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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 82713-UG PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED SERIES OF IDA PARTIAL RISK GUARANTEES IN THE AMOUNT OF US$ 160 MILLION EQUIVALENT IN SUPPORT OF PROJECTS UNDER THE RENEWABLE ENERGY DEVELOPMENT PROGRAM IN THE REPUBLIC OF UGANDA February 20, 2014 Public Disclosure Authorized Africa Energy (AFTG1) Africa Region: Tanzania, Uganda and Burundi Country Unit (AFCE1) Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2014) Currency Unit = Uganda Shilling (UGX) 2,475 UGX = US$ 1 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS BP Bank Procedure BST Bulk Supply Tariff CAS Country Assistance Strategy COD Commercial Operation Date DEG Entrepreneurial Development Cooperation – German DFI Development Finance Institution EAPP Eastern Africa Power Pool DRC Democratic Republic of Congo EPC Engineering, Procurement and Construction ERA Electricity Regulatory Authority ESAP Environment and Social Action Plan ESDP Electricity Sector Development Project ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan ESMS Environmental and Social Management System ESRS Environmental and Social Review Summary EU European Union EUR Euro FM Financial Management FMO Entrepreneurial Development Bank - Dutch FY Fiscal Year GDP Gross Domestic Product GENCO Generation Companies GET FiT Global Energy Transfer Feed-in Tariff GIZ German Development Corporation (Deutsche Gesellschaft für Internationale Zusammenarbeit) GWh Gigawatt hours (of energy) GoU Government of Uganda HSD High Speed Diesel IA Implementation Agreement IBRD International Bank for Reconstruction and Development ICF United Kingdom International Climate Fund IDA International Development Association IFC International Finance Corporation IPP Independent Power Producers ii JBIC Japan Bank for International Cooperation KfW German Bank for Reconstruction and Development (Kreditanstalt für Wiederaufbau) KML Kilembe Mines Ltd KV Kilovolt KWh Kilowatt Hour KYC Know Your Customer L/C Letter of Credit LCOE Levelized Cost of Electricity LDCs Licensed Distribution Companies LRAP Livelihood Restoration Action Plan LRF Livelihood Restoration Framework LSHP Lubilia Small Hydropower Plant MDG Millennium Development Goal MEMD Ministry of Energy and Mineral Development MIGA Multilateral Investment guarantee Agency MOFPED Ministry of Finance, Planning and Economic Development MW Megawatt NEGIP Nigeria Electricity Gas Improvement Project NEMA National Environment Management Authority NDP National Development Plan NSHP Nyamwamba Small Hydropower Plant O&M Operations and Maintenance OP Operational Policy PDO Project Development Objective PPA Power Purchase Agreement PRG Partial Risk Guarantee PS Performance Standards PV Power Voltage RAP Resettlement Action Plan REFiT Renewable Energy Feed in Tariff RFP Request for Proposal RSHP Rwimi Small Hydropower Plant SHP Small Hydropower Plant SPPP Small Private Power Producer SME Small and Medium Enterprises UEB Uganda Electricity Board UEDCL Uganda Electricity Distribution Company Limited UEGCL Uganda Electricity Generation Company Limited UETCL Uganda Electricity Transmission Company Limited UGX Ugandan Shilling UK DFID United Kingdom Department for International Development UMEME Private Sector Distribution Concessioner UN United Nations USh Uganda Shilling US$ United States Dollar WBG World Bank Group iii Vice President: Makhtar Diop Country Director: Philippe Dongier Sector Director: Jamal Saghir Sector Manager: Lucio Monari Guarantee Manager: Pankaj Gupta Task Team Leader: Raihan Elahi Co-Task Team Leader: Robert Schlotterer iv UGANDA: Series of IDA Partial Risk Guarantees for Renewable Energy Development Program TABLE OF CONTENTS I. STRATEGIC CONTEXT AND RATIONALE ............................................................. 1 A. Country Context .................................................................................................................. 1 B. Sector and Institutional Context .......................................................................................... 1 C. Government Initiatives to Develop Small Scale Renewable Energy Projects .................... 5 D. Higher Level Objectives to which the Proposed Operation Contributes ............................ 8 II. PROJECT DEVELOPMENT OBJECTIVES ............................................................... 9 A. PDO..................................................................................................................................... 9 B. Project Beneficiaries ........................................................................................................... 9 C. PDO Level Results Indicators ............................................................................................. 9 III. PROJECT DESCRIPTION ........................................................................................... 10 A. Project Components .......................................................................................................... 10 B. Project Financing and World Bank Group Instruments .................................................... 11 C. Lessons learned and reflected in the project design .......................................................... 14 D. Alternatives Considered .................................................................................................... 15 IV. IMPLEMENTATION .................................................................................................... 16 A. Institutional and implementation arrangements ................................................................ 16 B. Results Monitoring and Evaluation .................................................................................. 16 C. Sustainability..................................................................................................................... 17 D. Partial Risk Guarantee conditions and covenants ............................................................. 18 V. KEY RISKS AND MITIGATION MEASURES ......................................................... 19 A. Risk Rating Summary ....................................................................................................... 19 B. Overall Risk Rating Explanation ...................................................................................... 19 VI. APPRAISAL SUMMARY ............................................................................................. 19 A. Economic and financial analyses ...................................................................................... 19 B. Technical ........................................................................................................................... 22 C. Fiduciary ........................................................................................................................... 23 v D. Social................................................................................................................................. 25 E. Environment ...................................................................................................................... 29 F. Safeguard policies ............................................................................................................. 29 G. Policy Exceptions and Readiness...................................................................................... 30 Annex 1: Results Framework and Monitoring.......................................................................... 31 Annex 2: Country Sector and Program Background ................................................................ 34 Annex 3: Detailed Project Description ..................................................................................... 45 Annex 4: Implementation Arrangements .................................................................................. 63 Annex 5: Operational Risk Assessment Framework (ORAF) .................................................. 71 Annex 6: Economic and Financial Analysis ............................................................................. 75 Annex 7: Fiduciary and Safeguards Assessments .................................................................... 89 Annex 8: IDA Partial Risk Guarantee Term Sheet in Support of Letter of Credit ................... 99 Annex 9: IDA Partial Risk Guarantee Term Sheet in Support of Commercial Loans ........... 104 Annex 10: Maps ...................................................................................................................... 110 vi UGANDA: SERIES OF IDA PARTIAL RISK GUARANTEES FOR RENEWABLE ENERGY DEVELOPMENT PROGRAM PROJECT APPRAISAL DOCUMENT (PAD) AFRICA AFTG1 . Basic Information Date: February 20, 2014 Sectors: Energy and Mining (100%) Country Director: Philippe Dongier Themes: Rural Development (100%) Sector Manager/Director: Lucio Monari /Jamal Saghir EA Category: B (Partial Assessment) Project ID: P133318 Lending Instrument: IDA Guarantee Team Leader: Raihan Elahi Joint IFC: No . Borrower: Republic of Uganda Responsible Agency: Ministry of Finance, Planning and Economic Development, Energy Regulatory Authority Contact: Dr. Benon Mutambe Title: Chief Executive Officer Telephone No.: