l. vll The Ministry of Finance, Planning and Economic Development's commitment letter to provide 157o counterpart funding for the project amounting to approximately Euro 28,666,8a7.16 over the five years, which will be availed within the Energy and Mineral Development sector MTEF, when appropriated by Parliament in FY 2O2Ol21 Budget (14th January 2O2Ol.

v111. The Project Management Plan (UETCL - October, 2019). lX Implementation Completion Report for Electricity Sector Development Project (Kawanda-Masaka Transmission Line) (UETCL - June, 2019). x Report of the Auditor General Value for money audit on implementation of transmission infrastructure projects (March, 20 15) xl Performance monitoring reports for projects under implementation by UETCL (october, 2019). 4l-' friil 1,i \K+ d€ 2

Nr= Y' w 2.5 Field Visit The Committee conducted a field visit to the Liao Shen Industrial Park in Kapeeka ( District) to assess progress on various industrial establishments and also find out the extent to which the development of reliable electricity power supply infrastructure in the Industrial Park will lead to promotion of the park as an industrial hub and boost the Ugandan economy in the medium to long term.

3.O BACKGROUND Transformation of Uganda's economy through the industrialization strategy is one of the fundamental goals and commitment of Uganda's National development Plan. Uganda's National Development Plan (NDP) puts emphasis on sustainable economic growth while aiming at poverty reduction.

The pace of economic activity in Uganda for the last decade has averaged 5.7 percent per annum comparing favorabiy with two of East Africa's biggest economies; Kenya and Tanzanta, at 5.0 percent and 6.6 percent, respectively. However, Uganda is still graded as "undeveloped and third world." Uganda's households are still relying on subsistence agriculture, and structural transformation away from agriculture into industry has not been as fast as was previously thought. The persistence of the above situation limits the tax-base, the purchasing power, employment, and generally inhibits economic transformation.

For Uganda to change its GDP trajectory, value addition through industrialization or light manufacturing and the potential demographic dividend will be the key drivers, linked to trade, tourism, agriculture, and natural resource exploitation u.hile taking full advantage of the changing distribution of global political and economic power.

In the Second National Development Plan 2OI5l16-2019 l20 (NDP II), infrastructure and human capital development are upheld as fundamental \. enablers for socio-economic transformation of the country, in line with Uganda Vision 2040. Consequently, for successful implementation of the NDPII, some of the key strategies to be pursued include industrialization and export-oriented growth through value addition, agro processing, mineral beneficiation and light I :4*-,. W l,i $ry!F"t'6U !>

->. manufacturing; and increased employment creation through fast tracking skills development and harnessing the demographic dividend among others.

Uganda's economic transformation will critically hinge upon industrialization; and the application of Science, Technology, and Innovation; as the main driver and prime agent.

Industrialization plays a vital role in the economic transformation of countries. Economies that are effectively engaging in external trade have a better chance of importing and absorbing new technologies and hence can industrialize faster. The huge demand for light manufactured goods and processed agricultural products in the region (particularly South Sudan and Congo), presents a major development opportunity given the current limited capacity for production of these categories of goods in the wider East African region, the large percentage of the population that is not in paid employment and the labour intensive/low technolory nature of this type of manufacturing.

Establishment of light manufacturing/ agro-processing industries in Uganda would create good paying jobs that are resilient to economic fluctuations in the developed world for the large and increasing numbers of the jobless youth. Goal 8 (Target 8.1) of the Sustainable Development Goals implores member countries to achieve higher levels of productivity of economies through diversification, technological upgrading and innovation, including through a focus on high value added and labour intensive sectors.

Uganda Investment Authority (UIA) has over the recent years embarked on developing industrial parks in the various towns of Uganda to exploit natural resources and other business opportunities. The targeted towns include; Kampala, Arua, Lira, Gulu, Moroto, Mbale, Tororo, Iganga, Jinja, Masaka, Luwero-Nakaseke, Nakasongola, Mbarara, Bushenyi, Kabale, Kasese, Fort Portal, Hoima, Rakai and Mubende, among others. While building industrial parks has been a great focus of the Government, these parks require electricity to make them functional. Thus, it is crucial for government to prioritize the necessary infrastructure developments fortslectrification of the dustrial parks (l 4

W,rlN _4* @ This project aims to finance the power supply to industrial parks and upgrade the grids and power transmission at Kapeeka, Sukulu, Mbale, Wobulenzi, Nakasongola, Kaweeweta industrial parks and Wobulenzi-Kapeeka and Kapeeka- Kaweeweta-Nakasongola transmission lines to support Uganda's Vision of Industrialization and .Job creation.

4.O THE PROJECT AND COUNTRY STRATEGY

The project is in line with the National Development Plan II, which is the national development policy of the Government of Uganda for the period 2016 - 2O2I.\n th..e NDP II, "promotion of development of infrastructures" is one of critical areas of locus of the Government in order to achieve the development goals highlighted in the p1an. The NDP II recognizes that low competitiveness of the country's goods and services on the global market as well as 1ow industrialization and value addition are challenges to Uganda's development.

The NDP II lists the development and value addition to Industrial Parks and free trade zones among the areas of focus for their role as a key input in industrialization of the country, which in turn requires electricity as a production input. The project will hence contribute to effective use of the hydroelectric power stations developed in conformity with the ener5/ sector policy in order to supply power to the respective Industrial parks and seeks to add value to Uganda's industrialization drive.

5.O PERFORMANCE OF ELECTRICITY TRANSMISSION PROJECTS The disbursements of the existing loan projects under UETCL as at 30m June 2019 was on average 55 percent higher than the Committee requirement of at least 50 percent disbursement rate, as observed in Table 1 (Pg.6).

Despite that high average disbursement rate, some of the loans acquired as far back as 2013 have very 1ow disbursement rates, for example, the Entebbe- Mutundwe Transmission line project where the loan was committed in October 2013 had a loan disbursement rate of 07o. Similarly, the Masaka-Mbarara tr smission line project loan was approved by Parliament on 1310312018 and -dl-- /,.( A 5 &, ll(il, l^|3 signed on 27s April, 2O 19 had a loan disbursement rate of 0%. The Kampala Metropolitan Transmission Systems Project approved by Parliament on 20l03l2018 and signed on 26th April, 2018 also had a loan disbursement rate of 07o as at 3oft June, 2019.

Table 1: UETCL Loan Performance as at 30tt June 2O19

ftidlite ArartOrtnfH ostrEEd l,ldshrEd % 1-SMlin tEEMllln t t$Mllicn SsottEBdiolytucrtbdcplstftid(I€lrrbfi/E€TrasrixjmLits u ,A: 70; 4\9, -D?1 2 tE-gP 95 4 t6!

3 ftrdt-doldCElo]vho EdicityTramidxl Ljre &( 13: 67.1 1671 1 l@aEtdbetu/sLireBgd NA ( nt oa Isnhal-P&13,vldrha-Aidi lrffiim ftjet @t rmf 8Lt 89 f t€unaFldo to s Drn ma mi &, Psi€Ed l€ura-IiasYieir LiE 86t m1 ( 64,1 t t\ifam-l€tdeTramidx LireadDsfiblin Brid 13: nt AM I Flr lrd-dr'd El,sgbsEtirBadTrasrisin LirBs tt ?i QM Gil adFffi ]C 2a ql.) 29 1l M-SPR9{d€TEEy 8i G 't.s 37/' 1t Ittara-ltihdeTrasii:n Lire 1mg ( ms T lfu aTrasriEiol g/Ssr6 Rcid 1251 ( 1251

zTl2 1fl7 1fi5 $lx^ Source: UETCL, MoFPED & DRS Computdtions

6.0 PROJECT OBJECTIVE The project development objective is to provide adequate power capacity to supply the industrial developments in the gazetted industrial parks of Wobulenzi, , Luwero, Kapeeka, Mbale and Sukulu areas in the medium to long term; and improve power supply quality, reliability and security of power supply in the area to facilitate industrial activity growth and rural electrification.

7.O PROJECT COMPONENTS

The t has the following 9 (nine) components as shown in Table 2; ) 4 \$\ -41-

//w @ Table 2: Project Components

No. Component Descrlption Speciflcatlon

1 Kapeeka Industrial Park 132 / 33 kV Transformer 63MVAX3Units Substation Transformer bays 132kVX3 Auxiliary transformer 20OkVAX2Units Control building I Building Outgoing bays I32 KV X 4 Diesel Generator 100kvA x 1 Busbar Protection 132KvX 1 Bus Coupler Protection 132kVX1 l32kv Switch Gear I Lot 2 Sukulu Industrial Park 22O I g3 kV Transformer 80MVAX3Units Substation Transformer bays 220kv x3 Auxiliary transformer 20OkVAX2Units Control building I Building Outgoing bays 220kY X4 Diesel Generator 100kvAX I Busbar Protection 220kv x I Bus Coupler Protection 220kv x I 22okv Switch Gear 1 Lot a Mbale Industrial Park 132 I 33 kV Transformer 80MVAX3Units Substation Transformer bays 132kVX3 Auxiliary transformer 200kVAX2Units Control building 1 Building Outgoing bays 132kV X4 Diesel Generator 100kvA x 1 Busbar Protection 132 Kv X 1 Bus Coupler Protection 132kVX1 132kv Switch Gear l Lot 4 Wobulenzi Substation 4OO /22O / 33kY transformer 250MVAX2Units Transformer bays 220kv x4 Auxiliary transformer 200kVAX2Units Control building 1 Building Outgoing bays 220kv x2 Diesel Generator 160kvA x 1 Busbar Protection 22OKv X 7 Bus Coupler Protection 220kvx1 33kv Switch Gear l Lot 5 Kapeeka Substation 22O / 732133kV Transformer 125MVAX2Units Transformer bays 220kv x2 Outgoing bays 220kv x4 Busbar Protection 220 KvX 1 Bus Coupler Protection 220kv x I 33kV Switch Gear 1 Lot Transformer bays 132kV X2 Outgoing bays 732kV X2 Busbar Protection 132 Kv X 1 Bus Coupler Protection 132kVX1

_3_.(--.^). ltr Se\ ffi No, Component Description Specification 6 Nakasongola Substation 132 / 33 kV Transformer 40MVAX3Units Transformer bays 732kV X2 Auxiliary tralsformer 2OOkVAX2Units Control building 1 Building Outgoing bays 732 kV X2 Diesel Generator 100kvA x I Busbar Protection 132 KvX I Bus Coupler Protection 132kVX1 33kV Switch Gear l Lot

7 Kaweweta Substation 132 / 33 kV Transformer 40MVAX3Units Transformer bays 732kV X2 Auxiliary transformer 200kVAX2Units Control bullding 1 Building Outgoing bays 132kVX2 Diesel Generator 100kvA x I Busbar Protection 132KvX 1 Bus Coupler Protection 132 kVX I 33kV Switch Gear 1 Lot

8 Wobulenzi-Kapeeka Double Circuit Overhead 220kV (33km) Tralsmission Line Transmission Line (OHTL)

9 Nakasongola- Kaweweta- Double Circuit Overhead 132kV (123km) Kapeeka Transmission Transmission Line (OHTL) Line Source: Technlcal Proposal for the Electrt\cation of Industrlal Parks and Free Trade Zotes (October,2O78)

8.O PROJECT COMPOIVENTS AND COST The total budgeted cost exclusive of taxes lor the Power Supply to Industrial Parks and Grid Upgrade and Power Transmission Extension Project is estimated at Euro 19L,112,581.26 (equivalent to USD 2O9 ,212,905.90). Government intends to borrow Euro 162,445 ,694.1 lrom the Industrial and Commercial Bank of China (ICBC) and Euro 28,666,887.16 will be covered using Government of Uganda Counterpart funding. The project investment costs include 57o to cater for v s in price and physical works contingencies. -dl--.

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$F}' \8-) .3 fr /tfril' Table 3: Project Components by Cost Project Component Cost (USD Million) Total Share

Kapeeka Industrial Park Sutrstation t6,602,956.48 7 .940k

Sukulu Industrial Park Substation 24,250,979.56 11.59v,

Mbale Industrial Park Substation 18, I 26,296.08 4.66V"

Wobulenzi Transmission Substation 48,6a4,610.64 23.270/0

Kapeeka Substation 22,620,t34.74 10.81%

Nakasongola Substation | 7 ,7 55 ,524 .27 5.30%

Kaweeweta Substation 1 1 ,086,997.61 5.62V"

Wobulenzi-Kapeeka Transmission Line 10,3t+,642.16 4.93yo

Nakasongola-Kaweweta-Kapeeka Transmission Line 35,808,241.03 17.t2yo

Sub-Total 199,25(),386.s7

570 Contingencies (Price and physical works) 9,962,519.33

Total Project Costs 2O9,212,9O5.9O 1()()0/" Source: WTCL ProJect Bill of QuantttieslPrice Schedzles & DRS

Table 3 shows that the construction of Wobulenzi Transmission Substation will cost 23.27Vo (USD 48.68 million) of the project cost followed by the construction of

the double circuit Nakasongola-Kaweweta-Kapeeka Transmission Line ( 132kV (123km)). 4.75%o of the project costs (USD 9.96 million) will be spent on price and A physical contingencies. 9.O PROJECTIMPLEMENTATION

The Power Supply to Industrial Parks and Grid Upgrade and Power Transmrssron Extension Project will be implemented by the Uganda Electricity Transmission Company Limited (UETCL) through China CAMC Engineering Co., Ltd as the eering, Procurement and Co struction plus Financing (EPC+F) Contractor for -=dl- 9 q @ I W the Plant, Design, Supply, Installation and Commissioning of the project. The project construction duration is 18 months for lots one to three and 36 months for lots four to nine from contract effectiveness date.

1O.O SOCIAL ECONOMIC IMPACT OF THE PROJECT

The wider expected social economic impact of the project includes the following:

The project will provide adequate transmission infrastructure to meet the energy needs for the Uganda population for social economic development;

The project will improve the standard of living for the population by providing adequate electricity needed for industrialization, better health, education and communication infrastructure through improved medical services, schools and other infrastructure as a result of industrialization;

lll The project will improve the national grid system reliability, efficiency and economic operation through reduction of losses in the existing distribution grid supplying power to the areas. By having wide network coverage for the industrial parks, the project will further avoid large scale diesel generation of povver in the industrial parks;

lV. The project will contribute to growth of tax revenue base due to tax revenue that will be realized from the various taxable sectors. The investment in industries will boost the national GDP;

The project will create employment opportunities in the industrial parks for Ugandans who will be employed in production plants; and

vl. The project will contribute to absorption of excess hydro electric power .P generated from the Isimba and hydroelectric power stations. However, there is need for more consumption of hydroelectric power from Bujagali and other pov/er stations to bring the power tariffs down. This will save the Government possible costs of deemed energy that are likely to result from non-evacuation of power fro -these hydro power plants 10 \},J $t I w \$'\- lfiit' M-'z- 11.O LOAN TERMS, CONDITIONS AND BUDGETARY IMPLICATIONS 11.1 Loan Terms

Government of Uganda will obtain a loan of Euro 162,445,694 .1 from the Industrial and Commercial Bank of China (ICBC) to implement the Power Supply to Industrial Parks and Grid Upgrade and Power Transmission Extension Project. Table 4 shows the loan terrns.

Table 4: Loan Terrns ITEM TERMS Loan amount Euro 762,445,694.1 (USD 125.1 Million) Maturity Period 15 years

Repayment Period 1 1 Years Interest rate 6 months Euriborl plus 2.60/o p.a Management Fee 17o on the total loan amount payable to the lender within a period of sixty (60) days after the signing date- Commitment Fee 0.5% p.a on the undrawn amount and not cancelled loan amount Sou"ce: Indicdtive Terms and Condltlons betueen GoU and ICBC

Table 4 shows that an interest rate of 6 months Euribor plus an interest margin of 2.6'lo p.a will be applied on the amount of money drawn down (disbursed) by the Industrial and Commercial Bank of China (ICBC) during the grace period. The current 6 months (as of 31st December, 2019) Euribor rate is -0.37986 + 2.6ok (margin) and this results into an interest cost of the loan at 2.22O14o/o p.a. Therefore, the interest cost of the loan at 2.22Ol4Yo per annum on the loan outstanding and disbursed is lower than the standard discount rate used of 57u recommended by IMP and World Bank.

In addition, this loan will attract a flat management fee of 170 on the total loan amount payable to the lender within a period of sixty (6O) days after the signing date. A commitment fee of 0.5olo per annum will also be payable in arrears on the

' Th_"_ 6-,.,o't th Euribor interest rate is the average interest rate at which a selection of banks in London are pr€pared lend to one another in curos with a maturity of 6 months 7l (, I

=d{^ - - W loan amount that is undrawn and not canceled on the last day of each interest period during the availability period.

11.2 Level of Concessionality ofthe Loan

Table 5: Level of Concessionality ofthe Loan Item Level/ Amount/Rate

Grace period 4 years

Total Debt Senrice ofthe loan Euro 197.51 Million

Discount Rate 5Vo

Source: Ind.icdtiue Terms and, Condltlons betueen GoU and ICBC cnd DRS Computations

From Table 5 above, the present discounted values of the loan from the Industrial and Commercial Bank of China (ICBC) is smaller than the nominal value of the loan contracted at Euro 1.62.45 million. This implies that the total future payment of the loans is cheaper than the proposed amount to be borrowed in present terms. The total future payment of the loan will amount to Euro 197.51 Million after the loan period of 15 years.

The loan from the Industrial and Commercial Bank of China (ICBC) is non concessional, since its grant element (21%l is smaller than the threshold of 35o/o, recommended by IMF/World Bank.

11,3 Conditions to Loan Effectiveness

In addition to the entry into force of the loan agreement by the submission to the Industrial and Commercial Bank of China (ICBC) of the Attorney General's legal opinion on the legal validity of the loan documentation to the Government, the N following conditions are attached to the loan; i. A copy of a duly passed Resolution of approving the borrowing; and

1,,'l \2 lt w lil[' ll Duly executed contract for the development of the project and facility documents

111 Support from project sponsor or exporter to cover the commercial risk exposure not covered by Sinosure insurance during the loan period; and

1V. Receipt of a sovereign guarantee or other guarantees accepted by the lender and Sinosure.

11.4 Budgetary Implication

The Ministry of Finance, Planning and Economic Development has committed to provide the 15% counterpart funding required for this project in the FY 2O2Ol2l budget, and the funds will be availed when appropriated by Parliament.

12.O THE LOAN AND THE CURRENT DEBT SITUATION OF THE COUNTRY

This loan will increase the country's public debt that has been on the rise over the years. As at end June 2019, the stock of total public debt amounted to US$ 12.55 billion of which external debt was US$ 8.35 billlon (approx. UGX 30.85 Trillion), and domestic debt was US$ 4.2 billion (UGX 15.51tri11ion). This is equivalent to 36.10/o of GDP in nominal terms (according to the rebased GDP figures using the 2016l17 base year) ar,d 27.3%o in present value terms.

The external debt exposure stood at US$ 73.48 billton equtaalent to 39o/o of GDP, oJ uthtch US$ 8.4 billton was outstclrtding and disbursed, uthlle US$ 5.O8 blllton ls committed but undlsbursed. While most of the existing stock oJ external public debt ls on concessional term.s, the non-concess{onal cornponent has been on the rise ref'lecting sizable borrouing Jrom Chlna slnce FY 2075/76.

As at 30ft June 2019, the Present Value (PV) of public debt stock to GDP was 32.lyo, out of which the PV of External debt stock to GDP was 18.07o and the PV of domestic debt stock to GDP was 14.0%.. This is below the Accountability Sector trate c Investment Plan (ASSIP) target of 32.8% but above the previous year's

1.3 1

ililt- achievement of 28.5o/o due to the increase in the concessional loans taken compared to the previous period.

While the medium-term growth outlook for the Uganda is stable, risks from increasing vulnerability to debt distress could drag down growth. Looking forward, the heightened external risks, coupled with uncertainty about global financial conditions, may increase the risk of capital outflows and even exchange rate crises.

13.O COMPLIANCE WITH PARLIAMENTARY APPROVAL GUIDELINES

The Committee on National Economy developed guidelines to be considered when scrutinizing all loans that require approval of Parliament. The guidelines require performance information and impact assessment for previous projects by a Ministry or Government Agency, evidence of project appraisal, consistency with the national planning framework, and institutional framework for project implementation, procurement plan, evidence of implementation of the Resettlement Action Plan, provision of counterpart funding, evidence of project readiness lor implementation, and financing mechanisms.

Below are the scores UETCL received based on submitted documents:

Table 6: Compliance with Parliamentary Approval Guidelines Target Institutional Performance Indicator score score lYol Perlormance of previous debt financed cq proiects 5 50.0h Consistency with the National Planning 3 100,Jk Framework Institutional framework 2 2 100.Jk

Procurement 1 o.5 500k Resettlement Action Plan 4 o Oo/o oa oo/ i\...J.- Budgetary Implications 3 1 \\\ Implementation Readiness 8 3 37 .5o/o \ Financing 6 4 66.7o/o Total 32 16,O 50.o% Source.' DRS Stalf Computations

I G 4, 74 @ \-,

fr.ffi- 14.O OBSERVATIONS AND RECOMMENDATIONS

The Committee made the following observations and recommendations; l4.t Development Process of Generation and Transmission Projects:

The Committee observed the slow realization of electricity infrastructure projects, particularly in the transmission segments. Inability to evacuate power presents financial loss to the Government from deemed eners/ clauses in Power Purchase Agreements. While some progress has been registered where a total of over 629 km of high voltage electricity transmission lines have been added to improve the transmission network, which is currently estimated at 2,258km, some parts of the country remain uncovered especially in West Nile and Karamoja regions.

The Committee recommends thdt Ministry of Energg and Mlneral Deuelopment and UETCL accelerate the deaelopment process oJ proJects ifl the electricitg transmlssion segment in order to saue the country from Jlnancial loss due to deemed energg clauses ln Pouer Purchase Agreements,

L4,2 Low Disbursement Rates among UETCL Debt Financed Projects: The Committee noted the low disbursements among some of the UETCL loans against Original Project Lifetime as at 30s June, 2019. The low disbursement rates are attributed to poor project preparedness of UETCL especially through lack of detailed project feasibility studies, lengthy procurement process for goods and services, lack of sites for contractors to start the works, delays in government counterpart funds, and delays in compensations of Project Affected Persons (PAPs), among others. The Committee recommends that Government ensures that all proposed electricitg lnfrastructure proJects presented before Cabinet be scrutinlzed to ensure that preparatory phases such cs feaslbtlitg studles and compensation oJ ProJect Affected Persons (PAPs) haoe been carried beJore theg are further submltted to Parllament for thetr approoal. t, ejt 15 \s\- B, M,Ar 14.3 Government Counterpart Funding: The Committee noted that Government enters into financing agreements with various development partners, in which it commits to provide counterpart funding through various implementing agencies. Among the lessons learnt from the implementation of projects especially those financed by externally borrowed funds, is the insufficient and untimely release of Government counterpart funding and the low absorption capacities of project implementing agencies. For this project, Government will contribute Euro 28,666,aa7.16 towards the implementation of this project.

The Commlttee recommends that Goaernment ensures adequate counterpdrt Junds Jor this proJect are integroted in time lnto the national budget during the proJect lmplementation perlod,

The Committee further recommend,s that the Parllamentary Sectoral Commlttees critlcally examine the budgets of MDAs that are beneficiaries of externallg borroued funds to ensure that the budgets of the MDAs explicitlg prodde for all the required counterpart funds durlng that Financlal Year Jor the proJects that are under thelr implementatlon.

14,4 High Dependence on Consultancies: The Committee observed the high dependence on consultancy services in conducting feasibllity studies and designing transmission lines projects by UETCL despite their successful implementation of several electricity transmission projects. There has been slow progress in translating this success into building sufficient capacities within UETCL in conducting feasibility studies and designing electricity transmission projects. The over dependence on consuitancies posses an agency risk especially where the consultant objectives end up not coinciding with UETCL objectives, which tends to cause delays in project implementation. For this project, consultancy for the supervision of construction works will aiso be ---piipcured

\k+' 16 \: lw 1-, w The Committee recommends that UETCL sccles up plans Jor building the capacitg oJ UETCL staff, especlallg in conductlng feasibilitg studles o.nd designing electricltg transmission proJects, in order to cut doutn on the exorbitant amounts of proJect tunds spent on consultancg servlces towards conducting feaslbtlttg studies and designing transmlsslon proJects.

14.5 Procurement: The Committee observed that debt financed infrastructure projects in Uganda are faced with procurement bottlenecks including lengthy bidding that have continued to negatively affect the timely implementation of electricity transmission projects. Administrative reviews also prolong the procurements when bidders are not satisfied or if they feel that they have been treated unfairly. The Conmlttee recofiLmends that Gouernment strictlg undertakes the procurement process Jor debt financed projects ahead of tlm-e, prior to Parliame ntary approvdl.

In additlon, the ongolng proc€ss of amending the PPDA Act, 2OO3 should be fast-tracked bg Gouernment in order to further dddress the exlsting lnetflclencies in the procurement cgcle and promote vdlue o;f debt Jinanced projects.

14,6 Environmental and Social Issues: The Committee noted that part of the proceeds of this loan will be used to carry out a detailed ESIA study for the project. The EPC supervision consultant shall recruit among his expert personnel an experienced environment expert to monitor conformity to environmental safeguards. The ESIA report outlined the ecological and social issues that have to be monitored during project implementation. The Committee recomnlends that UETCL strtctlg ensures thdt the ecological and sociql issues that utill be outllned in the ESIA document are timelg mitigated ln accordance with NDMA requirements and otler lnternational requirements,

(\ 4,1 77 A^ \s+, W. J g

,t,.d.-- 14,7 RAP Implementation and Supervision: The Committee noted that the EPC works for this project are scheduied to commence by 2O2I after ail corridors have been acquired. The RAP will be prepared to establish the basis for compensation of Project Affected Persons for property that will be lost in the corridor for the proposed Overhead Transmission Line (OHTL). The RAP implementation consultant is expected to be procured by December 2O2O. The implementation of the RAP will involve disclosure to groups and individuals. The Resettlement Action PIan valuation report sha1l be publicly disclosed in Kampala at UETCL offices, and at each alfected district headquarters for review. For PAPs who raise objections, the grievances will be referred to the grievance committee set for the project to deal with complaints on compensation. Experiences from similar projects have exhibited continued delays associated with payments to Project Affected Persons (PAPs) especially to those land owners that have agreed to the valued compensation rates. The Commlttee recommends that, in accorddnce with Uganda's compensation and resettlement requirements, the ProJect AlJected Persons (P,APs) should be compensdted lft a tlnelg and adequate m.a,nner ln order to guard a,gc'lnst the implementation delags Jor this proJect that might arlse due to poor RAP implementatlon,

14,8 Plan for using Local Contractors, Equipment and Materials: The Committee noted that the skilled labor and regular workers for the construction and work for substation facilities, civil works, buildings and ( transmission lines for the Project can be ordered with local contractors; local contractors will be hired for the Project Implementation Plan.

The Committee further noted that the aggregate, cement, rebar and other materials c, to be used in the civil works and in construction and upgrading of new and existing substations and foundation work for the transmission towers can be purchased locally, equipment and materials will to be purchased locally to the extent possible in this Project. However, most of substation facilities and transmission equipment and materials for the scale equivalent to the project to be robured are not manufactured in the country and thus they will be procured from

18

\s+, w t^tz_ China or third countries in consideration of past introduction of the existing facilities and operation and maintenance capacity of UECTL. The Commlttee recommends that Goaernment deaelops technical sklll transJer programs ln all pro/ects contrqcted to forelgn compa.nles to facllltate deaelopment of a critical mcss o.f local skllled labour to be used. to mc,intain the establlshed lnfrastructure. Where local capacltg exists in the production of inputs to dng publlc proJect, Government should support local producers in meetlng qualitg and other specifications requlred for supplg to the projects. With regard to lnsurance; the initial lnsurer should. be a Ugandan compaftg,

L4.9 Poor Roads connecting to some Industrial Parks and Free Zones: The Committee noted that poor roads connecting to some Free Zones have affected access and transportation of goods and equipment. For example, the Arua Special Economic Zone has failed to take off due to the poor access road to the Free Zone. Whereas negotiations have been held with district officials, there has been no progress to-date. The Committee recommends that UNRA and Local Goverttments upgrade roads leading to gazetted Free Zone areas, and priorltlze the access road to Arua SEZ Limited.

The Committee further recommends that Parliament should ln future cor.slder reuising the lo,nd law to mltlgate compensdtlons that hlnder publlc infrastrttcture proJects through delags as lo'nd urangles dre resolued. In ,$ addition, Gouernment should strengthen the land eualuation office to match the enonnous amount of uork.

15.O CONCLUSION

The Committee recommends that the request by Government to borrow Euro 162,445,694.1 (US$ 178,276,661.7) from the Industrial and Commercial Bank of China to finance the Power Supply to Industrial Parks and Grid Upgrade and Power Transmission Extension Project be approved subj ect to the re ommendations herein.

19 @ (,/

\5 ilt?'l' \p; ffi t*-- REPORT OF THE COMMITTEE ON NATIONAL ECONOMY ON THE PROPOSAL BY GOVERNMENT TO BORROW Up TO EURO 162445,694.1 (US$ L78,276,66t.7) FROM THE INDUSTRIAL AND COMMERCIAL BANK OF CHINA TO FINANCE THE POWER SUPPLY TO INDUSTRIAL PARKS AND GRID UPGRADE AND POWER TRANSMTSSION EXTENSION PROJECT

1 Hon. Bbumba Syda Namirembe Nakaseke Nofth

2 Hon, Bategeka Lawrence Hoima Municipality

3 Hon, Tayebwa Thomas Ruhinda North

4 Hon. Kajara Aston Mwenge South

5 Hon. Yeri Apollo Of,arono Tororo Municipality

6 Hon. Kiwanuka Keefa Kiboga East

7 Hon. Seguya Lubyayi John Bosco Mawokota South

8 Hon. Musoke Paul Sebulime Buikwe North

9 Hon. Kabafunzaki Herbeft Rukiga County )

10. Hon. Ayepa Michael Labwor County

11. Hon. Katoto Hatwib Katerera County W /L t2. Hon. Lokeris Samson Dodoth East

13 Hon, Rwemulikya Ibanda Ntoroko County \l [\rN 14. Hon. Migadde Robert Ndugwa Buvuma Islands

15. Hon. Mandera Amos Buyamba County

16. Hon. Wamakuyu Mudimi Ignatius Elgon County

L7, Hon. Okello Anthony Kioga County

18. Hon. Dhamuzungu Geoffrey Budiope East

19. Hon. Guma Gumisiriza David Ibanda Nofth 20. Hon. Sematimba Simon Peter Busiro South -41* 2L, Hon. Elotu Cosmas Dakabela County

22. Hon, Alyek Judith DWR, Kole

23. Hon. Turyahikayo K. M. Paula Rubabo County

24. Hon. Isala Eragu Veronica Bichetero Kaberamaido County

25. Hon. Azairwe Dorothy Nshaija K. DWR, Kamwenge

26. Hon. Akol Anthony Kilak North

27. Hon. Okupa Elijah Kasilo County

28. Hon. Ariko Herbert Edmund Soroti Municipality

29. Hon. Nzoghu William Busongora North

30. Hon. Bakireke Nambooze Betty Mukono Municipality

31. Hon. Akena James Jimmy Lira Munlcipality

32. Hon. Baryayanga Andrew Aja Kabale Municipality 33. Hon. Katwesigye Oliver Koyekyenga DWR Buhweju ,8K, 34. Hon. Akamba Paul Busiki County

35. Hon. Atiku Bernard Ayivu County

36 Hon. Okumu Ronald Reagan Aswa County

37. Hon. Kassiano Wadri Ezati Arua Municipality fuiila- 38. Hon. Kutesa Pecos Onesmus UPDF Representative