Uganda-Country-Public-Private-Partnerships-Diagnostic.Pdf

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Table of Contents

Acronyms ...... 3 Acknowledgments ...... 6 Executive Summary ...... 9 Key Findings ...... 9 Key Actions ...... 11 Uganda: As Things Stand ...... 12 How Uganda Can Accelerate Its PPP Program: Emerging Priorities ...... 16 Short-Term Priorities ...... 17 Medium-Term Priority ...... 20 How the World Bank Group and Other Multilateral and Bilateral Agencies Can Help: Strengthening Uganda’s PPP Program ...... 20 Introduction ...... 23 Themes and Key Questions ...... 24 1. Country Snapshot ...... 25 1.1 Macroeconomic and Other Data ...... 25 1.2 Infrastructure Bottlenecks ...... 27 1.3 Business Climate ...... 28 1.4 Gender Inclusion ...... 30 2. PPP Experience...... 32 2.1 PPP Experience: An Overview ...... 32 2.2 Past PPP Experience by Sector ...... 40 2.3 Subnational PPPs ...... 53 2.4 Kampala Capital City Authority ...... 54 2.5 Status of Current Pipeline Development ...... 55 2.6 Conclusion ...... 63 3. Stakeholder Support and Ownership ...... 66 3.1 Government Ownership of PPPs ...... 66 3.2 Public Sector/Civil Society ...... 67 3.3 Private Sector ...... 67 3.4 PPP Champion ...... 68 3.5 Public Opinion/Civil Society and Private Sector Support ...... 68 4. Legal and Institutional Framework ...... 71 4.1 General PPP-Enabling Legislation with Institutional Structures ...... 71 4.2 Institutional Framework ...... 73

4.3 Specific Legislation and Regulation of Unsolicited Proposals ...... 82 4.4 Judicial and Conflict Resolution Framework ...... 82 5. Government Support and Managing Fiscal Risk ...... 90 5.1 Budgetary System and Public Investment Management ...... 90 5.2 PPP Project Preparation Funding and Framework for Government Support to PPPs ...... 95 5.3 Framework for Managing Fiscal Commitments and Contingent Liabilities ...... 95 6. Access to Finance ...... 101 6.1 Past Financing Experience ...... 101 6.2 Current Project Finance Market and Limitations ...... 101 6.3 Capital Markets and Institutional Investors ...... 102 6.4 Climate Finance Market...... 104 7. Transparency and Accountability ...... 106 7.1 Audit Framework for PPPs ...... 106 7.2 Disclosure Framework for PPPs ...... 107 8. Gap Assessment ...... 108 Annex: Comparison of Uganda’s PPP Experience with Regional Peers ...... 111

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ACRONYMS

AfDB African Development Bank bbl barrels BEC Bundibugyo Energy Cooperative BEL Bujagali Energy Limited BFP Budget Framework Paper CAA Civil Aviation Authority CDC CDC Group Plc (Formerly the Commonwealth Development Corporation) DFCU Development Finance Company of Uganda DTT digital terrestrial television EIA Environment Impact Assessment EPC Engineering, Procurement and Construction ERA Electricity Regulatory Authority ESIA Environment and Social Impact Assessment FPC First Parliamentary Committee FY financial year GDP gross domestic product GIEK The Guarantee Institute for Export Credits HPP hydro power plant IBP Integrated Bank of Projects ICSID International Center on the Settlement of Investment Disputes ICT information and communications technology IFC International Finance Corporation IPP independent power producer IT information technology ITES information technology enabled services JEL Jacobsen Elektro AS JLOS Justice, Law and Order Sector KCCA Kampala Capital City Authority KEE Kampala Entebbe Expressway KIL Kilembe Investments Limited KIS Kalangala Infrastructure Services KJE Kampala-Jinja Expressway km kilometers KPI key performance indicators

KSB Kampala Southern Bypass KSW Kakira Sugar Works kV kilovolts kW kilowatts kWh kilowatt hours M&E monitoring and evaluation MDAs ministries, departments, and agencies MOFPED Ministry of Finance, Planning and Economic Development MPS Ministerial Policy Statement MTEF Medium-Term Expenditure Framework MUBS Makerere University Business School MW megawatts mWh milliwatt hours MWh megawatt hours NBFP National Budget Framework Paper NDP National Development Plan NITA-U National Information Technology Authority Uganda NPV net present value NSE Nairobi Securities Exchange NSSF National Social Security Fund NWSC National Water and Sewerage Corporation O&M operation and management PDFF Project Development Facilitation Fund PDMO Public Debt Management Office PFM Public Finance Management PIM Public Investment Management PPA Power Purchase Agreement PPI Private Participation in Infrastructure PPIAF Public-Private Infrastructure Advisory Facility PPP public-private partnership PS/ST Permanent Secretary/Secretary to the Treasury PSA Power Sales Agreement PSP private sector participation PV photovoltaic REA Rural Electrification Agency ROI return on investment

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RTA Registration of Titles Act RVR Rift Valley Railways SBFP Sector Budget Framework Paper SIP Sector Investment Plan SPV special purpose vehicle sq km square kilometers SWG sector working group TA technical assistance TCD Tons of Cane per Day U Sh Uganda shillings UBC Uganda Broadcasting Corporation UDC Uganda Development Corporation UEDCL Uganda Electricity Distribution Company Limited UEGCL Uganda Electricity Generation Company Limited UETCL Uganda Electricity Transmission Company Limited UNCC Uganda National Cultural Centre UNCS Uganda National Council of Sports UNRA Uganda National Roads Authority UPF Uganda Police Force URBRA Uganda Retirement Benefits Regulatory Authority URC Uganda Railways Corporation URF Uganda Road Fund US$ U.S. dollars USE Uganda Securities Exchange UWA Uganda Wildlife Authority WENRECO West Nile Rural Electrification Company

Acknowledgments

This Public-Private Partnerships Diagnostic Report for Uganda has been prepared by a team consisting of Shyamala Shukla, Senior Specialist, World Bank Group (WBG) Infrastructure, Public-Private Partnerships and Guarantees (IPG), and Task Team Leader for the Uganda: Mobilizing Long-Term Financing in Infrastructure Project; Serah Njoroge, Program Officer, Public-Private Infrastructure Advisory Facility (PPIAF); Pinki Chaudhary, Consultant, WBG IPG; Malingu Bernard Oundo, Legal Consultant, WBG IPG; Dorothy Daka Matanda, Financial Sector Consultant, WBG Finance, Competitiveness and Innovation (FCI) Global Practice; and Ekapon Jivasantikarn, Consultant, IPG. Christina Malmberg, Country Manager, Uganda, World Bank; Mehnaz Safavian, Lead Financial Sector Specialist, FCI; James Seward, Practice Manager, FCI; Clive Harris, Practice Manager, WBG IPG; and Michael Opagi, Manager, CASPA, IFC, provided valuable guidance. The World Bank team thanks the Government of Uganda, Ministry of Finance for providing information and excellent leadership in the implementation of this project, specifically Hon. Ajedra Gabriel Gadison Aridru, Minister of State in Charge of General Duties; Patrick Ocailap, Deputy Secretary to the Treasury; Lawrence Kiiza, Director Economic Affairs; and Beatrice Florah Ikilai, Acting Director of the PPP Unit. The team thanks the following individuals who provided excellent feedback during various meetings and stakeholder consultations: Ministry of Finance, Planning and Economic Development: PPP Committee: Hon. Richard Kaijuka, Vice Chairman; Hon. Lady Christine Kitumba Binaisa Nakasetta, retired Judge; Dr. Patrick Birungi; Dr. Albert Byamugisha; and Dr. Kenneth Ssemwogerere. Ministry of Works and Transport: Kajuna Benon Mwebaze, Director of Transport; and Mulengani Moses, Asst. Commissioner Policy Analysis. Ministry of Local Government: Yassin Sendaula, Acting Commissioner; Joseph Okello, Senior Analyst; and Jimmy Amatre. Bank of Uganda: Kenneth Alpha Egesa, Director, Statistical Department; Duncan Roy Kawooya, Head, Monetary Policy Framework; Anita Mpagi Kyeyune, Head, Financial Sector Development & Analysis Section, Research Department; and Doreen K. Rubatsimbira, Head, Monetary Analysis Section, Research Department. Entebbe Municipal Council: Hon. Kayanja Vincent De Paul, Mayor; Charles Magumba, Town Clerk; and Samson Ssemakula, Agriculture/International Relationships Officer. Kampala Capital City Authority: Patrick Kibuuka Musoke, Deputy Director of Strategy Management; and Eng. Andrew Kitaka, Deputy Executive Director. Capital Markets Authority: Keith Kalyegira, Chief Executive Officer. Uganda National Roads Authority: Patrick Muleme, Head of Design. Electricity Regulatory Authority: Harold R. Obiga, Director, Legal and Authority Affairs; Vianney Mutyaba, Principal Financial Analyst; Patrick Tutembe, Principal Economist, Pricing; Innocent Naswali, Financial Analyst; and Isaac Vivian Kinhonhi, Principal Economist, Planning and Research.

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Uganda Water and Sanitation Network and Uganda WASH Alliance: Doreen Kabasindi Wandera, Executive Director; Josephine Mugala, Research and Development Officer; Rehema Aanyu, Liaison and Networking Officer; Hilary Azaarwa Atamba, Finance and Administration Manager; and Hanifah Nakitto Kasule, Fundraising Officer. National Social Security Fund: Richard Byarugaba, Managing Director; Gerald Paul Kasaato, Chief Investment Officer; and Kenneth Owera, Portfolio Manager, Equities. Housing Finance Bank: Mathias Katamba, Managing Director; Michael K Mugabi, Executive Director; Andrew Mugerwa, Mortgage Relationship Manager; Hope Ekudu, Head, Retail Banking; and Derrick Bamulangeyo, Senior Manager, Home Loans. National Water & Sewerage Corporation: Eng. Amayo Johnson, Deputy Managing Director, Technical Services. Uganda Bankers Association: Wilbrod Humphreys Owor, Executive Director. Umeme Ltd: Selestino Babungi, Managing Director. Bujagaali Energy Limited: Josephine Ossiya, Chief Finance Officer. U.K. Department for International Development: Adrian Green, Head, Growth & Economic Management; Paul Mullard, Advisor & Country Economist; and Paul Turner, Regional Advisor, East Africa, Growth and Resilience. Uganda Electricity Transmission Company Limited: Erias Kiyembe, Managing Director/CEO; and Valentine K. Katabira, Manager, Operations & Maintenance. Uganda Electricity Distribution Company Ltd.: Franklin Kizito Oidu, Chief Technical Services Officer; and Joseph Katera, Managing Director. Rift Valley Railways: Joram Nyanzi, General Manager. West Nile Rural Electrification Company/(IPS (K) Ltd.: Dr. Kevin K. Kairuki, Head of Infrastructure, Industrial Promotional Services (K) Ltd. The team thanks Sandra Gain for editing the document and Victoria Adams Kotsch for the cover, layout, and formatting. This is a joint product of the Government of Uganda, the World Bank Group, and the PPIAF. Funding for this product has been provided by PPIAF and the World Bank Group Infrastructure, Public-Private Partnerships and Guarantees.

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Executive Summary

Key Findings

• Uganda faces a pressing need to improve and expand access to basic infrastructure services to ensure the country’s competitiveness. Despite efforts to improve the quality of its infrastructure, the country is still lagging in the quality and adequacy of infrastructure assets and services compared with many developing countries. Bottlenecks in the power and water sectors have been key constraints to growth. Uganda has mostly relied on public resources coupled with concessional financing and grants to finance its infrastructure needs. The country spends about US$1 billion annually on infrastructure, equivalent to about 11 percent of gross domestic product (GDP); the annual infrastructure gap is estimated to be US$0.4 billion. • Uganda ranks relatively low in international governance, competitiveness, rule of law, corruption perceptions, economic freedom, and doing business ratings, and has seen in the growing debt-to- GDP ratio over the past decade, which might inhibit the country’s ability to mobilize private finance. However, with prudent fiscal management, sound frameworks, and appropriate risk sharing, Uganda can partner with the private sector to remove inefficiencies in public spending and meet its infrastructure needs. In consideration of the business environment risks perceived by the private sector, de-risking approaches should be part of such plans. • The government’s enactment of the Public-Private Partnerships (PPP) Act in 2015 and the articulation of the need to mobilize private finance for expanding and improving the country’s infrastructure stock as a priority in its Vision 2040 show Uganda’s growing commitment to initiating a structured PPP program over the longer term. Moving forward, the government needs to integrate and streamline its infrastructure planning, PPP identification, and fiscal management processes to identify infrastructure priorities and allocate finances efficiently to those priorities. • Compared with other developing countries, Uganda has fairly significant experience in the implementation of PPPs, albeit mostly confined to the energy sector, specifically generation and distribution PPPs, and, to a lesser extent, the transport sector. The experience in project success remains mixed, with energy sector PPPs performing relatively better, resulting in a scaling up of production to meet demand. However, issues of quality, cost of service, and access in the energy sector continue to be of concern, with household electricity access and consumption rates among the lowest globally. The experience in the transport sector has been relatively less successful, with no road projects closed so far and the government’s recent repudiation of the single rail concession, due to the concessionaire’s failure to meet obligations. No project has closed since the PPP Act came into force, with projects still at various stages of preparation. Overall, a robust multisector PPP project pipeline is yet to emerge. • Uganda has put in place some basic common features of successful PPP programs elsewhere, including an enacted PPP Law to define and drive the PPP process and a centralized coordinating agency within the government in the form of the PPP Unit within the Ministry of Finance, Planning and Economic Development (MOFPED). However, the PPP Unit remains weak, underfunded, and

understaffed, and the country lacks adequate ownership and capacity within line ministries and contracting agencies to develop and implement PPPs. In addition, there is a lack of clear guidelines for achieving standardization and uniformity in the analysis, procurement, structuring, and implementation of PPP projects, including standardized institutional processes and methodologies. Uganda also lacks adequate frameworks for facilitating communication and disclosure of information during the PPP process, with the result that investors and users are often not fully aware of the pipeline of projects and projects under operation. Lack of adequate funding to develop PPPs also remains a key constraint in Uganda; the PPP Act provides for a fund to facilitate project development, but budgeting for and operationalization of the fund have not yet taken place. • There is a clear paucity of long-term financing in the Ugandan market. Most commercial banks do not issue loans with tenors longer than five years. Currently, a lack of long-term debt instruments for financing and refinancing and a lack of robust hedging instruments for foreign exchange risk are key constraints in infrastructure financing. The banking sector is still developing, and the size of the Ugandan capital market is small and particularly insignificant compared with commercial lending, reflecting substantial potential for development. The Capital Markets Development Master Plan recognizes this potential in its treatment of infrastructure. Project finance experience has been limited to financing smaller projects or partnering with international banks in limited ways. Due to the relatively high rates of interest, banks prefer to invest in risk-free government securities. Pension funds represent another key area of opportunity. The National Social Security Fund (NSSF), which holds a majority of all pension assets, can be a source of infrastructure financing in Uganda. Given the issues in access to long-term finance, projects in Uganda will likely require support in the form of capital subsidies and guarantees (provided by the Government of Uganda and/or donors) to mitigate credit risk. The type and scope of credit support required will depend on the structure and sector of the project—for example, a transport project like the Kampala-Jinja Expressway as already assessed would require significant capital subsidy and rely on an availability-based payment structure backed by user charges and/or sovereign or multilateral development bank guarantee, while an energy generation project may require a sovereign guarantee, supplemented by a donor guarantee or a government guarantee to provide comfort on payments by the utility as well as forex fluctuations. • The roads, water and sanitation, waste management, energy, and housing sectors can be immediate focus areas for the Government of Uganda for PPPs, given clearly identified service needs in these sectors, as well as the priorities of various ministries, the National Development Plan, and the National Vision document. The information and communications technology sector could be another area with clear PPP options. The World Bank, working with the PPP Unit and line ministries, is currently involved in providing technical assistance for screening projects for suitability as PPPs. This exercise is expected to help in the creation of a robust pipeline of projects going forward.

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Key Actions

• Use the PPP Act to drive Uganda’s PPP program and further develop the PPP framework, including creating processes and standardized materials to support coherent infrastructure planning and the identification, development, analysis, procurement, structuring, implementation, and contract management of PPPs. This will provide a more comprehensive institutional framework for PPPs and assist the government contracting agencies in scaling up the PPP program in a sustainable manner through the preparation of sound projects. • Complete the new public investment management (PIM) process, in line with stipulations of the PPP Act, and establish a streamlined process for integrating the PIM and PPP processes. It is essential that the PIM process and the PPP Unit work closely on the linkages and interfaces between the PIM and PPP processes, including to ensure that all projects coming before the PPP Unit for decision on PPP suitability are investments that pass the PIM process. • Create a robust multisector PPP project pipeline based on an identification and assessment of service need and economic and financial viability over the next few years and identify at least five or six key national flagship projects for further detailed studies for implementation as PPPs. The creation of the pipeline should be based on a sound framework consisting of multiple criteria. The Government of Uganda should seek to build on the project screening work it is currently undertaking with World Bank technical assistance. Following the identification of a pipeline of projects, the government can seek near-term funding for pre-feasibility and feasibility studies from multilateral and bilateral agencies and global project financing facilities. But more sustainable project development funding options need to be pursued, including the establishment of the Project Development Facilitation Fund—provided for in the PPP Act but not yet operationalized—which can mobilize funding from various sources. Sector-specific issues and requirements should also be considered throughout this process. • Build the PPP capacity of key government institutions, including the PPP Committee, PPP Unit, other relevant units of MOFPED, line ministries and contracting agencies, and other relevant stakeholders. As part of these improvements, better communication and coordination between the PPP Unit and the contracting authorities will be especially important. Apart from a series of training sessions on project identification, preparation, procurement, and contract management, this could include exposure of key government staff in the PPP Unit and various infrastructure or relevant ministries to good practices in other jurisdictions. • Make budgeting and staffing of the PPP Unit in MOFPED a top priority of the government. The PPP Unit is currently seriously lacking in the funding and human resources required for effectively leading the PPP process and to fulfill its role as stipulated by the PPP Act. The Government of Uganda also needs to have a mixed approach to procuring the required expertise—through a combination of secondments from other departments and ministries and hiring consultants with specific financial and legal skills. • Adopt a fiscal risk assessment framework. The government has historically absorbed much of project risks, in addition to obligations from government support mechanisms, and should now act carefully to ascertain optimal risk allocation and assess the level of government exposure. It is also

recommended that MOFPED adopt a robust fiscal commitments and contingent liabilities framework to screen all PPPs at the feasibility stage, prior to request for proposal and at the post- negotiation stages and build the framework into the PPP approval processes. • Establish a PPP disclosure framework, based on the requirements of the PPP Act, and a web-based project information database, to increase the visibility of the successes of the PPP program so far, improve the transparency and accountability of the PPP process, and improve investor and user confidence. These should interface with the development of a broad communication strategy to improve awareness of and build external stakeholder support for PPP projects and the PPP program. • Address gaps in the current PPP Act, including in areas involving the creation of a PPP node, composition of the project team, dispute resolution, PPP projects that were initiated pre-PPP Act, and responsibilities of the debt management department. Gaps, inconsistencies, and unclear guidance in interfaces with other laws and government roles should also be addressed, including with fiscal commitments and contingent liabilities, unsolicited projects, the Land Act, and the Mortgage Act. • Develop a communication strategy for the PPP program, to sensitize and engage in dialogue with internal and external stakeholders. The communication strategy should aim at demonstrating government commitment to partnering with the private sector in a meaningful way, creating better ownership of the PPP program and projects within government agencies, and engaging debt and equity investors. • Identify sources of infrastructure financing to supplement public spending, focusing on attracting private sector financing and expertise. Mobilize long-term finance from domestic and regional investors through examining regulatory reform as well as innovative financing mechanisms to crowd-in domestic and regional funds and other investors. In the near term, grants and concessional loans from multilateral development banks, bilateral partners, and commercial banks, including syndicates, can also help fill the gap. Government support mechanisms, based on clear guidelines, should also be addressed. Alongside these actions, improve Uganda’s business and investment climate to facilitate and attract private financing.

Uganda: As Things Stand

1. Uganda’s growth is limited by significant infrastructure and service delivery limitations. Uganda already spends approximately US$1 billion on infrastructure (11 percent of GDP), with recent estimates of the annual infrastructure funding gap at US$0.4 billion a year. Since infrastructure provision and quality continue to be at lower levels than required, despite substantial spending, it is likely that the current investments and funding sources are not sufficient. Like most developing countries, Uganda has mostly relied on public resources coupled with concessional financing and grants to finance its infrastructure needs. The inconsistent availability and quality of infrastructure in Uganda is considered a main bottleneck to the country’s growth, and major business surveys report problems with services such as electricity, which is a top constraint to business activity.

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2. Uganda’s business environment ratings are relatively low and may create an impediment in mobilizing private investment in infrastructure. Uganda’s performance across several business environment indexes is relatively poor compared with its peers in the region. In 2017, Uganda ranked 115th of 190 economies according to the World Bank Doing Business report, with construction permits, registering property, and protecting investors among the country’s several low-ranked dimensions. Among other indexes, Uganda performs weakly on factors that may negatively affect the private sector’s appetite for participating in PPPs, such as corruption perception, index of economic performance, and rule of law. There is need for a clear focus on improving factors that will affect the private sector’s overall attraction to the country, particularly in the case of PPPs, including trust in the government’s commitment to meet its contractual obligations transparently and the private sector’s ability to pursue disputes in a fair environment. Leveraging private sector investment and expertise to meet current and future infrastructure needs, via PPP arrangements, could be a key factor in improving Uganda’s business competitiveness and helping to drive economic growth and development. 3. To meet its growing infrastructure investment needs, Uganda has the potential to leverage private finance, via PPPs, to supplement public finance and donor funding. Uganda’s debt-to-GDP ratio is still relatively low compared with those of its regional peers, such as Kenya, but with an upward trend, alongside a high fiscal and current account deficit. Much of Uganda’s infrastructure has been financed so far through government borrowings and donor funding, but the fiscal situation presents limitations to the country’s ability to meet infrastructure spending needs through public financing alone. To supplement public finance and donor funding, Uganda has the potential to leverage private finance in support of infrastructure investment and economic growth; private sector involvement would also bring with it additional needed expertise. However, there is inadequate mobilization of domestic long-term private financing, which has created the potential for foreign exchange risk issues for U.S. dollar–denominated PPPs in Uganda. This situation will continue unless the government takes conscious measures to crowd-in domestic financing from commercial banks and pension and social security funds into infrastructure projects. Currently, the risk-free rate in Uganda is extremely high, making it unattractive for commercial banks and institutional investors to invest in infrastructure as an asset class. Commercial banks hold the largest share of government securities, followed by pension and provident funds and offshore investors. 4. Sustainably meeting infrastructure needs requires a more structured approach to infrastructure planning, prioritization, and financing. Expanding and improving Uganda’s infrastructure stock is a key priority of the government, as stated in Uganda’s Vision 2040, and as reflected in the passing of the PPP Act of 2015. Meeting the country’s infrastructure needs will require effective infrastructure planning and prioritization and efficient allocation of infrastructure financing resources (public, donor, and private), to ensure successful upgrading of the country’s infrastructure. Uganda has a mixed pipeline of required infrastructure investments. PPPs are one of the potential tools available to the government to support their realization in the context of a fiscally sustainable investment program. A systematized infrastructure planning process is required to prioritize these

infrastructure investments (capital and recurrent expenditures), select appropriate structures and financing sources to enhance the efficiency of infrastructure development, and manage fiscal commitments. Despite enacting the PPP Act, Uganda currently has no structured or robust process for screening approved investment projects for suitability as PPPs. In addition, there is no standardized framework or structured way to link public investment management and government liability oversight with the PPP process, to understand the fiscal and debt management implications of PPP projects. A fiscal management framework and debt management strategy would facilitate the required oversight, by the Ministry of Finance, of the government’s financial commitments to PPPs to ensure PPP program sustainability. 5. Uganda has had mixed experience in implementing PPPs. PPPs are not new in Uganda. Compared with other developing countries, Uganda has had a significant history of private sector participation in the delivery of public infrastructure services, although most projects have been confined to the energy and, to a lesser extent, transport sectors, and the PPP Act was passed only in 2015. Following the enactment of the PPP Act, no project has achieved financial close so far, with the Kampala-Jinja Expressway project being one of the very few projects at a reasonably advanced stage of preparation. The World Bank’s Private Participation in Infrastructure (PPI) Database records contractual arrangements for public infrastructure projects in low- and middle-income countries (as classified by the World Bank) that have reached financial closure, in which private parties assume operating risks, across the core infrastructure sectors of energy, telecoms, transport, and water. The PPI Database identifies 26 transactions in Uganda from 1990 to the present, almost all in the power sector, generating total investment of about US$3 billion. Uganda’s experience implementing PPPs has been mixed. The major lessons learned from this experience, before and after passage of the PPP Act of 2015, include the following: • Lack of standardized project preparation, analysis, procurement, structuring, and implementation processes and in contract design. PPPs can only be truly effective when they are systematically and robustly structured to ensure that the contracts meet the public sector’s development objectives while also ensuring that the appropriate parties with the right experience are procured. Contract design varies based on sector characteristics as well. Lack of standardized methodology also tends to create lack of clarity and delays in project preparation and procurement, as is evident from a lack of closed projects or projects in an advanced stage of procurement following the enactment of the PPP Act in 2015. • Lack of capacity among institutions to drive the PPP process. Despite strong in-principle commitment to the PPP program from the government, understanding and expertise on PPPs, including the ability to coordinate among relevant departments/agencies, has been low. Contracting authorities do not have the needed capacity and skill to prepare, tender, and manage PPP projects. The PPP Unit itself has been underfunded and understaffed—insufficient capacity from this leading agency has led to shortcomings in implementing the country’s PPP program. • Inadequate risk allocation and management. Most of Uganda’s projects thus far have resulted in the government absorbing inordinate shares of risk, in addition to obligations arising from

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the government support mechanisms offered. Fiscal commitments that are currently recorded relate to direct liabilities, but often do not capture contingent liabilities, and there is currently no operational framework for managing fiscal commitments arising specifically from PPPs.

6. Uganda has enacted a legislative framework, but key gaps still need to be addressed, including an enabling institutional framework, which will be required for a sustained and robust PPP program. A key milestone in the development of Uganda’s PPP program was the passing of the PPP Act in 2015. The Act provides a much-needed legal framework around the procurement, implementation, maintenance, operation, management, and monitoring and evaluation of PPPs throughout the project cycle. The PPP Act also sets forth clear roles and responsibilities for sets of actors with accountabilities toward PPP policy and project design and implementation, from the PPP Committee and PPP Unit, to the contract authorities and private partners, among many others. At the same time, key gaps remain in the legal framework and/or implementation, including • Proper integration of the PIM and PPP processes is still in progress. • Lack of clear guidance on the responsibilities of the debt management department. Clarity in this area is important toward managing the government’s fiscal commitments. • No transitional provision for treatment of projects that were initiated prior to the passing of the PPP Act. • No provision for establishment of a PPP “node” that would development the capacity of contracting authorities as they learn from projects being developed and eventually integrate into the organizational structure and perform institutional roles. • Incomplete representation of key stakeholders in the project team. The PPP Unit; Ministry of Land, Housing and Urban Development; and Ministry of Justice are not part of the team. Appropriate representation of stakeholders is needed from the initial stages of the process. • No provision for a dispute resolution mechanism arising from the tender process. As it currently stands, such disputes would be subject to traditional judicial processes, the timing of which risks adding to project delays 7. Despite high-level government commitment to PPPs, capacity to drive the PPP program is low among the PPP Unit and contracting authorities. There is high-level government support for PPPs, as evidenced by the enactment of the PPP Act in 2015 and the statements related to mobilization of private investment for infrastructure in Vision 2040. To date, this high-level support for PPPs has not catalyzed a robust, structured PPP program or pipeline or the required institutional processes and capacity. However, the Government of Uganda, with World Bank technical assistance, has started working toward addressing weaknesses in institutions and processes, which is expected to start showing concrete results over the relatively short and medium terms.

Among the most urgent needs is adequate funding and staffing of the PPP Unit to fulfill its mandate according to the PPP Act. Funding for the PPP Unit has decreased over the course of the most recent fiscal years, and staffing is at an inadequately low level. On the side of the contracting authorities, much remains to be done to develop the capacity to prepare quality business cases and manage the tendering process and PPP projects.

How Uganda Can Accelerate Its PPP Program: Emerging Priorities

Immediate Actions

1. Resource the PPP Unit. The PPP Unit must be fully staffed on the basis of the staffing pattern already approved by the government. The current underfunding and understaffing of the PPP Unit are among the most critical issues facing the PPP program, as they are inhibiting the PPP Unit’s ability to carry out its mandate according to the PPP Act. Without the requisite funding, the PPP Unit is unable to attract PPP expertise and provide the high level of services and leadership expected and needed for the PPP program. It is also important for the PPP unit to ensure that additional expertise that is not available within government is sourced externally. In addition, the PPP Act provides for establishment of a Project Development Facilitation Fund, whose mandate includes supporting the activities of the PPP Unit. However, the fund has not yet been operationalized. By adequately funding and staffing the PPP Unit, the government will also enable support for capacity development of the contracting authorities. The PPP Unit’s additional staff, as well as its hired consultants, would provide hands-on support and thereby transfer skills to the contracting authorities. The training, study tours, and secondments funded by the PPP Unit’s budget would also benefit the PPP Unit and contracting authority staff, toward long-term institutional development and strengthening of the PPP program. Overall and importantly, the provision of adequate resources to the PPP Unit will also signal the government’s commitment to the PPP program, demonstrating a championing role and ultimately attracting investors and boosting the market’s confidence. 2. Draft guidelines to create the enabling framework for PPPs. It is essential that the government drafts detailed guidelines soon, to create the appropriate institutional processes and roles and responsibilities for taking PPP projects forward. Following the passing of the PPP Act, gaps remain in the practical implementation of the law. The PPP Guidelines will be important in clearly articulating the functional roles and responsibilities of the PPP Unit vis-à-vis the contracting authorities. It is essential to achieve consensus on the treatment of local projects and other small projects in the PPP Law and Guidelines. Other areas of clarity include details on effective procurement and implementation of projects, management of government fiscal commitments, details on processing unsolicited proposals, upstream project screening, and guidance on project disclosures.

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3. Develop a PPP pipeline via a clearly defined project screening process. A sustainable PPP program requires a credible pipeline of prioritized projects that are designed to meet the country’s national development and infrastructure needs and suitable to be prepared and structured as PPPs. The need to leverage private finance, via PPPs, to supplement public finance and donor funding to close Uganda’s infrastructure gap should be conveyed at the highest levels of the government and filter through to the sector investment plans of line ministries and contracting agencies in a more structured way. The focus of the PPP program should be on demonstrating a track record of success via the careful selection of a few high-quality projects that clearly meet immediate infrastructure needs. The government is in the process of undertaking high-level screening of projects to assess their suitability as PPPs, with technical assistance from the World Bank. This exercise can help institutionalize good practice, including the use of available tools for PPP screening, in the process for PPPs in Uganda. In support of the development of a robust PPP pipeline, the government should also complete the process to integrate its PIM and PPP processes. MOFPED is currently working on this process, and it is important that the integration of the PIM and PPP processes preserves the requirements of the PPP Act. Under the integrated PIM and PPP framework, which can also be incorporated in detailed PPP Guidelines, the government can work on prioritizing a PPP investment plan by allocating financing according to risk, with commercial financing taking priority, if such financing is available and cost effective. Where commercial financing is not cost effective or is unviable due to high risks, the government needs to focus on addressing these risks through reforms to strengthen country and sector policies, regulations, and institutions, and, where justified, well-structured support. If risks remain high and raise the cost of commercial capital beyond that which can be afforded by project or corporate revenue generation, the government should explore the potential for lowering the financing cost by deploying concessional and public resources in risk-sharing instruments. Where commercial financing is not cost effective or is not viable despite sector reform and risk mitigation, the government should apply public and concessional resources. Screened PPP projects would then proceed through detailed preparation and tender under the PPP Act. The initial PPP pipeline should seek to incorporate new projects prioritized under the PIM framework, as well as projects identified as potential PPPs by line ministries and contracting authorities, which are already under discussion and have undergone a PPP screening process to assess their suitability for further detailed preparation.

Short-Term Priorities

1. Develop standardized documents, tools, and templates to support the preparation of high- quality projects. The development of a robust PPP pipeline will require the development of standardized documents, tools, and templates. These materials will promote the adoption of international best practices in project preparation and encourage a focus on achieving value for money in PPP deals. This will particularly benefit line ministries and contracting authorities, which will have responsibility for the identification and implementation of projects, and it will facilitate the oversight role of the PPP Unit and PPP Committee. The PPP Unit should lead the development of a comprehensive set of

standardized documents, tools, and templates for use and reference in the PPP project cycle process, summarized as follows:

o Needs analysis, project identification, and planning o Development of a preliminary business case o Feasibility studies and risk analysis o Economic cost-benefit analysis o Value-for-money assessment o Financial feasibility assessment o Affordability and fiscal impact assessment o Procurement and contract management, including the treatment and processing of unsolicited bids

o Disclosure policy, standard clauses, and web portal for disclosure o Performance management and audit o Dispute resolution. 2. Develop a fiscal commitments and contingent liabilities framework and debt management strategy to support the long-term sustainability and management of the government’s financial commitments to PPPs. The assessment and management of government financial commitments to infrastructure investments is currently undertaken on a project-by-project basis by MOFPED, as related to direct liabilities such as public borrowing or the issue of specific debt guarantees. Other commitments and contingent liabilities are largely not estimated, recorded, tracked, or disclosed, and there is no guidance on the institutional process to approve government financial contributions to PPPs or operational framework to manage fiscal risks from PPPs. The lack of guidance on government financial commitments to PPPs creates a risk that responsible entities (notably MOFPED and contracting agencies) will lack the capacity and processes for adequate assessment and management of financial commitments to PPPs. Per international best practice, it is recommended that institutional responsibilities and processes for the assessment and management of financial commitments to PPPs should be included in the PPP Guidelines. In addition, MOFPED should develop a fiscal commitments and contingent liabilities framework and debt management strategy for PPPs, to deliver integrated assessment and management of all PPPs on a programmatic basis, with clear criteria for the approval of all government financial commitments and contingent liabilities. The government’s medium-term debt management strategy should also include specific consideration of direct and contingent liabilities associated with PPPs. The rollout of the framework and debt management strategy should be accompanied by significant capacity building and training for the relevant agencies, to ensure effective oversight of the government’s fiscal commitments to PPPs.

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3. Mobilize long-term finance from domestic and regional investors. In addition to developing bankable projects, the Government of Uganda can work with commercial banks to identify regulatory hurdles hindering local currency infrastructure financing, particularly lending with suitably long tenors, and explore the possibility of syndicates. NSSF and other institutional investors are a potentially sizable source of domestic financing that the government should commit to exploring, given the size of its assets. Once the pipeline of projects is clear, capacity building for investors based on the design of a specific project and financial instrument would be an area for the government to explore. In addition, the possibility of tapping capital coming from other institutional investors across the East African Community should be examined. The East and Central Africa Social Security Association could be a useful stakeholder to engage. As the Government of Uganda expedites the development of the pension sector and implements the Capital Markets Master Plan, efforts should also be put into mobilizing domestic currency financing through syndicates of commercial banks in the country and large surplus institutions such as pension funds, especially NSSF, to finance PPPs. The government would need to take steps to encourage and facilitate the listing of special purpose vehicles. It may also be essential to work through multilaterals and raise project bonds to which domestic surplus funds institutions like NSSF can subscribe. Alternatively, the government should work on the creation of a debt vehicle to encourage pension funds and commercial banks to invest. The Petroleum Revenue Investment Reserve—which is yet to be set up—is another potential source of investment. The government should prioritize the operationalization of this sovereign wealth fund, engaging with the PPP Unit and MOFPED to strategize the fund’s interface with PPP investments. 4. Design and deliver a communication strategy to demonstrate the government’s commitment and ownership of the PPP program. To demonstrate commitment and ownership of the PPP program and build awareness across key stakeholder groups, especially the investor community, the government should design and deliver a communication strategy. The communication strategy should guide internal and external communication about the government’s PPP program. The strategy should be designed to build awareness, capacity, and commitment, and convey the goals, objectives, and scope of the PPP program to as broad an audience as possible. The communication strategy should contain detailed content on the government’s objectives, implementation timeline and approach, stakeholder mapping, and key messages for various stakeholders. The communication strategy should be aligned with the government’s disclosure policy. Going forward, sensitization workshops for stakeholders and a formal introduction to the PPP program via a highly publicized event, showcasing recently closed and proposed projects in key sectors, could provide an opportunity to demonstrate high-level commitment to the PPP program and encourage a greater sense of ownership and participation among the stakeholders. 5. Build capacity within government. A capacity-building program would need to be designed for all key stakeholders, with a variety of depth of the material. Short informational sessions should be organized at the ministerial and PPP Committee levels. In-depth training should be provided at the bureaucratic level, aimed at practitioners across the line ministries, contracting authorities, and other entities that will be

responsible for day-to-day implementation and/or oversight of PPPs. The capacity-building program should introduce and explain all aspects of the PPP framework, planning, and methodology in Uganda. On an ongoing basis, the transfer of understanding and skills to the contracting authorities will be dependent on improved communication, coordination, and formal and informal engagement between the PPP Unit and the contracting authorities. Necessary to underpin all these activities would be the sustained and adequate funding and staffing of the PPP Unit.

Medium-Term Priority

Clarify accounting and budget treatment of PPPs to provide comfort on the government’s ability to deliver long-term financial commitments to PPPs. The accounting and budget treatment of PPPs requires clarification. Uganda’s annual budgetary process does not allow approval of multiyear government commitments to PPPs. It is recommended that MOFPED issue detailed guidance on the accounting and budget treatment of PPPs and consider legislation for the formal ring-fencing of multiyear government financial contributions to PPPs within the annual Budget Law. In addition, attention needs to be given to how contingent liabilities would be accounted for in the budget plan of the line ministry or contracting agency. Such an operational framework for management of fiscal commitments would be in accordance with Section 11(5) of the PPP Act. The rules have been developed by the PPP Unit, approved by the PPP Committee, and could provide for establishment of a technical fiscal committee comprising members of the Debt and Budget Directorates who would assess commitments at each stage of PPP development and report to the PPP Unit.

How the World Bank Group and Other Multilateral and Bilateral Agencies Can Help: Strengthening Uganda’s PPP Program

The Government of Uganda and the World Bank Group share a commitment to strengthening Uganda’s PPP program. The World Bank Group is engaged in providing technical assistance to the PPP Unit in Uganda. The assistance includes the current work of developing the Country PPP Diagnostic, including recommendations on key actions. It also includes the development of a pipeline of projects through the adoption of robust screening methodologies. The analysis and recommendations included in this Diagnostic could support the development of a customized package of further World Bank Group assistance appropriately tailored to the needs of Uganda’s PPP program. The U.K. Department for International Development, through the World Bank, based on the recommendations in this Diagnostic, will be providing assistance in the development of the PPP Guidelines, linking the PIM and PPP processes, developing processes for local government projects and unsolicited projects, improving disclosure of project and contract information at all stages of the PPP process, and capacity building of government staff engaged in PPPs. The Public-Private Infrastructure Advisory Facility is expected to provide further funding, subject to request by the Government of Uganda, for pre-feasibility studies for two or three pre-screened projects and

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fiscal risk assessment of existing projects. The Global Infrastructure Facility could provide project development funding for screened projects that are found suitable for further development as PPPs. In addition to direct assistance, World Bank Group involvement in the PPP program provides a catalytic signal to other donor partners interested in supporting the PPP program in Uganda, as well as external stakeholders (such as the private sector and commercial banks) looking to engage with the Government of Uganda on specific PPPs. The World Bank Group can also help the Government of Uganda allocate financing to sectors and projects, based on risk. Potential World Bank Group support to the PPP program in Uganda is summarized in the following list. These components have been selected based on World Bank Group expertise, experience, and available products. Action items included in this Diagnostic, but not summarized here, should be implemented by other donors better placed to provide the required support. 1. Broad-ranging technical assistance program to increase capacity and quality control in support of a sustainable PPP program The World Bank Group can provide a suite of technical assistance and capacity support to strengthen PPP capacity across the government, to improve the quality of PPP project development, preparation, implementation, and management. The program could include support to: a. Pre-feasibility- and feasibility-level studies on five or six selected projects from the list of pre- screened projects from current World Bank Group technical assistance b. Capacity building of key stakeholders c. Development of a Disclosure Policy for PPPs, including standard contractual clauses on disclosure for PPP contracts, development of a web-based project portal for Uganda for this purpose using the World Bank’s generic portal, and implementation of disclosure in operational and pipeline projects d. Development of standardized documentation and operational guidance for all aspects of the PPP project cycle, including project feasibility, procurement, and implementation e. Preparation of Municipal PPP Guidelines. 2. Project development and the provision of transaction advisory services Early-stage project and pipeline development can be supported by the World Bank Group through sector reforms, sector-specific PPP needs assessments, upstream project identification and feasibility analysis, and transaction advisory. 3. Financing and guarantee support to specific PPP projects To ensure the financial viability and bankability of PPP projects in Uganda, a broad range of financial instruments and products is available. The World Bank Group, in coordination with other multilateral and bilateral donors, can provide public financing and other financial instruments to specific PPP projects, particularly projects requiring a combination of public and private financing, such as design-build-operate or operate-maintain structures. The World Bank Group can draw on several other products to support project viability. These include (i) guarantee instruments, such as partial risk guarantees and Multilateral Investment Guarantee Agency insurance, and (ii) equity and debt financing to project companies via the

International Finance Corporation (using private equity funds through its asset management company and on-balance sheet financing as well as mobilization of syndicated financing from commercial banks and other development finance institutions).

Several other multilateral and bilateral agencies offer risk mitigation products like those offered by the World Bank. For example, the African Development Fund of the African Development Bank (AfDB) offers two key relevant leveraged instruments—the partial risk guarantee and the partial credit guarantee.1 AfDB also offers several risk management products, including interest rate and currency swaps, caps, collars, commodity hedges, and indexed loans, which also allow borrowers access to market-based hedging tools using the AfDB as an intermediary. Enhanced private sector assistance is one of a range of innovative frameworks within the AfDB for financing sovereign guaranteed and other private sector projects. Although most guarantee products require counter indemnity from the beneficiary country, the Global Infrastructure Facility of the World Bank is expected to come up with a guarantee product that will not require it. Apart from the project preparation funding offered by the World Bank, other facilities provide similar products for Africa.2

1 For more information: https://www.afdb.org/en/projects-and-operations/financial-products/african-development- fund/guarantees/. 2 For a comprehensive list of project preparation facilities that can be sourced by countries in Africa, see table 1.3 on page 26 of “Assessment of Project Preparation Facilities for Africa,” https://www.icafrica.org/fileadmin/documents/Knowledge/ICA_publications/ICA-PPF-Study%20Report-ENGLISH- VOL%20A.pdf.

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Introduction

Key indexes of the ease of doing business in Uganda report low availability and efficiency of infrastructure services as being key constraints to doing business. Uganda already spends approximately US$1 billion on infrastructure (11 percent of gross domestic product (GDP)), with recent estimates of the annual infrastructure funding gap at US$0.4 billion a year. Since infrastructure continues to be substandard despite substantial spending, it is likely that the investments are not efficient. Like most developing countries, Uganda has mostly relied on public resources, coupled with concessional financing and soft money through grants, to finance its infrastructure needs. However, Uganda—more than many of its neighbors in the region—has also experimented with private sector involvement in the creation of public infrastructure assets and the provision of public services. Uganda has developed a Policy, Legal, Regulatory and Institutional Framework for its Public-Private Partnerships (PPP) program. The PPP Policy was approved in 2010, and the PPP Act passed in 2015, detailing the required institutional framework for PPP implementation. The PPP Regulations have been drafted and will soon be finalized by the First Parliamentary Counsel. In 2012, a PPP project pipeline was developed. However, many projects listed in the pipeline have moved to different development levels; one of the projects listed in the pipeline is the Kampala-Jinja Expressway, which is being structured to be delivered under a PPP arrangement. Other projects, such as Karuma, Nsimba, and Ayago, are being delivered purely as public investments. Since the exhaustion of the projects contained in the 2012 PPP project pipeline, there is a need to update the PPP project pipeline to bring on board new projects that the government should consider for delivery under a PPP arrangement. This calls for re-screening projects in all sectors in the economy to populate the project pipeline to inform the PPP investment decisions. Currently, most of the project proposals recorded at the PPP Unit are project ideas, mostly in the energy and transport sectors, with limited in-depth analysis to inform private sector players on the nature and extent of the investment required for these projects. In addition, the necessary institutional processes have yet to evolve. In view of the PPP Act 2015 coming into force and the increasing urgency to upgrade and expand Uganda’s infrastructure stock, coupled with the need for further understanding the requirements for the government’s readiness to undertake infrastructure development through PPPs, the Government of Uganda has requested the World Bank to undertake a PPP Country Readiness Diagnostic (“the Diagnostic”). The objective of the Diagnostic is to: i. Determine the baseline on Uganda’s PPP “readiness” ii. Determine gaps and weaknesses in the overall PPP enabling environment (in policy, legal, institutional, regulatory, capacity building, financing, and other areas) iii. Propose a practical, time-bound action plan to be undertaken by the Government of Uganda to support the development of a sustainable PPP program iv. Determine potential future World Bank Group assistance for implementation of the action plan.

Themes and Key Questions

The Diagnostic starts with a country snapshot capturing macroeconomic data and business climate information, and a review of Uganda’s PPP experience. Subsequently, the Diagnostic explores the key themes that are relevant in the assessment of Uganda’s PPP readiness, as summarized in the following table.

THEME KEY QUESTION

PPP Experience Does the government have any experience implementing PPPs?

Stakeholder Support and Does the government support PPPs? Ownership Does the general public and other key stakeholders support PPPs?

Legislative and Is the legal and regulatory environment sufficiently conducive to PPPs? Regulatory Framework Do legislation and regulation provide clarity on the management of unsolicited proposals?

Do other legislation and regulation support the implementation of PPPs?

Are legislation and regulation functioning well in practice?

Institutional Framework Are there institutions in place to support the preparation, procurement, and implementation of PPPs?

Are there processes in place to guide the preparation, procurement, and implementation of PPPs?

Are there standardized PPP documents and templates?

Is there a government communication strategy and stakeholder engagement strategy on PPPs?

Do the government and industry have (access to) the skills and expertise for successful implementation of PPPs?

Funding and Managing Does the budgetary system support PPPs? Fiscal Risk Is there funding available for robust PPP project preparation, procurement, and implementation?

Is there a framework for government financial support to PPPs?

Is there a framework for managing fiscal commitments and contingent liabilities?

Is there a framework for project-level financial and economic assessments?

Access to Finance Is there past financing experience in Uganda?

Are the necessary PPP project finance structures and sources available, and are there any limitations?

Are there other key financing partners: multilateral and institutional investors?

Transparency and Are there oversight, audit, and disclosure procedures and institutions in place? Disclosure

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1. Country Snapshot

Countries decide to implement PPPs for different reasons. The motivation for PPPs varies from capacity issues (the need to benefit from the innovation and efficiencies of the private sector), to investment issues (the need for private financing to overcome short-term fiscal constraints). Regardless of the underlying reasons and objectives for developing a PPP program, solid economic fundamentals and a healthy business climate are considered prerequisites to underpin and facilitate PPP projects. This chapter explores the macroeconomic situation and business climate in Uganda, to understand the capacity and capability of Uganda’s economy to support and sustain PPPs.

1.1 Macroeconomic and Other Data

The late 1980s ushered in an era of reconstruction after the civil war and resulted in fairly steady economic growth coupled with a reduction in absolute poverty. During 1987–2010, Uganda experienced GDP growth at an annual average rate of 6.9 percent, one of the highest rates among African countries. During financial year (FY) 2014/15, the economy grew at a rate of 5 percent per year, mainly driven by acceleration in public and private investment (table 1.1). In FY 2015/16, the economy grew at 4.6 percent, and in 2016/17 at 3.5 percent. This performance was due to slower than expected absorption of several key projects, subdued domestic demand, and the impact of tight credit conditions in the private sector. Despite the slowdown, these figures were significantly higher than the 3.2 and 3.4 percent growth expected for the world and Sub- Saharan Africa economies, respectively, in 2016. Exports have stagnated because of lower regional and weaker global demand resulting from relapses in the global economy, and the total value of imports of merchandise goods declined by the equivalent of 18.4 percent of GDP. Thus, the trade balance improved to a value equivalent to 5.7 percent of GDP.3

TABLE 1.1: UGANDA: KEY MACROECONOMIC INDICATORS

FY 16/17 INDICATOR FY 12/13 FY 13/14 FY 14/15 FY 15/16 projected

National income and prices

Real GDP growth (%) 3.3% 4.5% 5.0% 4.6% 5.8%

GDP per capita (US$) $727 $759 $634 $660 $682

National Accounts (% of nominal GDP)

Gross domestic saving 22.6% 22.3% 19.1% 21.1% 21.9%

Gross public investment 6.7% 8.0% 7.6% 7.4% 7.5%

Gross private investment 22.4% 20.5% 20.4% 22.0% 21.0%

3 Uganda Country Partnership Strategy, Concept Note Draft, Report No. 101173-UG, World Bank Group, Washington, DC, 2016.

FY 16/17 INDICATOR FY 12/13 FY 13/14 FY 14/15 FY 15/16 projected

Public Sector (% of nominal GDP)

Fiscal Deficit -3.5% -4.1% -4.6% -6.6% -6.5%

Balance of Payments (% of nominal GDP)

Current account deficit including grants -7.0% -6.6% -9.3% -8.7% -8.2%

Debt (% of nominal GDP)

Public Debt 28.5% 30.7% 32.7% 35.3% 38.6%

Note: Data in the table were extrapolated from data in Table 2.2: Selected Economic and Financial Indicators (baseline scenario) of the Uganda Country Economic Memorandum (Report No. 97146-UG), World Bank, Washington, DC, June 2015.

Uganda has generally seen falling inflation rates after a peak in 2011. In the most recent years, the country has performed similarly to its regional peers, except Rwanda, which has experienced lower inflation rates in the past decade. Table 1.2 shows a comparison over 2011-2016 of inflation in East African Community countries.

TABLE 1.2: INFLATION IN EAST AFRICAN COMMUNITY COUNTRIES (ANNUAL %)

RWANDA UGANDA KENYA TANZANIA BURUNDI

2011 5.7% 18.7% 14.0% 12.7% 9.7%

2012 6.3% 12.7% 9.4% 16.0% 18.0%

2013 4.2% 4.9% 5.7% 7.9% 8.0%

2014 1.8% 3.1% 6.9% 6.1% 4.4%

2015 2.5% 5.4% 6.6% 5.6% 5.6%

2016 5.7% 5.5% 6.3% 5.2% 5.5%

Source: International Monetary Fund

Annual consumption growth of the bottom 40 percent averaged around 3 percent over the 20-year period from 1993 to 2013, which was higher than most countries in the region. However, inequality as measured by the Gini index increased from 0.36 in 1993 to 0.41 in 2017. The national poverty rate stood at 19.7 percent in FY 2012/13 compared with 24.5 percent in FY 2009/10. The total number of Ugandans living below the poverty line declined from 7.5 million to 6.7 million over the same period. The growth elasticity of poverty reduction during 2000–10 was -1.09, which compares well to the Sub-Saharan African average but is much lower than the global average of 2.02 in developing countries, illustrating that growth has not been fully shared by the poorest segments of the population. The majority of households in the bottom 40 percent have no access to electricity or piped water. Further, according to the Uganda Bureau of Statistics Poverty Status Report 2012, it is estimated that 43 percent of the population is at risk of falling back into poverty in the event of a shock. These trends indicate that more needs to be done to improve service delivery

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and provide basic needs to the poor and vulnerable. An inclusive growth approach is recommended to cement the improvements in poverty reduction.

TABLE 1.3: POVERTY TRENDS IN UGANDA, 1990-2017

Source: Uganda National Household Survey

1.2 Infrastructure Bottlenecks

Infrastructure bottlenecks, particularly in the power and water sectors, are key constraints to grwth. The unavailability and inefficiency of infrastructure services is considered to be a main constraint to growth in Uganda. The Business Enterprise Survey of 2013 and the Doing Business Report of 2015 cite electricity as the top constraint to business success. For productive infrastructure, electricity supply has improved with the commissioning of the Bujagali hydropower plant, but the cost of electricity remains high, and many enterprises complain about the elevated cost of electricity during peak hours. Household electricity access rates are among the lowest in the world, with only about 14 percent at the national level and 7 percent in rural areas connected to the grid. In the road sector, Uganda still suffers from poor transit and transport infrastructure and pays a high cost for transport, which raises the cost of doing business. The country is highly dependent on road transport, which accounts for about 90 percent of the volume of freight and human movements. Moreover, overloading and inadequate road maintenance have resulted in fast deterioration of the road network. The Power Sector Investment Plan (2011) estimates that the investment requirement for power generation, transmission, and distribution between 2010 and 2030 is US$8 billion. Strengthening the transmission network and cross-border connectivity with neighbors would help bolster the resilience of the system and allow Uganda to benefit from regional power trade. Uganda already spends approximately US$1 billion per

27 year on infrastructure, equivalent to about 11 percent of GDP. A further US$0.3 billion a year is lost to inefficiencies, the bulk of which are associated with underpricing and distribution losses in the power sector. Uganda’s annual infrastructure funding gap is about US$0.4 billion, most of which is associated with irrigation as well as water and sanitation infrastructure.4

1.3 Business Climate

In 2018, Uganda ranked 122nd of 190 economies according to the World Bank Doing Business report. This indicates a drop of seven places from the previous year. Uganda’s performance in all the indicators is summarized in table 1.4. The key challenges to doing business are starting a business, access to electricity, acquiring construction permits, and trading across borders.

TABLE 1.4: UGANDA’S PERFORMANCE IN INDICATORS OF DOING BUSINESS

NO. INDICATOR 2017 2018 CHANGE

# of economies considered 190 190

Overall Performance 115 122 -7

1 Starting a Business 165 165 -

2 Dealing with Construction Permits 151 148 +3

3 Getting Electricity 161 173 -12

4 Registering Property 116 124 -8

5 Getting Credit 44 55 -11

6 Protecting Minority Investors 106 108 -2

7 Paying Taxes 75 84 -9

8 Trading Across Borders 136 127 +9

9 Enforcing Contracts 64 64 -

10 Resolving Insolvency 111 113 -2

Source: Doing Business, The World Bank

Uganda’s Economic Policy Research Center computes a Business Climate Index based on the following business indicators: level of business activity, turnover, profitability, incoming new business, capacity utilization, average cost of inputs, price of produced goods, new orders for goods, business optimism, number of employees, and average monthly salary. The Business Climate Index score for October- December 2017 was 96.85, representing an improvement of 5.7 points over the previous quarter. However, this is still below the expected business climate potential. Figure 1.1 shows the business constraints.

4 Rupa Ragannathan and Vivien Foster, “Uganda's Infrastructure: A Continental Perspective,” Policy Research Working Paper 5963, World Bank, Washington, DC, 2012.

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FIGURE 1.1: BUSINESS CONSTRAINTS (%)

Source: Economic Policy Research Centre

Uganda has performed relatively poorly in the Doing Business rankings compared with its neighbors Rwanda and Kenya. But Uganda has performed better than Tanzania and Burundi, each of which fell several places between 2017 and 2018 (table 1.5).

TABLE 1.5: EAST AFRICAN COMMUNITY: DOING BUSINESS RANKINGS, 2017 AND 2018

COUNTRY RANK IN 2018 RANK IN 2017 CHANGE IN RANK

Rwanda 41 56 +15

Kenya 80 92 +12

Uganda 122 115 -7

Tanzania 137 132 -5

Burundi 164 157 -7

Source: Doing Business, The World Bank

Uganda similarly scores low globally on a host of global indexes, such as the Rule of Law Index, Corruption Perceptions Index, Index of Economic Freedom, Global Competitiveness, and Doing Business (table 1.6).

TABLE 1.6: UGANDA’S BUSINESS CLIMATE, GLOBAL, AND REGIONAL RANKING

SURVEY SCORE GLOBAL RANKING SUB-SAHARAN AFRICA

Rule of Law Index 2017-18 0.4 104 of 114 15 of 18

Corruption Perceptions Index 2017 26 151 of 180 N/A

Index of Economic Freedom 2018 62 83 of 178 5 of 47

Global Competitiveness Report 2017-18 3.7 114 of 137 N/A

World Bank Doing Business 2018 56.94 122 of 190 N/A

Source: Rule of Law Index; Transparency International; The Heritage Foundation; World Economic Forum; The World Bank

1.4 Gender Inclusion

Uganda is implementing the National Development Plan (NDP) II under the theme of strengthening Uganda’s competitiveness for sustainable wealth creation, employment, and inclusive growth. Section 2(2) of the PPP Act of 2015 provides that a project only qualifies for implementation under this act where it fulfills the objectives of the NDP, key among which is inclusive growth. To ensure inclusive growth, there is need for gender and equity planning and budgeting and ensuring the observance of equal opportunities for all in the development of budgets, plans, projects, and programs. Article 32(3) of the Constitution establishes the Equal Opportunities Commission, whose role is to give effect to the state’s constitutional mandate to eliminate discrimination and inequality against any individual or group of persons on the grounds of sex, age, race, color, gender, or religion, and take affirmative action in favor of marginalized groups to address the imbalance. The Public Finance Management (PFM) Act requires the Ministry of Finance, Planning and Economic Development (MOFPED), in consultation with the Equal Opportunities Commission, to issue compliance certificates certifying that the Budget Framework Paper (BFP), Budget, and Ministerial Policy Statements are gender and equity responsive and specify the measures taken to equalize opportunities for men, women, persons with disabilities, and other marginalized groups. Ensuring compliance of the BFPs with gender and equity concerns enhances inclusive growth. Uganda is also committed to achieving the United Nations Sustainable Development Goals and has dedicated efforts through NDP II to release the full potential of every Ugandan. Given these considerations, it is important that gender-specific interventions are included as part of every infrastructure project to make infrastructure gender responsive.

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TABLE 1.7: COUNTRY SNAPSHOT: KEY FINDINGS AND RECOMMENDATIONS

ISSUES TO NOTE FINDINGS RECOMMENDATIONS

Macroeconomic situation Uganda’s macroeconomic To meet its infrastructure investment situation is characterized by needs, the government will need to identify modest economic growth, new sources of financing to supplement increasing public debt, and high constrained and already substantial public fiscal and current account deficits. financing. Leveraging private sector While Uganda’s public debt is still investment and expertise to meet current not high enough to be of concern and future infrastructure needs via PPP for PPPs, the fiscal situation limits arrangements could be a key factor in the government’s ability to meet improving Uganda’s business competitive- infrastructure investment needs ness, and it could help to drive economic through public financing alone. growth and development. In view of the high risks facing Uganda, coupled with poor governance and transparency and the low score on doing business, consideration should be given to de-risking approaches that incorporate grants and soft loans for PPP structuring arrangements. In the short term, this financing can be sourced from multilateral development banks and bilateral partners, as well as domestic banks.

Business climate Uganda’s performance across Improving the business climate to encourage several business environment private sector–led growth should be a priority indexes is relatively poor, for the government. In particular, there should compared with its peers in the be a clear focus on improving factors that will region. Uganda’s performance is affect private sector trust in the government’s particularly weakly on factors that commitment to meet its contractual may negatively affect the private obligations transparently and the private sector’s appetite to participate in sector’s ability to pursue disputes in a fair PPPs, such as corruption environment. Developing detailed disclosure perception, index of economic rules and standardized documents and performance, and rule of law. processes as well as a process for unsolicited bids, to introduce competition, is also critical for improving private sector trust.

Gender inclusion Uganda’s legislation is fairly In developing PPPs, the government inclusive, and the Public Finance should identify gender-specific needs that Management Act contains clear infrastructure services can meet and pay provisions to ensure that projects close attention to gender issues during the and government programs include stakeholder consultation process. For gender and equity planning and instance, the focus groups could be with budgeting. young men, young women, old men, and old women. The government could also develop guidelines and checklists for gender in PPPs.

2. PPP Experience

Infrastructure investment supports sustainable growth by creating a platform for economic activity and job creation and increasing the quality of life for citizens through the provision of basic public services. PPPs have long been identified by the Government of Uganda as a potential mechanism for attracting private investment to close the country’s infrastructure gap in the face of fiscal constraints. There is a well- articulated policy in Uganda on the usefulness of PPPs that lays out the government’s key objectives for a PPP program. The Government of Uganda believes that PPPs will do/lead to the following:5 • Mobilization of private investment • Better utilization and allocation of public funds • More efficient delivery and development of public infrastructure • Achievement of value for money from public resources • Improvement of basic infrastructure and services. In the context of Uganda’s infrastructure needs and the potential key benefits of PPPs, this chapter explores Uganda’s experience to-date in implementing PPPs.

2.1 PPP Experience: An Overview

Uganda has had fairly significant PPP experience compared with other developing countries, especially in the transport and energy sectors. In 1999, Uganda unbundled the vertically integrated electricity sector under the Uganda Electricity Board into generation, distribution, and transmission. This was informed by a power sector study and reform strategy as a result of massive challenges experienced in the electricity sector, including power losses and limited investments, among others. The study findings indicated that the government should partner with the private sector in the development of the electricity distribution and generation segments, as that made business sense; however, the electricity transmission segment, given its heavy capital expense requirement, could not be concessioned out but remained under government control as an off-taker. The unbundling of the electricity sector also resulted in the enactment of the Electricity Act, which created the Uganda Electricity Regulatory Authority to regulate the affairs of the electricity sector. Table 2.1 lists some of the current PPP projects under implementation (but not under preparation). Tables 2.2 and 2.3 provide an initial view of all PPPs in Uganda by sector. The energy sector currently dominates Uganda’s PPP portfolio in the overall number, with a total of 55 projects that have been slated to be PPPs, of which nine are distribution licenses and 46 are generation independent power producers (IPPs), for a total of 55 private operators in the sector. Other key sectors are transport, water, and tourism, with a few projects. However, the Uganda National Roads Authority (UNRA) is actively considering an expressway program through a PPP model and has recently set up a PPP team to manage projects with the support of an international financial institution.

5 Special Report, “Public-Private Partnerships,” Ministry of Finance, Planning and Economic Development, Government of Uganda, 2017.

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The experience has been mixed in project success. In the transport sector, Rift Valley Railways (RVR), which has a 20-year joint concession for operation of railway in Kenya and Uganda, has not met its investment obligations, quality specifications, and safety standards, and has defaulted on payment of concession fees. The results are far stronger in the electricity sector. Umeme Limited, the 20-year distribution concession, has reduced losses from 38 to 19 percent, increased revenue collection from 65 to 98 percent, and improved access to power in the serviced area. In addition, it generated tax revenues of US$24million (corporate) and US$33 million (value-added tax) in seven years, paid fees of US$110 million in seven years, and made investments of more than US$400 million. Generation IPPs are operational, with the result that Uganda produces electricity to match its demand, although access remains a key problem.

TABLE 2.1: UGANDA’S CURRENT KEY INFRASTRUCTURE PPP PROJECTS UNDER IMPLEMENTATION

PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Railways

Rift Valley 25-year concession The railway network is comprised of Early results included a Railways between Kenya and the main line from Kenya to Uganda, 60% increase in operating Uganda Railways with which runs from Mombasa through efficiency and 80% RVR Consortium to Nairobi, Nakuru, Eldoret, Malaba, reduction in inland cargo operate and maintain the Jinja, and Kampala, a distance of transit time to Kampala. It existing rail line between approximately 1,660 km. was later restructured due Mombasa and Kampala to the inability of the concessionaire to pay concession fees and failure to meet freight volume and investment targets. Recently the government has issued RVR a notice of intention to terminate the contract.

Roads & Highways

Kampala US$475 million design- Gateway link between Entebbe The government’s first PSP Entebbe build contract with a International Airport and Kampala; in the road sector Expressway Chinese contractor; after 4+4 lane 51.4 km road KEE (PSP)a construction, UNRA will engage an operator to collect tolls and manage the facility as a management contract, lease, or concession.

PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Energy Generation

Bujagali Hydro 30-year build, own, The Bujagali hydro project consists BEL construction is 250 MW operate, and transfer with of a 250 MW run of the river power completed and online, availability-based PPA plant with a reservoir for daily currently complying with and full and capped pass- storage, an intake powerhouse key performance indicators. through elements to tariff; complex, and a rock-filled dam with total cost of US$798 a maximum height of about 30 million raised through meters, together with spillway and equity; and debt ratio of other associated works. 22:78

Owen Falls 20-year service (O&M) 180 MW Nalubaale and 200 MW Ongoing as planned Complex (Kiira concession to manage the Kiira hydropower plants on the Nile, although producing low (250 MW) and existing Kiira and 80 km east of Kampala capacities due to the Nalubale (180 Nalubaale power stations hydrology level MW) Hydro on behalf of UEGCL requirements Power Plants) 380 MW

Kakira IPP owned by Madhvani The thermal plant is fired by Plant exists and is Sugar Works Group, PPA w/UETCL; bagasse or sugarcane waste located operational. Bagasse KSW seeking to issue in Jinja district; 30 MW is sold to corporate bond listed in UETCL; the balance is for KSW’s 52 MW USE for US$30 million internal use.

Jacobsen Owned by Jacobsen, Namanve thermal station located in Plant exists although it is Uganda Norwegian power Mukono estimated at US$92 million producing below capacity, Limited company. It is on a build- as it is expensive to Thermal operate-transfer basis. operate; it produces 7 MW 50 MW instead of 50 MW.

Electro Max An IPP; the investor Thermal power plant aimed at Plant in operation; Thermal funded the project augmenting generation capacity to however, the contracted 50 MW (construct-own-operate meet the growing demand capacity is 30 MW. mode).

Albatross An IPP Thermal plant in Bulisa under a Under PPA negotiation Energy construct-own-operate mode Limited, Bulisa (Hoima) Thermal 50 MW

ARPE I IPP where the investor will Hydropower plant Under construction Hydro 42 MW fund and construct the hydropower generation plant

ARPE II IPP where the investor is Hydropower plant Under construction Hydro 41 MW to fund and construct the hydropower generation plant

Mayuge IPP where the investor is Estimated to cost US$29.1 million Under PPA negotiation Sugar Works to fund and construct the (solar plant) generation plant Bagasse 23 MW

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PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

MSS Xsabo IPP where the investor is US$64 million plant PPA executed and Power Solar to fund and construct the operational and plant under 20 MW generation plant construction (Kabulasoke)

Africa EMS A build-operate-transfer 18 MW hydro plant constructed by a Active and operational Mpanga PPP project responsible Sri Lankan hydropower construction Hydro 18 MW for power generation company called VS Hydro (Private) Limited, at an estimated cost of US$26 million

Elgon Hydro The project is on a build- The project is being developed Under construction, in the Siti finance-operate modality concurrently as two phases (Siti 1, 5 last stages of development Hydro 21.5 PPP structure; US$24 MW, & Siti 2, 16.5 MW), one in MW million immediate physical succession of the other to optimize the utilization of the resource.

Kikagati Power Engineering, procurement, Hydropower plant worth US$25 Project under development Hydro 16 MW and construction contract million; 33 kV transmission line that for the entire project, will connect power from the station which includes the to the Uganda national electricity provision of design, grid manufacture, supply, transportation, construction, installation, and commissioning of turbines and all other associated works (civil, substation, and electro- mechanical), including spare parts

Nyamwamba Build-operate-transfer Total worth US$24 million divided Under construction, the Hydropower greenfield PPP project between the Netherlands project has been delayed 14 MW Development Finance Company as it was supposed to (US$12 million), Emerging Africa commence in 2014; Infrastructure Fund (US$6 million), progress was ongoing in German Investment Corporation 2016. (US$4 million), and Finn Fund (US$2 million)

Tronder Power Joint venture hydropower Hydropower plant; UETCL The project is operational. Bugoye plant developed in 2009; purchases all the contracted power Hydro 13 MW funded by a Norwegian on take-or-pay basis; energy company and East Africa generated is fed into the national Infrastructure fund; the electric grid at Nkenda Substation, dam cost US$65.7 million located 6 km (3.7 miles) from Bugoye, via a 33-kV transmission line.

Tororo Solar A PPP set up to develop, A solar plant falling under the KfW Under construction Power 10 MW construct, operate, and led GetFit program, the plant costs maintain a 10 MW solar US$19.6 million. plant

Access Energy The IPP is to construct, The plant cost US$5.35 million. Operational since Solar, Opuyo own, and operate the 10 November 2016 10 MW MW solar power project near Soroti in Uganda.

PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Africa EMS IPP in Kasese build-own- Hydro plant worth US$26.8 million Under construction Nyamnwamba operate plant, Hydro 9.20 commenced construction MW in 2015.

Hydromax Joint venture with BIBCO US$27 million hydro plant Operational Buseruka Investments and Hydro 9 MW Hydromax Limited to carry out a survey, design, EIA, and construction supervision of the 46 km, 33 kV Buseruka hydropower project to feed 9 MW into the national grid.

Kinyara Build-own-operate plant US$59 million thermal investment Operational Cogeneration by the sugar corporation plant Plant established in 2009 Bagasse 45 MW

Elemental EPC contract for US$27 million hydro power plant Under construction Energy developing a plant in Hydro 7 MW Kisoro

Muvumbe SPV to undertake studies PPA is under negotiation. Project yet to commence Hydro and develop the Muvumbe construction Hydro 6.50 Small Hydro Power MW Project.

Nyamagasani IPP funded by Frontier US$9.8 million plant located in Under development 2 Limited Investment Kasese district Hydro 6 MW

Rwimi EP Construct-own-operate Hydro plant (US$20.8 million) in Under construction since Company between South-South Kasese 2015 Hydro 5.54 collaboration with Sri MW Lankan company Norfund and the Belgian Investment Company for developing countries, supporting the project with loans and expertise

Genmax Proposed PPP between The project is US$14 million under Under construction Nyagak III German firm GOPA- an SPV called Genmax; construction Hydro 5.5 MW International Energy commenced in 2015. Consultants GmbH, Italian-based Zollet Ingegneria, and UEGCL to design, develop, operate, and transfer the plant

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PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Lubilia IPP developed by Frontier Hydro plant worth US$15.7 million; Under development Kawembe investment with debt financial closure was reached in Hydro equity ratio of 67/33 from 2016. Hydro 5.40 the Emerging Africa MW Infrastructure Fund

Butama Hydro IPP sponsored by OPIC, US$19 million Under feasibility study Hydro 5.25 the United States, MW Luxembourg, and South Africa

Elgon Siti IPP construct and US$11.9 million project, community Under construction Limited operate; power plant based, financed by Frontier Hydro 5 MW commissioned in 2015 Investment

Greenwus IPP developed in 2013 Located around the village of Late stages of development Energy Kakaka under Frontier Market Nyakaka in the foothills of the Hydro 5 MW Energy & Carbon Fund to Rwenzori mountains in Western develop the project and Uganda provide equity for construction

Hydromax IPP located in Nkusi- Hydropower plant to connect to the License application under Hydro 4.80 Hoima national grid on a take-or-pay basis revision by ERA and hydro MW by UETCL plant complete

Ndugutu IPP to construct a plant in US$15 million, project was approved Under early stages of Power Bundibugyo district to commence in June 2015. development Hydro 4.8 MW

West Nile Rehabilitate, generate, US$14.5 million with one-off grant Operational Rural operate, distribute, and (capital and connections) World Electrification sell electricity to the region Bank Group purchase of emission Hydro and transfer; PPP reductions; investors included the commenced in 2003 as a German Development Bank KfW, Nyagak I 3.50 brownfield project. Rural Maintenance Pty. Ltd. South MW Africa, and Industrial Promotion Services Kenya.

Mahoma Joint venture between Operational in Burahya, Kabarole Operational and PPA Uganda ESNA Power Ltd. and signed Limited Engineering Consultants Hydro 2.70 Ltd. to build, operate, and MW maintain the plant

Kalangala Build, own, and operate US$5.7 million thermal plant in Operational and user fees Infrastructure PPP signed in 2009 Kalangala, which is the northern are charged Thermal between the Government beach of Bugala Island; it constitutes 1.60MW of Uganda represented by the bulk (68.5 percent) of the land UD and InfraCo to provide mass of Kalangala district; it is electricity to the people of comprised the Kalangala Information the island. Center, Kalangala central market, and offices of the Kalangala Town Council.

PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Energy Distribution

West Nile Concession to generate Off-grid rural electrification network Operational Rural and distribute power to in the northwest districts of Arua, Electrification unconnected areas, Paidha, Nebbi, Koboko, Maracha, Company supported by Agha Khan Zombo, and Yumbe that are not yet Foundation connected to the main grid. WENRECO operates two power stations: WENRECO heavy fuel thermal plant with a capacity of 1.5 MW, and Nyagak I Power Station, a 3.5 MW mini-hydropower station.

Kilembe PPP concession between Distribution and sale of electricity in Operational and expanding, Investments the government and the districts of Kasese and Rubirizi development partners like Limited Kilembe Investment and environments. The investment Belgium Technical Limited, which was undertakes distribution and sale of Corporation have come on licensed to distribute electricity, sale of shares to the board. electricity for 10 years public, and supply of PV solar home commencing in 2009. A systems. Investment costs PSA exists between approximately US$5.7 million. The UETCL and Kilembe, number of clients served is where Kilembe buys estimated at 2,799. power from the grid. Government invested US$1.8 million in the partnership.

Bundibugyo Directly appointed Power line from the national grid at In operation since 2009 Energy concession through a PSA Kitumba substation in Fort Portal to Cooperative between the government Nyahuka trading center in and Bundibugyo Energy Bundibugyo district at a cost of Cooperative for US$14.1 million; sells to more than distribution of electricity 4,013 customers

Pader Abim A directly appointed Serves about 1,500 customers in Operational since 2009 Electric concession through a PSA Pader, Abim, and Agago districts; Cooperative between governments and estimated cost is US$5.7 million. the cooperative

Ferdsult Independent private Estimated cost is US$16.8 million; Operational since 2007 Engineering company competitively serves areas of Rukungiri, Kanungu, Services selected to distribute Ntugamo, Isingiro, Rakai, and Limited electricity from the Masaka; Ferduslt pioneered the pre- national grid paid metering system in Uganda and currently serves about 10,000 consumers

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PSP TRANSACTION TYPE OF ASSET PROJECTS CURRENT STATUS STRUCTURE UNDER CONTRACT

Kalangala Build, own, and operate It is a US$5.7 million thermal plant in The project is on course Infrastructure PPP signed in 2009 Kalangala, which is the northern and the solar plant in place. Services between the Government beach of Bugala Island. It Power supply commenced of Uganda represented by constitutes the bulk (68.5 percent) of in April 2015 and currently UD and InfraCo to provide the land mass of Kalangala district. KIS supplies electricity to electricity and distribute it It is comprised of the Kalangala more than 2,385 on the island through user Information Center, Kalangala commercial and domestic fees. It is a 1.6 MW hybrid central market, and offices of the customers. solar/diesel power Kalangala Town Council. generating facility at Bukuzindu, Mugoye subcounty in Kalangala district.

Umeme Ltd 20-year concession 97% of distribution is through initially formed by Umeme; the rest is rural and small. Globeleq of CDC, United Assets are leased to Umeme by Kingdom (56%) and UEDCL. All low-voltage (< 33 kV) Eskom (44%), currently lines that make up the distribution listed in USE and NSE, grid of Uganda are owned by new fund manager in UEDCL and leased to Umeme. 2009 Actis

Tourism & Hotels

Hotel Serena Jointly owned by the Hotel premises and expansion Active, expansion phase following entities: Agha underway Khan Foundation (60%), NSSF (20%), and PROPARCO France (20%)

Office Buildings and Accommodation

Ministry of Design, build, finance, JLOS Towers in Naguru district, and Contract awarded Justice and operate, and maintain, refurbishment of the current Court of Constitutional availability based Appeals building to be used as the Affairs Supreme Court premises

Note: This list contains all PPP projects that are in various stages of post financial close. The Kampala-Jinja Expressway (KJE) is therefore not included in this list, as it is currently being prepared; however, for the purposes of analysis of transaction structure and design, KJE is included in the section on Transport PPP Projects. BEL = Bujagali Energy Limited; EIA = Environmental Impact Assessment; EPC = Engineering, Procurement and Construction; ERA = Electricity Regulatory Authority; IPP = independent power producer; JKE = Kampala–Jinja Expressway; JLOS = Justice, Law and Order Sector; KEE = Kampala Entebbe Expressway; KIS = Kalangala Infrastructure Services; km = kilometers; KSW = Kakira Sugar Works; kV = kilovolts; MW = megawatts; MWh = megawatt hours; NSE = Nairobi Stock Exchange; NSSF = National Social Security Fund; O&M = operation and maintenance; PPA = Power Purchase Agreement; PPP = public-private partnership; PSA = Power Sales Agreement; PSP = private sector participation; PV = photovoltaic; RVR = Rift Valley Railways; SPV = special purpose vehicle; UD = Uganda Development Corporation; UEDCL = Uganda Electricity Distribution Company Limited; UEGCL = Uganda Electricity Generation Company Limited; UETCL = Uganda Electricity Transmission Company; UNRA = Uganda National Roads Authority; USE = Uganda Securities Exchange; WENRECO = West Nile Rural Electrification Company. a. The term PPP is often used by the Government of Uganda to denote all types of private participation and not the strict definition of PPP wherein the private sector provides its own financing and assumes appropriate risk. KEE is a design-build PSP agreement where the contractor selection was stipulated in the concessional loan offered by the Exim Bank of China to the Government of Uganda, which is the borrower.

2.2 Past PPP Experience by Sector

Transport Sector The lead agency for the transport sector is the Ministry of Works and Transport. The ministry has jurisdiction over roads and highways, maritime transport, modular transport, civil aviation, and railways. It is the overall planning, standard setting, and monitoring and evaluation (M&E) body with agencies that are PPP participants. Of the four modes of transport infrastructure needing investments in Uganda, road transport is most prominent, followed by air transport, rail, and water, respectively. (i) Key Players a. Uganda National Roads Authority UNRA is in charge of all construction, maintenance, and financing of roads and highways and leads all related PPP transactions. Of the 20,000 kilometers (km) of national roads, only 3,400 km are paved. UNRA has taken the lead in pursuing PPP as the preferred method of procurement for two of its toll roads that are currently under preparation, with a robust pipeline of an additional eight PPP candidate projects. Due to the significant investments needed and the possibility of tolling, UNRA is an active player in PPPs and currently has prioritized eight PPP candidate projects in its master plan of more than 400 projects. b. Civil Aviation Authority The Civil Aviation Authority oversees one international airport (Entebbe) and 12 aerodromes, all government owned and operated. A cabinet paper is in underway to reconstitute Uganda Airways, which may involve private sector participation. c. Uganda Railways Corporation The Uganda Railways Corporation (URC) is the main agency in charge of railways and has granted a concession to RVR. (ii) Key Projects The experience with PPPs in the transport sector, as in the energy sector, has been mixed. UNRA and URC have ventured into PPPs, notably the RVR concession and the Kampala-Jinja Expressway (KJE). a. Joint Kenya-Uganda Railway Concession This project was implemented under the Public Enterprise Reform and Divestiture Act, as the Uganda Railways Concession was listed as one of the public enterprises that had to be divested. The assets of URC and KRC (Kenya Railways Corporation) were concessioned in 2006. However, following the poor performance of the concessionaire, the Governments of Uganda and Kenya restructured the concession to address the management, financial, and operational weaknesses that were affecting its performance. The Amending Deeds were executed on August 2, 2010. Financial closure was concluded one year later, on August 2, 2011. The key highlights of the Amending Deeds included the replacement of lead investor Sheltam Rail (Pty) Ltd with KU Railways Holdings Ltd, a minimum investment of US$40 million into the railway assets as equity within 24 months from the date of execution of the Amending Deeds by the shareholders, and the requirement

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of a new Technical Services Agreement with an experienced railway operator to ensure that the railway operations attain the required standards. Despite meeting some of these requirements, the RVR concession still has not performed as expected, and the government has recently issued a Notice of Intention to Terminate. It has been argued that the structure of the concession, which bundled the network and rolling stock into a single concession, and the initial choice of concessionaire were the principal causes of the failure of this PPP arrangement. This experience underscores the importance of building coherent frameworks to support the appropriate identification, preparation, and oversight of projects to minimize the risk of projects falling into distress or being cancelled. b. Kampala-Jinja Expressway Project The KJE PPP is expected to be a 30-year greenfield design, build, finance, operate, and maintain arrangement for a 77 km mainline from Kampala to Jinja and an 18 km bypass to the south of Kampala city, costing about US$1 billion. As an alternative to the existing highway, it is expected to bring more efficiency to the national road network and the East African transport corridor, which offers the primary gateway for the flow of goods between Kenya and Uganda and neighboring Rwanda, Democratic Republic of Congo, and South Sudan. The consideration is for a whole life arrangement to operate and maintain the expressway. The International Finance Corporation (IFC) was mandated in May 2014 by UNRA as transaction advisor for the development of the KJE as a PPP. The feasibility study considered the allocation of key project risks as follows: (i) The financing risk is expected to be shared between the Government of Uganda and the private partner. The project will be financed through debt and equity. Three development partners— the European Union, Agencie Francaise de Developpement, and African Development Bank— will provide up to US$500 million to the government to close the viability gap and buy down project capital costs. The residual funding needed for the project’s construction and operation will be provided by the private partner. The partner expected to design, build, finance, operate, maintain, and transfer the expressway to the government is expected to be procured through an international bidding process. (ii) The delivery of the project’s right of way is a risk fully borne by the Government of Uganda. Accessing land for such large projects is risky for infrastructure projects in Uganda. Similarly, the scale and complexity of the land acquisition and resettlement program for JKE makes land acquisition a major risk to this project. The government, through UNRA, is committed to developing the Resettlement Action Plan in accordance with IFC performance standards. (iii) Construction could relate to delays that would result in cost overruns and time delays. These are expected to be fully borne by the private partner. (iv) Traffic flow is a shared risk between the Government of Uganda and the private sector. The government retains traffic risk from a revenue perspective, while the private sector assumes traffic risk from an operation and maintenance (O&M) perspective, including the risk of developing additional road capacity in line with traffic growth on the expressway.

(v) The private sector will retain the full risks associated with operating and maintaining the expressway in accordance with pre-agreed standards. (vi) Revenue and fiscal risk is expected to fall on the Government of Uganda. The project structure under consideration by the PPP Committee is an availability-based payment mechanism with all the collected tolls being used by the government to meet availability payment obligations. Any shortfalls or surpluses relative to the agreed availability payment are a risk borne by the government. Revenues for repayment of debt are based on a proposed toll road rate, for which the value proposition to those willing to pay the road toll is time savings, vehicle operating cost savings, and a safety premium. c. Kampala-Jinja Expressway UNRA is designing the KJE project structure carefully, and the market soundings show that interested investors are technically knowledgeable and fully aware of the investor obligations that UNRA has put forth. The proposed transaction structure is for availability-based payments indexed to forex fluctuations to the extent of 70 percent. The toll will be collected through an operator and deposited in a payment account to be used as a source for making the availability-based payments to the investor. There are many PPP lessons in from the Kampala-Jinja project preparation activities. The government has taken steps to effect some changes, including the following: • The need for change in the legal framework for the road sector (Road Act) to empower UNRA to collect tolls was realized. The Draft Roads Bill currently being discussed has a provision enabling UNRA to collect tolls. • In the past, Uganda had tolls on the Kampala-Masaka road, but has not collected tolls for a long time and did not have a toll policy that could set the framework for tolling. The Toll Policy has been drafted after extensive stakeholder engagements and is due to be tabled before the Cabinet for consideration, but it has been delayed due to political and bureaucratic changes in the Ministry of Works and Transport. According to studies, people are willing to pay U Sh 70 per km. For the KJE, this translates to U Sh 6,000, which, at less than US$2, is considered low. • The KJE faced some challenges in finding the viability gap funding of US$400 million. It took some time to find donors who were willing to provide the funding. • The KJE also faced some problems due to the lack of a coordinated process and lack of established templates and manuals. This has established the need for developing processes and standard templates and documents (standard request for qualification, request for proposal, contract, templates for proposal submission, and manuals outlining procedures and roles), as well as methodologies. • UNRA uses its own funding for project development. It would be helpful if project development funding was available from other sources. The KJE project has secured commitments for financing from several donors and is undertaking a market-sounding exercise to secure financier interest. To reduce the foreign exchange risk, which is one of the significant risks of the project, the IFC, which is the transaction advisor to UNRA, representing the government, is trying to secure commitments for domestic financing, including

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from the Social Security Fund. The financing commitment by multilaterals in the project is useful, as it helps reduce the cost of the project, given the concessional nature of the financing, thereby improving the bankability of the project. The government is likely to take a much more hands-on approach to these projects, given its significant obligations, including taking on the foreign exchange and demand risks and bearing the land acquisition costs, among others. The government’s commitments will also signal a higher level of commitment and certainty to prospective investors. d. RVR Concession The RVR concession gives the private party the responsibility for investments in track and rolling stock as well as O&M of assets and services. The RVR concession may have benefitted from a separation of track and operations, with the government investing in track and the special purpose vehicle investing in rolling stock and operations. Such a structure may have yielded a different operational result in the project. In RVR, while the government is providing passenger subsidies, the business model is dependent mostly on freight revenues, which depend in part on track strength and quality, which may require investments beyond the stipulated obligations of the investor in the concession agreement. In sharp contrast, risk allocation in the road projects tends to favor the operator. RVR changed management soon after becoming operational in 2006, as the original investors were not interested in making a long-term commitment to the company and moved out. New investors and new injection of capital were provided, with assistance from IFC and the World Bank. Thereafter, RVR’s performance improved in key performance indicators related to repair and safety, and there was some increase in freight revenues. Recently, RVR reneged on its investment obligations, causing the government to cease its payment of passenger subsidies. Because RVR reneged on several of its obligations under the concession agreement, the government repudiated the concession on January 25, 2018. RVR failed to meet the freight volume targets, rehabilitate and operate the Pakwach line, rehabilitate and maintain locomotives and rolling stock, and rehabilitate and maintain the track. RVR has since sued the government and, in accordance with the concession agreement, the matter has been referred to arbitration. Energy Sector Uganda has an installed capacity of 822 megawatts (MW), with a peak demand since H2 2016 averaging between 530 and 540 MW, according to the Electricity Regulatory Authority (ERA). The installed capacity is 80 percent hydropower, supported by heavy fuel oils and biomass cogeneration. Electricity access is between 12 and 14 percent, with over 90 percent of the energy consumption being biomass, mainly firewood or charcoal. The energy sector faces problems related to the cost-plus method of tariff setting, which passes through all costs to the tariff, thereby skewing the risk allocation in favor of the investor. Renewable Energy Generation Uganda has a small renewable energy subsector in generation that is largely supported by bilateral and multilateral organizations. The Emerging Africa Infrastructure Fund has participated in a syndicate to provide a loan of US$14 million to construct a 10 MW solar farm in Tororo region (Tororo Solar PV Project).

The institutional structure of the sector was unbundled in 2001 and comprises the following agencies with corresponding PPP accountability. (i) Key Players a. Uganda Electricity Generation Company Limited (UEGCL) UEGCL is the government asset holding company for the electricity generation assets located at Nalubale and Kiira dams in Jinja concessioned to Eskom Uganda Limited. There are currently 46 independent power producers (IPPs). b. Uganda Electricity Transmission Company (UETCL) After the unbundling of the Uganda Electricity Board, the government decided to retain ownership of this segment due to the strategic importance it held in the electricity sector mix. UETCL owns and maintains high-voltage lines above 33 kilovolts (kV) and is the single bulk buyer and hence signatory to all international power purchase agreements. c. Uganda Electricity Distribution Company Limited (UEDCL) UEDCL is the government asset holding company for the electricity distribution assets concessioned to Umeme Limited under a 20-year concession. There are currently nine distribution licensees. d. Electricity Regulatory Authority (ERA) ERA was established under the Electricity Act to oversee and regulate the electricity sector, determine tariffs, issue operational licenses, and arbitrate any electricity issues. ERA regulates all licensees (distribution, transmission, and generation), which includes IPPs, distribution concessionaires, as well as UETCL, as it sets the bulk supply tariff for UETCL. Tariff determination is undertaken by ERA based mainly on a cost-plus method to derive an annual revenue requirement for the utility. For generation, UETCL pays bulk supply based on capacity (at least for the large suppliers Kiira, Nalubaale, and Bujagali), of which the tariff typically comprises investment cost, O&M costs, concession fees, plus other regulatory fees paid by the supplier. For suppliers (IPPs) feeding less than 20 MW, tariffs are set in the Power Purchase Agreement (PPA). Tariffs to the end user charged by Umeme are expected to be cost reflective and adjusted annually through a revenue requirement exercise. End-user tariffs are calculated by first establishing Umeme’s annual revenue requirement and then allocated to each consumer category. Electricity access and consumption in Uganda are low, constituting a major constraint to growth for the private sector. The Ministry of Energy and Mineral Development is the responsible entity for setting policy and regulation of the power and petroleum sectors. The Electricity Act of 19996 offered some opportunities for PPPs in the power sector and began the process of unbundling of the state-owned Uganda Electricity Board.

6 Republic of Uganda, The Electricity Act, 1999 provides for “the establishment of the Electricity Regulatory Authority; to … liberalize and introduce competition in the electricity sector; to repeal the Electricity Act; to provide for a successor company to the Uganda Electricity Board and for connected purposes.”

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(ii) Key Projects a. Kiira and Nalubale Power Stations UEGCL is the main generation company and owns the Kiira (200 MW) and Nalubale (150 MW) power stations, which were the two main suppliers until Bujagali Energy Limited (BEL) became operational.7 Kira and Nalubale are operated by Eskom Uganda Ltd under a 20-year concession agreement. b. Bujagali Energy Limited Uganda’s largest hydropower project is a build, own, operate, and transfer project—the 250 MW Bujagali project operated by the special purpose company BEL under a 30-year PPA to sell to UECTL. The project also includes an interconnection component involving the construction of 100 km high-voltage transmission line connecting the generation facility to the national grid. The total cost for the integrated projects was US$800 million, with a debt-to-equity ratio of 22:78 mobilized on a limited recourse basis. Other than BEL, there are several IPPs, including the 18 MW Mpanga project and 13 MW Nugoye project. Additional hydropower projects in the pipeline include the 600 MW Karuma and 183 MW Isimba projects supported by China, where 85 percent of capex is being financed by a sovereign loan from the Exim Bank of China to the Government of Uganda. ERA has also granted licenses to Hydromax, West Nile Electric, Shang Sheng International, and Aggreko to sell power to the grid. Other, smaller IPPs cater to isolated grids.8

7 Kiira (large hydropower) 200 MW, Nalubale (large hydropower) 180 MW, and Bujagali (large hydro) 250 MW.

8 These are Jacobsen (thermal) 50 MW, Electro MAX (thermal) 50 MW, Kakira Sugar (cogeneration) 22 MW, Kinyara Sugar (cogeneration) 7 MW, Kilembe (small hydro) 5 MW, Tronder (small hydro) 13 MW, Ishasha (small hydro) 7 MW, Mpanga (small hydro) 18 MW, and Hydromax 10MW. For a complete list of all generation licensees (IPPs) see table 2.2.

TABLE 2.2: ENERGY SECTOR PPP PROJECT DETAILS

PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Generation

Bujagali 30-year build, The Bujagali Construct and BEL has Construction Consumer own, operate, hydro project maintain; the construction complete, plant tariff is Hydro transfer with consists of a government and O&M risk; online. Thus far, US$0.11/kW 250 MW availability- 250 MW run-of- pays based on the maximum dispatch h. based PPA, full the-river power availability, not government has been 70%; BEL and capped plant with a dispatch has currency, is in compliance with pass-through reservoir for termination, KPI. elements to daily storage, and demand tariff; total cost an intake risk; BEL US$875 million powerhouse recovers all raised through complex, and a capex with equity-to-debt rock-filled dam 19% ROI ratio of 20:80 with a owned by maximum Industrial height of about Promotion 30 meters, Services (Kenya) together with Limited and SG spillway and Bujagali other Holdings Ltd, an associated affiliate of Sithe works. Global Power

Eskom 20-year Nalubaale has Re-equip the Eskom only Complete and in Increased Hydro 380 concession to 18 generators power stations; takes operation although generation to MW manage existing with 10 MW build the performance with aging the national power stations capacity each. capacity of the risk; dispatch equipment grid Kiira 200 MW Kiira is a newer staff risk is taken Capacity and Nalubaale station with five by UETCL price is 180 MW on generators with US$12.86/m behalf of UEGCL 40 MW Wh. capacity.

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PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Kakira IPP owned by The thermal Construct and Private Plant in operation US¢12 Sugarworks Madhvani plant is fired by equip the plant sector–led and expanded to for the Group, PPA with bagasse or to produce company with crushing 2 million domestic Bagasse 52 MW UETCL; KSW sugarcane electricity. a license to tonnes of cane market and seeking to issue waste located generate (capacity 7,200 US¢9.5 for corporate bond in Jinja district; electricity; TCD) and producing government listed in USE for 16 MW is used UETCL to 180,000 tonnes of Social US$30 million, by the sugar purchase the sugar/year; able to impacts which has not company and electricity on generate more than include been the remaining take-or-pay 50 MW of green construction implemented yet. 36 MW is sold basis. electricity generation of 4,032 to UETCL. and producing 20 schools, million liters of hospitals, ethanol per year. and establishment of Kakira Outgrower’s Rural Development Fund, which has undertaken various social investments

Jacobsen Owned by Namanve Turn-Key EPC Fully Need to get current Capacity Uganda Jacobsen, thermal station contract for the construct, status of capacity; price at Limited Norwegian located in power plant operate, and contention with ERA US$161.9/ power company; Mukono, and total O&M maintain the to close plant. mWh. Thermal 50 MW it is on a build, estimated at responsibility plant. Solicit Social operate, and US$92 million. for 6 years, financing for impacts transfer basis in Financing from including fuel the project include 2008. the project was purchase and and UETCL to community from Nordea handling purchase the sensitiza- (GIEK political electricity on tion, edu- risk insurance), take-or-pay cation, and Stanbic Bank basis. employment Uganda, and of 37 JEL. nationals.

Electro Max This is an IPP; The plant was Private party Supply Plant exists and is in Capacity Thermal 50 the investor considered to build and electricity; operation. However, price is MW funded the effective on operate the UETCL to the contracted US$169.2/ project (build, March 1, 2008. thermal plant; purchase the capacity is only 30 mWh and the

own, and Thermal power ensure that electricity on MW of the 50 MW. generation operate mode). plant aimed at electricity is take-or-pay mix is 6.2%. augmenting available at the basis; generation grid. however, capacity to the plant meet the has been growing under- demand. performing.

PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Albatros This is an IPP The license Private party to Produce Plant under last Under PPA Energy under a build, was offered to finance, build, electricity; stages of negotiation Limited, own, and construct, own, and operate the UETCL to development Bulisa operate PPP and operate a thermal plant; purchase the (Hoima) modality. 50 MW multi- ensure that electricity on fuel thermal electricity is take-or-pay Thermal 50 MW power plant available at basis. situated in Itara the grid. Village, Busisi Division, Bugahya County, Hoima, March 2, 2015.

ARPE I IPP where the The plant was The investor is Produce Plant under Under PPA Hydro 42 investor funds considered to fund and electricity; construction negotiation and constructs effective on construct the UETCL to MW and the hydropower January 23, hydropower purchase the ARPE II generation plant; 2015. generation electricity on Hydro 41 Berkely Energy plant. take-or-pay MW is the main basis. (Ayago- shareholder. Achwa)

Energy Distribution

West Nile Concession to Off-grid rural The investor is Private party The project is Weighted Rural generate and electrification to undertake soliciting operational. average Electrifi- distribute power network in the development, financing; domestic cation to unconnected northwest operate, operates, tariffs at Company areas; supported districts of maintain, and constructs, US$0.17/ WENRECO by Agha Khan Arua, Paidha, distribute and maintains kWh. Foundation. Nebbi, Koboko, electricity. the plant. Maracha, Zombo, and Yumbe that are not yet connected to the main grid. WENRECO operates two power stations: WENRECO heavy fuel thermal plant with a capacity of 1.5 MW, and the Nyagak I Power Station, a 3.5 MW mini- hydropower station.

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PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Kilembe A PPP Distribution Ensure that ERA sets and Operational and Weighted Invest- concession and sale of distribution is reviews tariffs expanding; average ments between the electricity in undertaken and regulates development domestic Limited government and the districts of through the conduct of partners like tariffs at KIL, which was Kasese and equipping service Belgium Technical US$0.19/ licensed to Rubirizi and and installing providers. Corporation have kWh. distribute their environs. meters to UETCL come on board. Social electricity for The investment consumers. supplies impacts 10 years undertakes Sales and electricity to include commencing in distribution collection of the KIL; hence, community 2009. A PSA and sale of tariff from the demand risk. sensitization exists between electricity, sale public. on electricity UETCL and KIL, of shares to the REA funds the saving, projects and where KIL buys public, and sponsoring power from the supply of PV gives advice children in grid. The solar home on rural schools, and electrification government systems. providing invested US$1.8 Investment programs. electricity in million in the costs Umeme the region. partnership. approximately interface with US$5.7 million. KIL at some The number of delivery clients served points. is estimated at 2,799. KILs to sell and distribute electricity to the communities.

Bundibugyo A directly The power Ensure that UETCL supply In operation since Weighted Energy appointed line from the distribution is shortage. 2009 average Cooper- concession national grid undertaken domestic REA funds the ative (BEC) through a PSA at Kitumba through projects and tariffs at between the substation in equipping US$0.176/ gives advice government Fort Portal to and installing kWh. on rural and BEC for Nyahuka meters to electrification Sensitize the distribution of trading center consumers. programs, public about electricity. in Bundibugyo Sales and undertakes electricity. district cost collection of the resettlement Provide US$14.1 tariff from the for affected million. It sells clean energy public. persons. to more than to the public. 4,013 ERA sets and Educate the reviews tariffs customers. public about and regulates savings and the conduct development of service . providers. BEC conducts sales and distribution of electricity to the communities.

PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Pader Abim A directly Serves Ensure that UETCL supply Operational since Weighted Electric appointed about 1,500 distribution is shortage. 2009 average Cooper- concession customers in undertaken domestic REA funds the ative through a PSA Pader, Abim, through projects and tariffs at between the and Agago equipping and US$0.168/ gives advice government and districts. The installing kWh. on rural the cooperative. estimated cost meters for electrification Sensitize the is US$5.7 consumers. programs and public about million. Sales and undertakes electricity. collection of the resettlement Provide tariff from the for affected clean energy public. persons. to the public. ERA sets and Educate the reviews tariffs public about and regulates savings and the conduct development of service . providers. Pader-Abim Cooperative sells and distributes electricity to the communities.

Kalangala Build, own, and It is a US$5.7 Contribute to Installation, The project is on Weighted Infra- operate PPP million thermal financing the completion course and the solar average structure signed in 2009 plant in project, risk, and plant in place. Power domestic Services between the Kalangala, reinvesting in demand risk supply commenced tariffs at Government which is the the facilities, to the private in April 2015. US$0.926/ of Uganda northern beach and party. Currently KIS kWh. represented of Bugala undertaking Generation supplies electricity Provide by Uganda Island. It development, and to more than 2,385 electricity Development constitutes the connection, and distribution commercial and to enable Corporation bulk (68.5%) of supply of solar. risk. domestic customers. economic and InfraCo to the land mass REA funds the activities on provide of Kalangala projects and the island electricity and district. It is gives advice and attract distribute it on comprised of on rural tourism. the island the Kalangala electrification through user Information programs and fees. It is a 1.6 Center, undertakes MW hybrid Kalangala resettlement solar/diesel central market, for affected power and offices of persons. generating the Kalangala facility at Town Council. ERA sets and Bukuzindu, The company reviews tariffs Mugoye constructed a and regulates Subcounty in 1.6 MW hybrid the conduct of Kalangala solar/ diesel service district. power providers. generating facility at Bukuzindu, Mugoye Subcounty in Kalangala district.

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PSP TYPE OF TARIFF & TRANSACTION ASSET INVESTOR RISK IMPLEMENTATION PROJECTS SOCIAL & FINANCING UNDER OBLIGATIONS ALLOCATION RESULTS IMPACT STRUCTURE CONTRACT

Umeme Ltd 20-year 75% of KPI: Severance KPI of new Weighted concession distribution 15,000 new risk on connections has average initially formed is through connections government; been met, currently domestic by Globeleq of Umeme; others Energy loss all invest- 15,000 new per tariffs at CDC, United are rural and ments made + month. Much more US$0.178/ reduction and Kingdom (56%) small; assets ROI; Umeme capex is needed, kWh, which capex US$7 and Eskom leased to million/year gets all its approx. US$70 is considered (44%), currently Umeme by investments million/year. Losses high; and lease fee. listed in USE UEDCL. back capex + reduced to 19%. protests and NSE, new 20% ROI. Lease fee scaled and riots fund manager in back to reduce tariff, are frequent. 2009 Actis. now US$1.4 million Social per year. impacts: Provide solar lantern project in Akwarkwar village, Bukedea, Eastern Uganda, to more than 600 residents. Provide bursaries to orphans. Contribute to various charity events, like the Rotary Cancer Run and Lions Club.

Note: ARPE is company name; BEC = Bundibugyo Energy Cooperative’ BEL = Bujagali Energy Limited; CDC = CDC Group Plc (Formerly the Commonwealth Development Corporation)EPC =Engineering, Procurement and Construction; ERA = Electricity Regulatory Authority; GIEK = The Guarantee Institute for Export Credits; IPP = independent power producer; KIL = Kilembe Investments Limited; KIS = Kalangala Infrastructure Services; KPI = key performance indicator; KSW = Kakira Sugar Works; kWh = kilowatt hour; MW = megawatts; mWh = milliwatt hours; MWh = megawatt hours; NSE = Nairobi Stock Exchange; O&M = operation and maintenance; PPA = Power Purchase Agreement; PPP = public-private partnership; PSA = Power Sales Agreement; PSP = private sector participation; PV = photovoltaic; REA = Rural Eleetrification Agency; ROI = return on investment; TCD = Tons of Cane per Day; UDC = Uganda Development Corporation UEDCL = Uganda Electricity Distribution Company Limited; UEGCL = Uganda Electricity Generation Company Limited; UETCL = Uganda Electricity Transmission Company; USE = Uganda Securities Exchange; WENRECO = West Nile Rural Electrification Company.

PPP Transaction Structures in the Energy Sector In the generation segment, all PPPs are undertaken through IPPs, which enter binding PPAs with an off- taker. PPA structures are fairly standard and stipulate the obligations of the IPP and the engineering specification, including capacity to produce and offer output to the off-taker. The only difference is between greenfield and O&M concessions, such as Eskom Uganda Ltd, where Eskom simply took over the facilities from UEGCL and is responsible for O&M of the facilities. All the other operators in the generation segment are asset owners. In the distribution segment, Umeme is the biggest distributer of energy in Uganda and has

51 a 20-year concession wherein UEDCL owns the assets, while Umeme buys power from UETCL and distributes over the < 33 kV distribution grid. West Nile Rural Electrification Company Limited has a 20- year concession to generate and distribute power to communities that are not connected to the grid as yet. Investor Obligations and Risk Allocation in Energy PPP Projects Typically, risks in PPP in the energy sector arise from cost components such as debt, capital, equipment, and fuel. The costs might fluctuate due to a variety of reasons. Financing in foreign currency is the key risk. Other risks can arise from demand or revenue risk when the off-taker pays only for what is dispatched, rather than for availability. In Uganda, as noted in table 2.3, investors, especially the large ones, do not bear any demand/revenue risk, as PPAs are structured as availability payments rather than based on dispatch. In addition, UETCL is the sole bulk purchaser and sole supplier to Umeme and other distribution companies, and hence a very reliable PPP partner. Tariffs for less than 20 MW are stipulated in the PPA; those above that threshold are regulated by ERA on a cost-plus basis, for which methodology is stipulated in the PPA. All uncontrollable costs, such as fuel, taxes, charges, and fees, are passed through and claimed by the IPP and distributor, including investments made and 19 percent rate of return on investments. Umeme was initially required to pay a concession fee of US$1.4 million per month, which was passed through to an already high tariff. As a result, ERA cancelled the monthly fee and Umeme currently pays an annual fee of US$2 million, which is passed through as well. Water Sector The National Water and Sewerage Corporation (NWSC) is the main public water utility mandated to provide water and sewerage services to all urban centers in Uganda. NWSC is wholly owned by the Government of Uganda but is mandated by its establishing statute to operate on a commercially viable basis. NWSC has promoted private participation mainly in the form of management contracts to service the Kampala city area. The first management contract was in the form of the Kampala Revenue Improvement Project and ran from 1997 to 2001 with J.B. Gaulf, a German firm. The second management contract that NWSC undertook was with Ondeo (an offshoot of Lyonnaise des Yeaux) between 2002 and 2004. In addition, there was the Uganda Small-Scale Infrastructure Provider Program with IFC, which involved a five-year performance-based management contract that provided 430 new connections and improved service levels. Internal Delegation Contracts as an Alternative to PPP NWSC undertook a series of management and operational reforms to improve its performance. These were predominantly internally delegated area management contracts whose features are similar to a management contract. NWSC embedded these contracts into the corporation’s existing structure by outsourcing tasks to local management teams whose remuneration was performance based. NWSC would set performance targets and local teams had the flexibility to make operational decisions to achieve their targets. Under this scheme, NWSC’s performance improved significantly in reduction of unaccounted for water and higher bill collection. The adoption of the internally delegated area management contracts concept effectively transformed NWSC’s regional branches into a series of quasi-private, ring-fenced, and autonomous business units. In each branch, NWSC enters into a two-

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year contract with a team of individuals called “the operator”—a private partnership consisting of key staff headed by the area manager.9 Currently, NWSC does not consider a PPP arrangement in the water sector likely for two main reasons. First, the water tariff (US¢8/meter3) is considered too high for average households and cannot withstand the shock of a further increase. Second, NWSC considers its progress in key efficiency metrics to be where the utility needs to be and therefore does not feel that an operator would bring in additional value. However, NWSC is interested in preparing a bulk water supply project, which could be structured as a PPP. Tourism In the tourism and hotel sector, Kampala Serena is a joint venture of the Agha Khan Foundation (60 percent), the Government of Uganda (20 percent), and PROPARCO of France. Office Buildings and Accommodations Another area where PPPs are likely to be active in Uganda is buildings and accommodations for government use. The Ugandan Ministry of Justice and Constitutional Affairs has named a preferred bidder for the Justice, Law and Order Sector (JLOS) House Project. A consortium comprised of Uganda's M/S TWED Property Development and South Africa's Group Five Structured Ingenuity was awarded the design, build, finance, operate, and maintain office accommodations and facilities project at the JLOS housing complex in Kampala. Other departments of the Government of Uganda are also identifying PPP projects in the facilities building and maintenance area.

2.3 Subnational PPPs

Uganda has 115 local governments, 186 town councils, and 34 municipal councils. The local governments are almost entirely dependent on central revenue transfers, with little of their budget coming from own source revenues. Their borrowing limit is 25 percent of the prior year’s revenue collected, which makes it difficult for most local governments to borrow substantially. The PPP Framework Policy of 2010 provides that “local government authorities shall be responsible for identifying, developing, and managing PPP projects.” The Local Governments (Amendment) Act No. 16/2010 read with the PPP Policy Framework provides for local governments to have direct responsibility for providing infrastructure and services to their populations. The Local Government Procurement Regulations (2003, amended in 2006) provide guidance on local government procurement procedures; however, these regulations do not specifically address PPPs. The Local Economic Development Policy is designed to enable local governments to engage with private businesses (although not exclusively in infrastructure) to improve household incomes. In 2006, the Government of Uganda adopted the Decentralization Policy Strategic Framework10 (amended 2015) and gave formal priority to local economic development, as a process and an outcome to invest more

9 P. Marin, W. Muhairwe, S. Mugisha, and J. Mugali. Internal Delegation Contracts for Water in Uganda: An Innovative Approach to Establishing a Successful Public Utility, PPIAF Guidelines Note No. 55, Public-Private Infrastructure Advisory Facility, World Bank Group, Washington, DC, 2010. 10 Republic of Uganda Ministry of Local Government, Decentralization Policy Strategic Framework, November 2006.

53 fully in local government activities and infrastructure. A key priority of local economic development was to improve local infrastructure and, to that end, strengthen the local tax base.11 The government adopted the PPP Guidelines for Local Governments in a partnership initiative with the United Nations Development Programme12 as a result of the 2010 PPP Partnership Framework Policy, which grants contracting authority status to local governments. §9.4 of the 2010 PPP Policy provides that “Government Ministries, Departments and Local Government Authorities shall be responsible for identifying, developing and managing PPP projects. The Contracting Authorities will consult the PPP Unit of MOFPED on policy related issues to include for project support.” The 2015 PPP Act defines a contracting authority as a “Ministry, Department of Government or any other body established by Government and mandated to carry out a public function.” Although local governments are not specifically mentioned, it can be inferred that these are included within the scope of the PPP Act 2015 under “any other body established by Government.” Current PPP Projects in Local Governments Local governments are currently engaged in small projects with private sector participation, which may or may not qualify as PPP. However, Entebbe municipality and possibly others, including the six secondary districts being assisted by the World Bank through a credit facility, could be potential candidates for PPPs.

2.4 Kampala Capital City Authority

The Kampala Capital City Authority (KCCA) is not a local government. It is an agency of the government set up within the Office of the President. It covers the city of Kampala, with an area of 192 square kilometers, population of 1.57 million, and daytime population of 3.5 million. The road length is 2,110 kilometers inside the KCCA area, of which 25 percent is all-weather and 75 percent is gravel. Eighty percent of the land in Uganda is owned by the Uganda Land Commission, Buganda Kingdom (Monarchy), KCCA (less than 5 percent), and religious establishments. Under the World Bank–supported Kampala Infrastructure Development Program, KCCA is trying to identify projects for improving infrastructure. KCCA gets 70 percent of its budget from the central government, paid quarterly, and 30 percent from its own resources. The total size of the budget is between US$90 million and US$100 million. The primary sources of KCCA’s revenue are property taxes, training licenses, parking, advertisements, hotel taxes, local service tax on employees, and other fees. KCCA is responsible for roads, trash collection, schools at the primary and secondary levels, health facilities up to health center 4 level, provision of parking, street lighting, and so forth. All KCCA’s projects must be approved by the Ministry of Finance before they can be implemented. KCCA is engaged in several development projects within its area of operation. The size of projects identified and implemented by the KCCA can range from US$5 million to US$100 million. KCCA qualifies as a contracting authority under the PPP Act. It is currently engaged in a solid waste project with a concessionaire to build and maintain a new landfill at Dundu and transfer operations from the existing

11 The World Bank Group noted in 2010 that the fiscal status of local governments had worsened due to near elimination of the local tax base. Central revenue transfers were reduced from 47 percent in 2002 to 22 percent in 2009 as a percentage of public expenditure. And there has been an increase in sector-specific, earmarked conditional grants from central to local government. Finally, the creation of new districts has increased spending on salaries and bureaucracy, while decreasing the amount available to local governments for service delivery. See IDA, IFC, and MIGA Country Assistance Strategy for the Republic of Uganda (2010), page 7. 12 Republic of Uganda Ministry of Local Government, Public-Private Partnerships Guidelines for Local Governments, 2011.

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landfill located at Kiteezi, with IFC support. KCCA has a waste collection and transportation PPP that is currently in operation. This is user charge based. No money is paid by either party to the contract to the other. The key issues noticed in the project are the long preparation and procurement period, and that the concessionaire tends to collect only in high-income areas (cherry-picking). KCCA is also working on a pipeline of projects for implementation as PPPs, including currently structuring a solid waste PPP (but has not yet engaged a concessionaire). KCCA’s major constraints include the lack of project development funding to prepare projects, raising money for project investments, and shortage of adequate PPP expertise to handle PPPs. Another challenge is the borrowing limit, which is at present capped at 10 percent of KCCA’s own income, which means there is no scope for borrowing above US$3 million. KCCA has in the past tried to raise a bond, but this was hampered by the regulatory restrictions on borrowing. Due to KCCA’s inability to fund large PPP projects, it does not question the need for following the tedious PPP process. It also emphasizes the need for a well-staffed and resourced PPP Unit that can guide and support the PPP process.

2.5 Status of Current Pipeline Development

The PPP project pipeline that was developed in 2012 is obsolete, as most of the projects have since moved to various stages of development, others developed as public investments, and others as PPPs. Consequently, there is currently no PPP project pipeline in place at the PPP Unit, save for a list of projects that have been registered at the unit as PPP projects in compliance with the 2015 PPP Act. There are other projects that are on contracting authorities’ “PPP wish lists” that have not yet been sent to the PPP Unit for consideration, approval, or registration. Table 2.4 contains a broad and tentative list of projects identified by various agencies that have not been submitted to the PPP Unit. Among the broader list (bottom of the table), 10 projects were identified by KCCA, one from the Ministry of Local Government for a digital mobile payments system for 34 city councils, four from UNRA, one from NWSC, and eight zonal electricity distribution projects to be concessioned to one or more distributors.

TABLE 2.3: LIST OF POTENTIAL PPP PROJECTS FROM CONTRACTING AUTHORITIES

PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

1 Kampala Kampala Capital Electricity Provide 4500 $117.00 No information Concept Street Lighting City Authority Units of street submitted by stage

lights (bulbs) over Contracting the next five years Authority to light up the city.

2 Design and Ministry of Works and Office $28.00 $102,200.00 Concept Construction Works and Transport accommodation stage of the Ministry Transport for MoWT of Works and Headquarters, Transport Statutory Boards, Headquarters Commissions and Building Agencies under the MoWT

3 Development Ministry of Works and The Project will $17.50 $63,875.00 Full of Bus Rapid Works and Transport provide transport technical Transit in Transport services by big feasibility Kampala buses which shall study operate on completed dedicated lanes.

4 Development Ministry of Works and The project aims $18.30 $66,795.00 Pre- of Gulu Works and Transport to promote trade feasibility Logistics Hub Transport in the northern study part of the country and Uganda as a completed whole.

5 Mbarara Mbarara Education The project is to No information No information Concept University Inn University operate a 3-star submitted by submitted by stage hotel. Contracting Contracting Authority Authority

6 Development Ministry of Works and The project will $90.00 $328,500.00 Full of Logistic Works and Transport provide modal technical Hubs (Tororo, Transport shift function feasibility Kampala and between rail, truck Mbarara) and inland water study way, to provide completed container depot function to reduce export cost and provide logistic services including warehouse distribution Centre and one stop shop.

7 Kenya- Uganda Energy The project aims $318.70 $1,163,255.00 Full Uganda- Electricity to provide technical Rwanda Transmission transmission feasibility 400kV Company capacity of over Transmission Limited 1200MW to cater study Line Project for Grid completed. Interconnection between Kenya, Uganda and Rwanda

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PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

8 Kampala- Uganda National Works and The project will $500.00 $1,825,000.00 Full Bombo Roads Authority Transport link Kampala to technical Expressway South Uganda. feasibility The expressway study will act as the completed. primary transit corridor for transportation of imports via Kenya and Uganda to other landlocked countries such as South Sudan and Democratic republic of Congo.

9 Kampala- Uganda National Works and This project aims $500.00 $1,825,000.00 Concept Busunju Roads Authority Transport to link Kampala- stage Expressway Busunju in the central region to Hoima-Kiboga road that connects to the Albertine region where oil exploration is underway.

10 Kampala- Uganda National Works and The project will $476.00 $1,737,400.00 Transaction Entebbe Roads Authority Transport link Entebbe Advisor Expressway International hired. Airport to the Greater Kampala metropolitan area.

11 Kampala- Uganda National Works and The Beltway links $900.00 $3,285,000.00 Full Outer Beltway Roads Authority Transport City of Kampala technical with other feasibility expressways such study as Kampala-Jinja, completed. Kampala Southern Bypass, Kampala – Bombo, Kampala- Mpigi and Kampala-Entebbe

12 Kibuye- Uganda National Works and The Expressway $327.00 $1,460,000.00 Full Busega-Mgipi Roads Authority Transport will improve technical Expressway mobility along the feasibility congested study southern and completed. western corridors of Greater Kampala by diverting traffic from the existing road.

PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

13 Multipurpose Ministry of Water Water The project aims $47.29 $172,608.50 Pre- Water for and Environment to construct a feasibility Production dam and study Infrastructure multipurpose completed. and Facilities’ water system and Development facilities for Project in irrigation of Isingiro 433ha. It will also District provide bulk water supply from Nsongezi Offtake based on R. Kagera abstraction for livestock and irrigation of 1500ha.

14 Lopei Ministry of Water Water The project aims $65.00 $237,250.00 Pre- Multipurpose and Environment to construct a feasibility Water multipurpose dam study Development that has a storage completed. Project capacity of 120 MCM and a 5000ha Irrigation scheme in Lopei.

15 Ngoma Ministry of Water Water The project aims $19.00 $69,350.00 Full Wakyato and Environment to construct 35 technical Rural Water KM of feasibility Supply transmission study System in pipelines to completed. Nakaseke increase rural District water supply coverage to 75, 486 people in Nakaseke district.

16 Bulk Water Ministry of Water Water The project will $116.30 $424,495.00 Concept Supply and Environment provide water for stage System for the oil refinery. The Oil Refinery project will install a bulk water supply infrastructure for the proposed oil refinery.

17 Kampala Jinja Uganda National Works and The project will $1,000.00 $3,650,000.00 Full PPP Expressway Roads Authority Transport relieve congestion feasibility on the existing study "Kampala Jinja completed Highway" by constructing a toll expressway between Kampala and Jinja.

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PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

18 IT Parks National Information The project will $155.20 $566,480.00 Full Information Communica provide a fully technical Technology tions functional IT feasibility Authority Telecommu complex covering study Uganda nications & an area of about completed National 17 acres with and have Guidance amenities that will hired a TA. host the multi- PPP national IT feasibility companies. study

19 Managed Ministry of Health The project will $500.00 $1,825,000.00 Concept Equipment Health manage stage Services equipment in 2 national and 15 regional referral hospitals

20 Medical Ministry of Health The project will No information No information Concept Waste Health manage medical submitted by submitted by stage Management waste in 2 Contracting Contracting national and 15 Authority Authority Regional Referral Hospitals, and General Hospitals

21 Oncology Ministry of Health The project will No information No information Concept Cardiac Renal Health provide submitted by submitted by stage Centre specialized Contracting Contracting oncological, Authority Authority cardiac and renal diseases diagnostic and management services.

22 Uganda Ministry of Health The project will $60.00 $219,000.00 Concept eHealth Health manage IT stage Project equipment, platforms and databases in MOH, hospitals, health center

23 Uganda Ministry of Health The project will $60.00 $219,000.00 Concept Emergency Health provide stage Medical emergency Services medical service Project

24 Kampala Kampala Capital Roads The project will $100.00 $365,000.00 Pre- Annuity City Authority expand, improve feasibility Roads PPP and upgrade the study city road network completed in Kampala.

25 Re- Kampala Capital Transport The project aims No information No information Pre- Development City Authority to redevelop the submitted by submitted by feasibility of Kampala old taxi park to Contracting Contracting study Old Taxi Park decongest the city Authority Authority completed and improve traffic flow in the city.

PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

26 USAFI Market Kampala Capital Market The project will No information No information Concept & Taxi City Authority Infrastructur redevelop a taxi submitted by submitted by stage terminal Re- e terminal into a Contracting Contracting Development modern transport Authority Authority hub to improve mobility in the city. It will create workspaces for up to 50,00 vendors and artisans and formalize businesses.

27 Greater Ministry of Transport The project aims $1,044.00 $3,754,000.00 Pre- Kampala Light Works and (Railway) to construct a rail feasibility Rail Mass Transport based rapid study Transit (LRT) transit system that completed (Phase 1) is powered by electricity in Greater Kampala. The project (first phase) will construct 45 kilometers of light railway network.

28 Multipurpose Makerere Education The project will No information $35,000.00 Concept Convention University and develop a submitted by stage Centre Business School Recreation multipurpose Contracting convention center Authority to facilitate seminars, conferences, for meetings, student training at the hotel, and lectures. The center will also have restaurants and a business center.

29 MUBS Sports Makerere Sports, The project aims $1.21.00 $4,500.00 Concept Complex University Education to develop a stage Business School and sports complex Recreation center that offers a wide variety of facilities to the community. The facility will serve both public and university clients.

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PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

30 Albertine Ministry of Water Water and The project will $367.10 $1,355.00 Pre- Graben and Environment Environ- construct regional feasibility Regional ment water supply study Water Supply systems covering completed. and Sanitation 30 towns located Funding for Infrastructure in the Albertine full PPP Development Graben Region feasibility Project (AGR- (Hoima, Buliisa, study under WSSIP) Masindi, Nwoya negotiation and Nebbi with UK districts). Public Export sanitation facilities Finance and fecal sludge Agency. treatment facilities will also be constructed.

31 Car Parking Mulago National Works and Construction of a $19.1 $70,507.00 Pre- Project Referral Hospital Transport modern multi-level feasibility parking space study and commercial completed amenities (shops, supermarkets, food and medical courts and office space) on a built- up space of approximately 26311 square meters with capacity for 1550 cars through Design, Finance, Build, Operate and Transfer (DFBOT) Concession of 15 years. This is a Turnkey Project with estimated operational expenses projected at 75% for the first 6 years and 60% of the remaining 9 years of the concession.

PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

32 Specialized Mulago National Works and In line with $158.10 $583,257.00 Pre- Housing and Referral Hospital Transport Government’s feasibility Mixed-use Policy to minimize study Real Estate subsidies, Mulago completed Projects intends to enter into partnership with the private sector to develop and operate these projects with an aim of providing efficient services to the public, income generation and provision of employment opportunities to Ugandans in line with the NDP II

33 Redevelop- National Council Sports/ The project will $15.00 $55,372.00 Pre- ment of of Sports recreation redevelop the feasibility Various Sport complex study Sports in Lugogo. completed Facilities at Lugogo Sports Complex

34 Kampala Kampala Capital Water & The project will No information No information Pre- Solid Waste City Authority Environ- repurpose and submitted by submitted by feasibility Management ment provide resource Contracting Contracting study PPP recovery at Kitezi Authority Authority completed landfill and construct a new landfill in Dundu.

35 Nkenda-Beni- Uganda Energy The project $22.20 $81,030.00 Full Bunia Project Electricity will provide technical 200 KV Transmission transmission feasibility Company infrastructure to study Limited cater for future complete grid inter- connections to the East African Power Pool (SAPP), and the Great Lakes States Grid.

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PROJECT PROJECT PROJECT CONTRACTING PROJECT COST COST PROJECT NO SECTOR NAME AUTHORITY DESCRIPTION (USD (UGX STATUS MILLIONS) MILLIONS)

36 Biiso Irrigation Ministry of Water Water The project aims $23.00 $83,950.00 Full Scheme and Environment to construct technical Development irrigation feasibility Project infrastructure, study establish complete sustainable farmer based institutional management system for irrigation scheme and provide scheme maintenance equipment.

Note: bbl = barrels; CAA = Civil Aviation Authority; DTT = digital terrestrial television; EPC = Engineering, Procurement and Construction; ESIA = Environmental and Social Impact Assessment; HPP = hydro power plant; IFC = International Finance Corporation; ICT = information and communications technology; IT = information technology; ITES = information technology enable services; KCCA = Kampala Capital City Authority; KJE = Kampala–Jinja Expressway; km = kilometer; KSB = Kampala Southern Bypass; kV = kilovolts; kW = kilowatts; MTEF = Medium-Term Expenditure Framework; MUBS = Makerere University Business School; NDP = National Development Plan; NITA-U = National Information Technology Authority Uganda; NPV = net present value; O&M = operation and maintenance; PPP = public-private partnership; PS/ST = Permanent Secretary/Secretary to the TreasurySPV = special purpose vehicle; UBC = Uganda Broadcasting Corporation; UEGCL = Uganda Electricity Generation Company Limited; UETCL = Uganda Electricity Transmission Company; UNCC = Uganda National Cultural Centre; UNCS = Uganda National Council of Sports; UNRA = Uganda National Roads Authority; UPF = Uganda Police Force; UWA = Uganda Wildlife Authority. a. This is indicates high appetite and interest from the private sector on one hand and urgent need to regularize these projects to realize value for money for the government on the other hand.

2.6 Conclusion

Uganda has generally enjoyed some success in the procurement of PPPs, despite the relatively nascent nature of its program and the absence (prior to 2015) of a PPP Law. Critical to its success has been the increase in the capacity of contracting authorities to procure and implement PPPs, most notably in the energy and transport sectors. However, Uganda’s PPP Program has reached a pivotal moment where it could benefit from standardization and uniformity in the analysis, procurement, structuring, and implementation of PPP projects. Table 2.5 sums up key observations on Uganda’s PPP experience.

TABLE 2.5: PPP EXPERIENCE: KEY FINDINGS AND RECOMMENDATIONS

ISSUE FINDINGS RECOMMENDATIONS

PPP Law needs to Despite the passing of the PPP Law, Based on lessons learned from prior PPP drive the PPP further development and improvement of experience, there is a clear need to ensure program the PPP framework is required to ensure that the PPP framework creates a robust effective procurement and implementation process for identification and early of PPPs. screening of projects as well as detailed analysis before projects enter the procurement phase. This will be essential to ensure that the PPP Law is implemented in accordance with its intentions, contracting authorities are properly trained in project analysis and procurement, and the Government of Uganda achieves value for money with respect to its PPP program.

Due diligence at the Due diligence by the private investor and Training in bid pre-qualification and issues bidder qualification the Government of Uganda was not to check for, or a step-by-step manual of stage sufficient in the case of the Rift Valley the PPP process and actions required for Railways. As a result, investors with no rail each stakeholder in the PPP process, operational experience came in as initial would make the work of officials more investors and exited quickly when problems efficient and effective. arose. It is imperative that the PPP Unit together with the contracting authorities undertake thorough due diligence in ascertaining the level of experience, investment, and commitment of the investor(s) during the pre-qualification and procurement process.

Sector-specific While the energy sector has had PPPs for The Government of Uganda can work on problems a long time, the approach has not been sector PPP strategies suggesting some consistent and is faced with challenges of specific project modalities, risk allocation, unaffordable tariffs and excessive risk and tariff structures. allocation to the government and other sector-specific problems.

Tolling policy not This is currently being submitted to the This should be expedited by the Ministry of yet approved Cabinet for consideration and approval. Works and Transport.

Toll collection Currently, these is no legislation that allows An amendment to the UNRA Act is being by UNRA toll collection. moved. This should be expedited. A draft Road Bill has been approved by the Cabinet, but it is awaiting approval by the Parliament.

Uganda Road Fund The URF receives disbursements from the The rules of this fund would need to be (URF) Ministry of Finance of moneys collected changed if this is to be used for PPP through road user charges, with the annual funding. flows into the fund being around U Sh 461 billion. This fund can only be used for maintenance purposes, not for capex.

Requirement of Some of the sectors, especially transport, Government support instruments need to government support need high levels of investment, which may be framed upfront for PPPs through cross- in the form of grants result in lack of coverage of costs through cutting guidelines or sector-specific tariffs or unaffordable availability payments guidelines on government support. for government. This problem has been specifically noticed in the case of the road sector projects in Uganda.

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ISSUE FINDINGS RECOMMENDATIONS

Skewed risk Most of the projects in Uganda in the The Government of Uganda Ministry of allocation energy and transport sectors have been Finance and PPP Unit may want to significantly de-risked in favor of the examine more carefully the risk allocation investor, as the Government of Uganda features in all upcoming PPP projects that absorbs demand and currency risk have been registered, to ascertain the alongside the provision of viability gap optimal risk allocation and avoid high funding and government and multilateral exposure of the government. guarantees covering a variety of risks. One of the key sets of PPP Guidelines that will be developed by the PPP Unit will be on risk identification, allocation, assessment sharing, and management. Capacity building on the same will be very critical in ensuring that the parties involved understand the intricacies in PPP risk. This also feeds into the Contingent Liability Management Framework, a bedrock of PPP management.

Extent of coverage of There is considerable discussion on the There appears to be need for additional local projects under extent of coverage of local government guidance on municipal and especially small the PPP Act and projects under the PPP Act, especially the municipal projects under the PPP Act. process small projects, along with the recognition that even small projects may cause significant contingent liabilities for the national government.

PPP pipelines Many ministries have substantial pipelines There is a need to study the projects, of projects they would like to carry out as check for any studies undertaken, and PPPs. The National Development Plan, apply an early screening mechanism to which is a plan for five years, is one source check whether these are good projects and for projects. Other sources can be the suitable for further detailed studies to check National Vision document, Project for PPP suitability. Implementation Plans, and so forth. Key sectors are • Energy (electricity generation) • Works and transport (expressways and other roads) • Oil and gas (refineries, export pipelines, and so forth) • Office accommodations • Mining • Health (diagnostics, treating noncommunicable diseases) • Education (hostel accommodations, other facilities) • Information and communications technology. However, the ministries and agencies lack useful screening mechanisms, so some projects never take off or may present problems at the feasibility stage.

Note: PPP = public-private partnership; URF = Uganda Road Fund; UNRA = Uganda National Roads Authority.

3. Stakeholder Support and Ownership

PPP programs cannot be successfully implemented without the support of a range of stakeholders from all levels of the government, private sector, and general public. A successful PPP program requires the development of PPP projects that meet the needs and interests of all these stakeholders in a sustainable manner. This chapter explains the awareness and support of PPPs across various stakeholders.

3.1 Government Ownership of PPPs

There is government support for PPPs in Uganda. This support is frequently voiced via NDP documents, and sector plans consistently reference and emphasize the need to leverage the private sector in meeting Uganda’s infrastructure investment needs. The Government of Uganda recognizes the need for partnerships between the public and private sectors in delivering public services and infrastructure. The PPP Act specifically requires that a project can only be implemented as a PPP if it fulfills the objectives of the NDP. The NDP is developed by the National Planning Authority in consultation with planners in the different ministries, departments, and agencies (MDAs). The MDAs identify the needs within their sectors and develop appropriate programs and projects to address the challenges. Ideas and concepts to address the challenges are submitted to the sector working groups (SWGs) for review and approval. The SWGs play a critical role in national infrastructure planning, as the approval of a project idea automatically fits it into the Sector Investment Plan (SIP) that formulates the NDP produced by the National Planning Authority. An SIP is defined as a detailed statement of performance, issues and opportunities, development objectives, policies, and strategies that support development in the specific sector. It provides a framework that must be aligned to the NDP and comprises identified initiatives and projects for government agencies, the private sector, civil society, and academia. SWGs are constituted by a working team of representatives from line ministries, district officials, development partners, nongovernmental organizations, civil society, the National Planning Authority, MOFPED, and academia. SWGs are responsible for reviewing and approving sector development ideas, compiling preliminary sectoral information for decision making, implementing M&E plans and budget execution, and assessing the resource requirements and cost implications of proposed interventions. Approval Process When a concept is developed, it is discussed and approved by the SWG to be included in the SIP. The National Planning Authority also reviews and approves the SIP and strategies to formulate the NDP, which contains Uganda’s infrastructure plan. The NDP is presented to the Cabinet and subsequently to the Parliament for approval. The NDP offers strategic direction for all the different sectors. SIPs and NDPs are five-year plans that are prepared and reviewed after three years of implementation. These plans are shared and approved by the Parliament and published by the sector to inform the annual budgeting process and ministerial policy statement. Decisions on approval of projects for investment are shared and published through the budget call circulars to the MDAs. In addition, a separate Development Committee report is shared with all the accounting

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officers. If a project is allocated financing through the budget cycle, the project is included in the Public Investment Plan, which takes stock of government development initiatives. The missing link in this investment planning process is assessment of the suitability of projects as PPPs immediately following the determination that the project will be a good investment. Subnational Planning Planning at the local government level is required to take the same stages in project development as at the central government level. Local governments have a mandate to deliver on projects in the NDP. However, the local government budget is limited to the resources provided by the central government. The central government provides local government developmental grants in 16 sectors, such as health, education, social development, and public sector management, among others. The local governments are expected to plan for projects within the ceiling provided by the central government, as they are not allowed to borrow. Local governments can also channel their needs through the Ministry of Local Government, which will present the need through its SWG. This will then follow the planning process at the national level. Planning is undertaken in consultation with the chief administrative officer and local councils. In the approved plan, each sector has its own plan, and PPPs are a common theme across each sector.

3.2 Public Sector/Civil Society

Uganda has had some success in preparing and implementing PPP projects. Operational PPPs help to expand and improve infrastructure services to Ugandan citizens. In addition, the enactment of the PPP Law has created some interest from the public, and there is a generally favorable view of PPPs as a tool to deliver critical infrastructure and services in Uganda. However, due to limited funding and other resources allocated for PPP activities, it has been very difficult for the PPP Unit to develop a detailed PPP program for stakeholder awareness and engagement on the PPP requirements as stipulated in the PPP Act. The PPP Unit was able to organize a one-day PPP readiness workshop in March 2016 for selected participants from the contracting authorities. The workshop provided insights to the PPP Policy and Law, the PPP process, and the roles and responsibilities of various parties in the PPP process, among others. This PPP awareness is minimal and many stakeholders in the public sector/civil society hold only theoretical views on their support for PPPs, due to the lack of practical exposure to PPPs. Because of the limited resource allocation (funding and human capital) for PPP activities, to-date there has not been any systematic nationwide debate/discourse on PPPs, and the government has yet to develop or disseminate a communications plan that would help to educate the public sector/civil society on the potential benefits of PPPs. The enactment of the PPP Law provides an opportunity to initiate dialogue with the public sector/civil society on the Government of Uganda’s objectives and plans for PPPs in the country.

3.3 Private Sector

For the purposes of this report, private sector opinion on PPPs was gathered via meetings with development banks, commercial banks, and potential operators. Based on these meetings, it is clear that the private sector is very receptive to working with the Government of Uganda, via PPPs, to deliver public infrastructure and

67 service projects. To foster this interest, the private sector needs to be better informed about the government’s infrastructure program and potential PPP pipeline, and the role the PPP Law will play in the procurement of future PPP projects. The government will need to undertake significant awareness building and capacity building to build understanding and awareness of the PPP processes laid out in the PPP Law.

3.4 PPP Champion

The PPP Act came into effect on October 1, 2015. Section 10 provides for the establishment of the PPP Unit, PPP Resource Center, and technical arm of the PPP Committee. Among other functions of the PPP Unit is to provide technical, financial, and legal expertise to the PPP Committee and project teams established under the Act. The PPP Unit also assists contracting authorities in the design, identification, selection, prioritization, appraisal, evaluation, and negotiation of PPP projects, and has the overall mandate of championing the PPP program and projects in the country. PPP procurement is carried out by the contracting agency in conjunction with the PPP Unit and involves several stakeholders, including the PPP Committee, which approves project proposals and detailed feasibility studies. The PPP Unit’s role as PPP champion has been further clarified within the PPP Act, which prescribes specific responsibilities to the newly created PPP Committee, contracting authorities, and PPP Unit. Specifically, the PPP Law confirms the PPP Unit’s existing role as a facilitator of PPPs and Secretariat to the PPP Committee, and adds more general responsibilities related to the preparation of general guidelines on PPP competitive procurement procedures, standard documentation, and so forth. However, the PPP Unit is unable to play this role effectively, given the limited resources allocated to it and capacity constraints, to the extent that the PPP Unit was until recently singlehandedly managed by the Acting Director (in January 2017 a team of two officials joined the PPP Unit). Effective PPP Units in other countries tend to be well- resourced and staffed with highly experienced PPP experts. It is therefore critical that the government seriously considers resourcing and staffing of the PPP Unit as one of the fundamental areas to drive the PPP agenda forward.

3.5 Public Opinion/Civil Society and Private Sector Support

A sustainable PPP program requires government commitment and ownership, and the support of a broad range of nongovernmental stakeholders. Table 3.1 maps the various nongovernmental stakeholders to PPPs in Uganda.

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TABLE 3.1: PPP STAKEHOLDER MAPPING IN UGANDA

PRIVATE SECTOR PUBLIC SECTOR/CIVIL SOCIETY FOREIGN STAKEHOLDERS

Corporations Citizens International financial institutions, donors

Business associations Beneficiary communities Investors, funds

Individual business leaders Local and foreign media Banks

Investors, fund managers, Universities, think tanks Contractors/suppliers analysts

Banks, financial institutions Advocacy groups Diaspora

Contractors/suppliers Unions, associations

Nongovernmental organizations, international nongovernmental organizations

Public Sector/Civil Society Uganda has had relatively successful experience with PPPs over the past few years. There is general civil society confidence in the ability of the private sector to deliver better public services than the government, but there is underlying skepticism over the transparency of procurement and bidder selection for public and PPP procurement, manifested in the country’s high corruption perception index. The PPP Law is designed to promote transparency and competitiveness of procurement, but it will be important for the Government of Uganda to develop and deliver a broad stakeholder communications campaign that highlights the benefits of PPPs in clean procurement and strong oversight of contractual obligations. The stakeholder communication campaign should target private sector and foreign stakeholders (table 3.2). Private Sector There is clear interest from the private sector in engaging with the Government of Uganda on PPPs and in the delivery of public infrastructure services, but the government will need to undertake significant awareness building and capacity building to affirm its commitment to a systematic PPP program. Other challenges identified by the private sector include a perceived lack of transparency in government processes as well as the slow pace of procurement and other government processes. Now that a PPP legal framework is in place, the government will need to undertake a deeper engagement with the private sector, to demonstrate the government’s commitment to a transparent PPP program and keep the private sector better informed about its infrastructure program and PPP pipeline, to facilitate and encourage interest. With the help of IFC, the government has been successful in doing this for the KJE, but needs to build a routine and standard process surrounding projects. Foreign Stakeholders Similar to feedback from the domestic Ugandan private sector, foreign stakeholders are supportive of PPPs in Uganda, but there is concern about the government’s ability of to ensure transparency and speed in the procurement and bidder selection processes. The passing of the PPP Law is seen as an important step in beginning to provide comfort that PPPs in Uganda will be procured transparently and awarded to the best qualified bidders. However, Uganda will be operating in a competitive international market, and international perceptions about political economy and transparency issues may cause foreign stakeholders

69 to look elsewhere for investment opportunities. For international financial institutions, Uganda is currently of particular interest, as evidenced by the keen interest of many donors and international financial institutions in the KJE.

TABLE 3.2: STAKEHOLDER SUPPORT AND OWNERSHIP: KEY FINDINGS AND RECOMMENDATIONS

ISSUES TO NOTE FINDINGS RECOMMENDATIONS

Ownership of PPPs Within the government, there appears to To build awareness and understanding be strong in principle commitment to and at the technical level in contracting ownership of PPPs. Uganda has authorities, improved communication and consistently highlighted the private sector coordination between the PPP Unit and and PPPs as vital for the achievement of contracting authorities needs to be national economic growth and developed. It is recommended that tools development and sector planning and training materials be developed by documents. However, awareness and the PPP Unit to support the contracting understanding of the PPP Law at the authorities in all aspects of the project technical level across contracting cycle process laid out in the PPP Law. authorities are relatively low. Most fundamental is the provision of This message has not culminated in adequate funding and staffing for PPP assessment and work on building strong activities. The PPP Unit will need sufficient institutions, processes, and skills within the resources to deliver the requirements for government. There is an absence of the PPP program. strong political support and commitment on the part of senior government leaders to champion, promote, and advance PPPs.

PPP Champion The PPP Law stipulates the PPP Unit as The fundamental and most critical of these the PPP facilitator and champion. issues is for the government to provide However, the PPP Unit has not quite yet adequate funding and staffing for the PPP taken up that role. For 2016/17, the PPP Unit that will then build into awareness and Unit budget was only U Sh 1.5 billion, and understanding of the supporting role of the for 2017/18, its budget was slashed to U PPP Unit in project procurement and Sh 1 billion (approximately US$280,000), implementation processes. Also necessary which is expected to fund PPP activities are capacity development at the for the entire fiscal year. contracting authority level and development, strengthening, and streamlining of the PPP advisory function of the PPP Unit. The government must actively promote PPPs and the Prime Minister should act as the PPP champion within the government. This would also increase investor confidence.

External stakeholders: There is general public and private sector Sensitization workshops for stakeholders public and private support for the PPP program, but a and a formal launch of the PPP program sector opinion general lack of awareness and via a highly publicized launch event understanding of the specifics of the PPP showcasing recently closed and proposed program. projects in key sectors could provide an opportunity to demonstrate high-level commitment to the PPP program and encourage a greater sense of ownership and participation among the stakeholders. In addition, the government should disseminate its communication strategy to improve awareness and build further external stakeholder support for PPPs and the PPP program.

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4. Legal and Institutional Framework

Sound, well-functioning, and transparent legal and regulatory frameworks are an important component of a sustainable PPP program. These frameworks constitute the rules for all participants in PPPs and are a crucial step in taking a PPP program from a project-by-project approach to a robust, systematized program. This chapter explores the current and potential future status of the legislative and regulatory framework for PPPs in Uganda.

4.1 General PPP-Enabling Legislation with Institutional Structures

The 1995 Constitution establishes three branches of government: Executive, Legislative, and Judicial. Uganda’s legal system represents a combination of English Common Law and African Customary Law with Statutory Law prevailing in the case of conflict of laws. Uganda has had three Constitutions since its independence from the United Kingdom in 1962, the current and latest being in 1995, and it is the supreme law in Uganda. PPP Framework Policy Uganda adopted a formal PPP Framework Policy13 in 2010 when it already had a number of ongoing PPP projects and had identified a tentative pipeline of an additional 26 PPP projects. The Government of Uganda’s main goals in establishing the PPP Policy were: (i) better utilization and allocation of public funds, (ii) more efficient delivery of public infrastructure, (iii) provision of good quality public services, and (iv) increased economic growth and foreign direct investment. The core principles set forth in the PPP Policy that will govern PPP policy and project development include value for money, public interest considerations including social inclusion, appropriate risk allocation, output orientation, and transparency and accountability. The PPP Framework Policy provides for the following: • PPP Unit in the Ministry of Finance to assume the lead role as the center of excellence in PPPs; specific sector institutions will undertake operational work on project preparation, management, and procurement, and be the contracting or procuring authority; M&E for the entire PPP program to be undertaken by the PPP Unit;14 cabinet approval is needed for each PPP project; and each procuring authority is to undertake public communications for each PPP project. • Project preparation to commence with a feasibility study to determine whether the proposed project is a good PPP candidate demonstrating value for money; each PPP project to be led by a project team. • Investment strategies to take into account the benefits of bundling and aggregating similar projects.

13 Government of Uganda, Public-Private Partnership Framework Policy, Ministry of Finance, Planning and Economic Development, September 2010. 14 The PPP Unit is responsible for M&E for the entire program, while each contracting authority is to monitor its own program with appropriate milestones.

• Tendering process to be competitive; unsolicited proposals to be subjected to competitive tendering while the proponent may be compensated for proprietary interest or costs. • Emphasis on building and maintaining a robust project pipeline. • Appendix A of the PPP Framework Policy provides a preliminary list of PPP models that include design, build, finance, operate, and maintain; concession; sale and leaseback; and lease. PPP Act 2015 On July 1, 2015, Uganda’s Parliament passed the PPP Bill, which was to become law upon the President’s assent as the country’s first PPP Act on August 5, 2015.15 The PPP Act commenced on October 1, 2015 by virtue of Statutory Instrument No. 57 of 2015. The PPP Act seeks to regulate the procurement, implementation, maintenance, operation, management, and M&E of PPPs throughout the project cycle. The following are key highlights of the PPP Act 2015 of specific aspects of PPP design and implementation: • The Act applies to the design, construction, maintenance, and operations of infrastructure sectors, including road, rail, subway, water, and air transport; harbor and ports; information and communications; telecommunications; water management; dams; storage, supply, and distribution; sewerage and wastewater; irrigation and drainage; oil and gas; energy, including generation, distribution, and transmission; sports, recreation, and cultural facilities; tourist infrastructure; minerals and raw materials; agricultural processing; and any other project that the Ministry of Finance may approve. • The Act defines a PPP as a transaction that may or may not include private finance.16 As such, the PPP Act recognizes seven types of contractual models, including concession; O&M agreement; lease, develop, and operate agreement; build, own, and maintain agreement; build, own, operate, and transfer agreement; design, build, finance, and operate agreement; and build, own, and operate agreement. §4 defines a PPP as “a commercial transaction between a contracting authority and a private party where the private party performs a function of the contracting authority on behalf of the contracting authority, for a specific period,” and:

o Acquires the use of the property, equipment or other resource of the contracting authority for the purposes of executing the agreement.

o Assumes substantial financial, technical, and operational risks in connection with the performance of the function or use of the property.

o Receives a benefit for performing the function through payment by the contracting authority or charges or fees collected by the private party from the users of the infrastructure or service, or both.

15 The Republic of Uganda, Public-Private Partnerships Act, 2015. 16 The World Bank Group’s PPP Reference Guide 2.0 (2014) defines a “private finance” PPP contract as “a long term contract between a public party and a private party for the development (or significant upgrade or renovation) and management of a public asset (including potentially the management of a related public service), in which the private party bears significant risk and management responsibility throughout the life of the contract, provides a significant portion of the finance at its own risk, and remuneration is significantly linked to the performance and/or the demand or use of the asset or service so as to align the interest of both parties.” (Emphasis added.)

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4.2 Institutional Framework

The PPP Act sets forth clear roles and responsibilities for sets of actors with accountabilities for PPP policy and project design and implementation. • PPP Committee. The PPP Committee (§5-9) is constituted by the Attorney General, Permanent Secretary of the Ministry of Finance and other high-level government officials, a member of a private sector foundation, representatives respectively from academia and the Uganda Investment Authority, and a retired judge, to provide policy and operational oversight; approve projects; formulate standards, guidelines, and procedures; and approve all management functions pertaining to the design and implementation of PPP projects, including oversight of M&E activities by contracting authorities. • PPP Unit. The PPP Unit within the Ministry of Finance (§10-11) under the leadership of a director serves as the technical arm and secretariat of the PPP Committee and provides/serves: (i) research and knowledge management functions pertaining to PPPs; (ii) capacity building functions; (iii) rate and maintain a robust pipeline/inventory of PPP project candidates; (iv) guide and assist contracting authorities, ensuring compliance with the PPP Policy Framework and PPP Act; and (v) monitor contingent liabilities, among other functions. A Project Development Facilitation Fund (PDFF) (§29) will be set up with public funds to support contracting authorities in the preparation, appraisal, and procurement processes. • Contracting authority under the leadership of an accounting officer. The contracting authority is responsible for identifying, appraising, developing, procuring, and monitoring a PPP in accordance with the PPP Act. A contracting authority has been defined as a ministry, department of government, or any other body established by the government and mandated to carry out a public function.17 • Accounting officer. The PPP Act defines an accounting officer as a person designated as such under the law to perform the functions of the accounting officer of a contracting authority. The role of the accounting officer under the PPP Act is to appoint a project team and any other person required for the implementation of the project and sign an agreement on behalf of the contracting authority with the private party, in accordance with the PPP Act.18 If the PPP agreement is of a value for which approval of the Cabinet is required, the accounting officer must confirm that: a. The best evaluated bid meets the requirements of affordability, value for money, and substantial technical, operational, and financial risk transfer. b. The contracting authority has put in place a management plan that explains the capacity, including the mechanisms and procedures of the contracting authority, to implement, manage, enforce, monitor, and report on the project effectively. c. Satisfactory due diligence has been carried out on the private party in relation to the competence and capacity of the private party to enter into the agreement.

17 Section 4 of the PPP Act. 18 Section 13 of the PPP Act.

• Project officer. The PPP Act requires that a project officer be appointed to manage the procurement and implementation of the project and monitor the performance of the private party in the management and execution of the project.19 The project officer shall be under the direct supervision of the accounting officer20 and shall head the project team.21

• PPP project team. The PPP Act establishes a PPP project team whose roles will include identifying, screening, and prioritizing projects based on guidelines issued by the PPP Committee; preparing and appraising each project agreement to ensure its legal, regulatory, social, economic, and commercial viability; liaising with all stakeholders; and overseeing the management of a project in accordance with the project agreement entered into by the contracting authority.22

• Process auditor. The PPP Act requires every project to have a process auditor who shall ensure that the contracting authority complies with the requirements for implementing PPPs, as provided in the Act.23 The process auditor is required to support the accounting officer’s responsibility for the project by checking and ensuring that all necessary processes and procedures as required by the law and the procurement plan have been followed. • Transaction advisor. The transaction advisor is responsible for undertaking comprehensive feasibility studies for a project, including the commercial, financial, and legislative work for a PPP agreement. The transaction advisor is responsible for designing and negotiating a PPP agreement that guarantees long-lasting social benefits.24

• Private party. The private party shall be set up as a special purpose company and be incorporated under the laws of Uganda (§20). The private party is required to keep proper books of account and records in relation to the project that shall be open for scrutiny by the contracting authority.25 The contracting authority shall require that the private party prepares financial statements and an annual report within two months after the end of the financial year. The annual report and audited financial statements are required to be submitted to the minister within six months after the end of the financial year.26 Furthermore, any changes in share capital and corporate status of the special purpose company require approval of the Minister of MOFPED, and the minister responsible for the contracting authority. • Evaluation Committee. The accounting officer is required to appoint an Evaluation Committee that will be responsible for evaluating the bids submitted.27 The Evaluation Committee is composed of officials with the technical skills required for the evaluation of a bid, and is appointed from the staff of the contracting authority or any other person appointed from outside the contracting authority.28

19 Section 14 (1) of the PPP Act. 20 Section 14(2) 0f the PPP Act. 21 Section 15(2) of the PPP Act. 22 Section 16 of the PPP Act. 23 Section 17(2) of the PPP Act. 24 Section 18 of the PPP Act. 25 Section 28(1) of the PPP Act. 26 Section 28(4) of the PPP Act. 27 Section 19(3) of the PPP Act. 28 Section 19(2) of the PPP Act.

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• Cabinet. The Cabinet is required to approve the value of an agreement for which the approval of the Cabinet is required before an agreement is signed by an accounting officer. However, this has not yet been carried out, as no project has progressed so far following the beginning of the structured PPP program in Uganda. • Auditor General. The Auditor General is required to undertake audits of each PPP entered into by a contracting authority from the inception stage to the conclusion of the project. The Auditor General shall subsequently report to the Parliament within nine months of each audit. This mandate is derived from the PPP Act. • Accountant General. The Accountant General is required to prescribe accounting and financial reporting rules to be adopted for PPPs.29 This can form part of the fiscal commitments and contingent liabilities reporting of the government. The annual report and audited financial statements are required to be submitted to the minister within six months after the end of the financial year. • The primary responsibility of identifying, appraising, developing, procuring, and monitoring a PPP project shall be upon the contracting authority, which is a department of the government mandated to carry out a public function (§12). The contracting authority is expected to conduct its PPP functions through an accounting officer (§13) whose duties are to solicit a private party for a project and appoint a project team (§15), among other functions. The project team is responsible for all day-to-day operational functions of the PPP project.

Figure 4.1 provides an overview of the phases of PPP project implementation in Uganda, including key tasks to be carried out by each involved department/agency.

29 Section 28(3) of the PPP Act.

FIGURE 4.1: PPP PROJECT CYCLE IN UGANDA

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Project Selection Under the 2015 PPP Act, as depicted in figure 4.1, the contracting authority is required to conduct a preliminary economic cost-benefit analysis, which should outline the following: (i) strategic objectives of implementing the project, (ii) projected cost of the project, (iii) benefit of the project to the contracting authority, (iv) rationale for the project, (v) projected policy outcomes of the project, (vi) how the project is to be managed by the contracting authority, and (vii) indicative budget available for transaction advisory services. The PPP Law provides that the PPP Committee will approve all PPP project proposals submitted by contracting authorities prior to registration of any PPP project proposal. If the contracting authority confirms from the preliminary economic cost-benefit analysis that that the project is suitable for implementation, the accounting officer is required to register the project with the PPP Unit, specifying the type of project, value or size of the project, and any other information that is relevant to the project. The accounting officer is also required to appoint a project officer and establish a project team for the project. The accounting officer is also required to inform the PPP Unit of the expertise available within the contracting authority to execute the project and, where the contracting authority does not have the expertise, appoint competent persons from outside the contracting authority to act as project officer, process auditor, and transaction advisor to undertake the feasibility study, contract negotiations, and preparation of the contract. A key shortcoming of this process is that a cost-benefit analysis is not the best way to identify suitability for undertaking a project as a PPP; it simply helps identify the suitability of the project and whether it makes economic sense. A PPP screening will need to be applied following the cost- benefit analysis to ensure suitability for developing the project as a PPP. Distinction between the Earlier Regime and the 2015 PPP Act Centralizing all PPP candidate projects through the PPP Unit is a distinguishing feature of the 2015 PPP Act. Previously, each ministry proceeded with its PPP procurement, especially for projects in the energy sector, while other ministries sought guidance from the Privatization Unit, given its role under the divestiture dispensation. Most of the PPPs were therefore under the Public Enterprise Reform and Divestiture Act. This may have sufficed in the past when there were fewer PPP deals, but there has been a sharp increase in nontraditional procurement involving private parties. This gives rise to the need to coordinate the movement of PPP projects, so that one agency may be able track the various PPP processes. Clearly the legislative intent was to provide for a more centralized approach to coordination and tracking of the PPP projects across various agencies. This is an important feature as it ensures that all agencies are on the same page for the methodologies and processes to be followed. This also means that the PPP unit can better assess the scope of the Government of Uganda’s exposure to contingent liabilities and fiscal risk arising from the projects that go all the way to PPP procurement. Current Status of the PPP Institutional Framework MOFPED is in the process of complying with the 2015 PPP Act, and yet there are many commitments under the law yet to be undertaken. Beyond the letter of the law, however, practical considerations dictate that the PPP Unit of MOFPED undertakes certain pragmatic actions to fulfill the spirit of the 2015 PPP Act. As captured in table 4.1, the key steps going forward pertain to provisioning of adequate budget for staffing and strengthening the PPP Unit, production of PPP processing protocols and manuals and dissemination of these to prospective contracting authorities or sector agencies, provision of training to PPP Unit staff and prospective contracting agencies to clarify the PPP process guidelines, and establishment of a project development/financing facility. All PPP practice units and practitioners within agencies, especially UNRA

77 and UEGCL, UETCL, and UEDCL, will need a portfolio of PPP documents, including standard clauses and agreements, as well as examples of transaction structures and experiences of other agencies. Another set of urgent protocols and practices that are needed to pave a secure path for PPP projects going forward relates to the Government of Uganda’s management of fiscal commitments and contingent liabilities associated with PPP projects. Another important area relates to methodologies in early-stage project screening and project development and appraisal in key sectors. It is a essential to develop protocols and practices relating to other good practice aspects of a PPP enabling environment, such as disclosure, audit, stakeholder relations, and contract management, including M&E.

TABLE 4.1: PPP INSTITUTIONAL STRUCTURE

2015 PPP ACT STATUS OF COMPLIANCE REQUIREMENT CURRENT STATUS REMAINING TASKS FOR FULL COMPLIANCE

§ 5-9 Establish PPP Established and functioning PPP Committee members need to be trained in key Committee aspects of PPPs that must be considered while approving projects at each stage.

§10-11 Establish PPP Unit established but not fully (i) Provide adequate budget to fund PPP activities; ii) Unit within the Ministry staffed. At the time of this full staffing of the PPP Unit; (iii) build PPP capacity and of Finance report, the PPP Unit has an attract the right skills; (iv) maintain pipeline of PPP Acting Director and two staff project candidates; (v) guide and assist contracting members, recently seconded authorities; and (vi) establish contract management and from the privatization unit. M&E framework.

§S.7- PPP Committee Organizational structure of Provide sufficient budget to the PPP Unit to enable it to to approve the the PPP Unit approved by the recruit appropriate and suitable staff as part of the organizational PPP Committee organizational structure. structure of the PPP Unit

S.11(2) (i)- PPP Unit Guidelines and standard Guidelines and standard documentation need to be shall formulate documentation are not developed. guidelines and developed yet. standard documentation required under the PPP Act

§51 PPP Regulations Drafted before the First (i) Regulations for final drafting by FPC, (ii) regulations Parliamentary Counsel for for approval by the Cabinet, and (iii) dissemination to all final drafting and thereafter stakeholders. should be submitted for Cabinet approval.

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2015 PPP ACT STATUS OF COMPLIANCE REQUIREMENT CURRENT STATUS REMAINING TASKS FOR FULL COMPLIANCE

Section 28 (3)- Accounting and financial This could be done as part of the Fiscal Commitments Accountant General reporting rules have not yet and Contingent Liabilities Management Framework. shall prescribe been developed. accounting and financial reporting rules to be adopted for PPPs

§29 Establish PDFF Not yet established (i) Establish PDFF, (ii) finalize PDFF Guidelines, (iii) disseminate to and liaise with contracting authorities, (iv) provide a budget line to PDFF, (v) negotiate with donors to increase PDFF fund inflows, and (vi) consider other sources of revenues such as success fees from projects and/or surplus (over and above the amounts required for making availability payments) revenues from projects.

§47-48 Disclosure Not yet formulated (i) Formulate the Disclosure Framework, (ii) prepare Framework back-end multiple users and front-end of the web portal to collect and collate information, (iii) train contracting authorities and other entities in its use, (iv) establish performance benchmarks, and (v) incorporate into M&E.

Assessment of fiscal Not yet formulated (i) Establish appropriate fiscal risk assessment risk protocols, aggregate and project specific; and (ii) train PPP Unit and PDMO/Ministry of Finance staff to generate data and produce reports.

Section 11(5) Rules approved by the PPP The rules would provide a framework for the Permanent Secretary Committee relationship of the PPP Unit with the Debt and Budget to make rules for the Directorates of the Ministry of Finance. These rules administrative and have been drafted and approved by the PPP financial framework of Committee but need to be disseminated and the PPP Unit and its implemented. relationship with other departments in the ministry

Note: FPC = First Parliamentary Committee; M&E = monitoring and evaluation; PDFF = Project Development Facilitation Fund; PDMO = Public Debt Management Office; PPP = public-private partnership.

Institutional Strengthening and Capacity Development of the PPP Unit As indicated in figure 4.2, a notional structure for a fully staffed PPP Unit has been envisioned and comprises 10 technical staff and eight nontechnical staff. Currently, the PPP Unit consists of the Acting Director and two staff, whose mandate is to provide technical support to contracting authorities, act as a resource center for all PPP-related matters, liaise with donors and private sector players on daily and strategic tasks, and act as the technical arm of the PPP Committee. Figure 4.2 shows the PPP Committee–approved organization structure for the PPP Unit. The PPP Law requires that the Minister of Finance consult with the Minister of Public Service on the organization structure of the PPP Unit, and this consultation is currently ongoing. There has not yet been budget allocated for staffing in accordance with the proposed structure. The first order of business in compliance with the

2015 PPP Act is operationalizing the PPP Unit; this includes full staffing. Second, operational processes; norms and structures, including templates and forms to be used; and operational and business practices need to be defined and disseminated to all ministries, departments, and agencies of the government. Frequently asked questions should be anticipated and answered and disseminated as well. If funding allows, the PPP Unit should consider PPP certification with APMG and Certified Public-Private Partnerships Professional and other continuing education courses, to build a body of PPP professionals across agencies. Contract Management and Monitoring and Evaluation The PPP Unit should focus on M&E early on to build a baseline of PPP data that can be monitored by the implementing agencies. The PPP Unit is required to develop open, transparent, and efficient processes for monitoring projects. This area is often neglected, to the ultimate detriment of project quality. Specifically, the PPP Unit requires the contracting authority to monitor a project and determine whether the private party is complying with the provisions of the agreement, that remedial measures are being undertaken to correct any defaults, and whether the tariffs and levies are being charged as prescribed. The contracting authority is required to prepare periodic reports and submit them to the Minister of MOFPED and the minister responsible for the contracting authority. Decisions will need to be made about what types of M&E indicators are to be maintained by the agencies as a mandatory minimum, as well as other suggested indicators that would be useful to monitor. Impact data are highly valued, as policy makers and practitioners want to know how PPP projects have affected people’s lives and can help determine the course of future policies and projects. Coordination and Liaison Role of the PPP Unit In the past, line ministries worked on their PPP projects without coordination with other ministries/agencies. The mandate of the PPP Unit is to facilitate the work of the line ministries. Thus, the PPP Unit will need to assume and fulfill its leadership role early on and offer high value in its coordination role. The PPP Unit can best fulfill its leadership and coordination role by undertaking and putting in place procedures that make the PPP registration and onward processes clear, transparent, and efficient. The PPP Unit’s key challenges are funding and staffing. The PPP Unit should be supported to ensure that these challenges are addressed and the leadership role of the PPP Unit will be felt. Currently there is some confusion about the registration process, thresholds, and pipeline development among infrastructure agencies. In line with its mandate under the PPP Act to conduct civic education to promote awareness and understanding of the PPP process among stakeholders, the PPP Unit should take the lead in offering information sessions, traveling to the agencies on a rotating basis to answer questions, or carrying out any other means of routine engagement with line ministries. The PPP Unit cannot undertake this mandate without a sufficient budget and adequate staffing. Appropriate government support of the PPP Unit’s mandate is necessary to realize the goals stipulated in the PPP Act.

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FIGURE 4.2: UGANDA PPP UNIT’S PROPOSED ORGANIZATIONAL STRUCTURE

Project Screening and Pipeline Development Maintaining the pipeline is an important task of the new PPP Unit. The pipeline includes all the registered PPP projects from all agencies, which then revert to the contracting agency to be developed with a detailed feasibility study. Once the feasibility study is completed and the PPP Committee has approved a candidate project, it is ready for procurement. It is important that a high-level project screening process is completed prior to proposing a project for registration as a PPP and proceeding to detailed feasibility study analysis. Procurement Framework All PPP procurement will follow the 2015 PPP Act and not the Public Procurement and Disposal of Public Assets Act, which guided PPP transactions prior to the 2015 PPP Act. • Each contracting authority must establish a bid evaluation committee for each project, which shall be comprised of staff from the contracting authority as well as from outside (§19).

• The 2015 PPP Act provides for competitive and noncompetitive bidding methods. The competitive bidding methods include open bidding, restricted bidding, and the use of competitive dialogue and negotiated procedures.

4.3 Specific Legislation and Regulation of Unsolicited Proposals

The PPP Act also offers the direct procurement solution “where the circumstances do not allow for the use of competition” (§33). Independent originators or proponents may approach the contracting authority with a project idea to meet the authority’s objectives with technical details, a cost-benefit analysis, and an explanation as to why it merits special treatment outside the competitive bidding process. The contracting authority may consider and approve such proposals if they are relevant, innovative, satisfy the objectives of the NDP, and are cost effective. Once satisfied on the technical, cost effectiveness, innovation, and other merits, the contracting authority may open the bidding to all interested bidders and provide for a method to compensate the proponent for their proprietary interests in the event the proponent is not successful in the competitive bidding process. It may be necessary to work on more detailed guidance for direct and unsolicited projects as part of a manual of PPP processes.

4.4 Judicial and Conflict Resolution Framework

Uganda’s Court Structure consists of the Courts of Record, Subordinate Courts and Specialized Courts, and Tribunals. The Courts of Record are the Supreme Court, which is the final court in Uganda but with appellate jurisdiction save in matters of Presidential Petitions; the Court of Appeals, which is the second court of record and has appellate jurisdiction except when it sits as a Constitutional Court; and finally, the High Court, which is the third court of record and headed by the Principal Judge. The Supreme Court is headed by the Chief Justice and the Court of Appeals is headed by the Deputy Chief Justice. There are three ways of resolving disputes under the Ugandan legal system: the judicial system using the courts of law, domestic arbitration, and international arbitration. Domestic arbitration and international arbitration are governed by the Arbitration and Conciliation Act Cap 4. Dispute Resolution for PPPs Disputes under PPPs normally arise during the tender process of the private party or during the implementation of the PPP agreement after the agreement is signed between a contracting authority and the private party. For the tender process of the private party, the PPP Act does not provide for a PPP petition committee or tribunal that would handle the dispute in the first instance. Therefore, the parties can only resort to traditional means of dispute resolution, that is, seek legal redress from a court of competent jurisdiction, which would most likely be the High Court. This would result in delay in resolving such disputes, which would in turn impact the PPP process. Therefore, it is important to establish a PPP petitions committee or tribunal to resolve such conflicts within the shortest time possible.

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For disputes arising from the PPP agreement, Section 26(6) of the PPP Act requires all PPP agreements to include a procedure for resolving disputes between the contracting authority and the private party. Further, Section 49 of the PPP Act requires any disputes between a contracting authority and a private party to be settled through the dispute settlement mechanisms agreed upon by the parties under the agreement or in accordance with the Arbitration and Conciliation Act. Enforcement of Arbitral Awards Uganda is a party to the New York Convention and International Centre for Settlement of Investment Disputes (ICSID) Convention. The Arbitration and Conciliation Act recognizes awards made under the New York Convention and ICSID. Under the Arbitration and Conciliation Act, the New York Convention award and the ICSID Convention award are enforceable and recognized under the provisions of Section 35 and are deemed to be a decree of the court. The successful party must apply to the court to enforce the award, by providing the duly authenticated original arbitral award and the original arbitration agreement or a duly certified copy of it. The Arbitration and Conciliation Act provides in particular for the enforcement of New York Convention and ICSID Convention awards. The New York Convention award means an arbitral award made in pursuance of an arbitration agreement, in the territory of a state (other than Uganda) that is a party to the New York Convention.30 The award is enforceable and recognized under the provisions of Section 35 of the Arbitration and Conciliation Act Cap 4 and is deemed to be a decree of that court. For the enforcement of ICSID Convention awards (Convention on the Settlement of Investment Disputes between States and Nationals Other States), the person seeking to enforce the award is entitled to have the award registered in the court, subject to proof of the prescribed matters.31 Any ICSID Convention award registered under Section 46 of the Arbitration and Conciliation Act is of the same force and effect for the purposes of execution as if it had been a judgment of the court. Summary of the Procedure of Recognition and Enforcement of Arbitral Awards Section 71 of the Arbitration and Conciliation Act Cap 4 provides for arbitration rules and therefore summaries of the procedure to be taken to enforce arbitral awards, namely: • The award is to be filed and registered with the Registrar of the High Court. • Any party filing an award shall serve notice of the filing or registering of the award upon the other party and shall certify in writing to the Registrar the date and manner of each service effected. • The court shall thereupon cause notice of hearing to be sent to the parties interested and after hearing such of them as desired to be heard shall transmit a certified copy of its findings to the arbitrators. • An application for enforcement of an award under Section 35 shall not be made until the expiration of 90 days after the notice of the filing or registering of the award has been served upon the other party and if objections have been lodged until the objections have been dealt with by the court.

30 Section 39 of the Arbitration and Conciliation Act. 31 Section 46 of the Arbitration and Conciliation Act.

Land Ownership, Registration, and Acquisition Land Ownership Ownership and dealings in land in Uganda are regulated by the Constitution of Uganda (the "Constitution"), the Land Act (Cap 227) (the “Land Act”) and the Registration of Titles Act (Cap 230) (the “RTA”). The forms of land tenure provided for under Article 237 of the Constitution are customary, freehold, mailo, and leasehold. This provision is reenacted in Section 3 of the Land Act. The Constitution and the Land Act do not allow non-Ugandan citizens to own interest in real property greater than leasehold interest for a period of more than 99 years. Land Registration and Administration The Registration of Titles Act Cap 230 provides that a registered proprietor of any estate or interest wishing to transact or transfer this must complete a prescribed form, which should be signed and witnessed and presented to the Registrar together with the duplicate certificate of title and any other necessary documents. Instruments not submitted in the appropriate form may be rejected at the discretion of the Registrar. Any subsequent transactions affecting registered land, such as a mortgage or lease, must be endorsed in the Register Book, the certificate of title, and the duplicate certificate. This means that a future buyer will be able to check if, for example, a mortgage has been taken out against the land, as this could obviously affect its value. Once the Registrar has entered the instrument in the Register Book, the person named in the certificate is deemed to be the duly registered proprietor. A certificate shall be conclusive evidence of title, and all its particulars, and the courts are obliged to treat it as such. A registered interest prevails over all other unregistered interests or claims, and registered title holders are protected against unregistered interests. This principle of “indefeasibility” was intended to help create one central land registry and, thus, simplify and expedite future land transactions. There is therefore a clear method of registering and enforcing property rights in Uganda. One of the major challenges is that most of the land is customary land, which may present challenges in acquiring the land. The Ministry of Lands is currently implementing the Competitiveness and Enterprise Development project, which is funded by the World Bank and is providing for systematic registration of land for positive enterprise creation and social and economic transformation, by supporting landowners in rural and urban areas to register their land assets. The project is also expected to improve land administration through setting up zonal land offices in Kabale, Luwero, Mityana, Mpigi, Moroto, Rukungiri, Soroti, Mukono, and Tororo, to bring the total to 21 offices countrywide. Land Acquisition Process and Challenges Land Acquisition is governed by the Constitution of the Republic of Uganda 1995, the Land Act as amended, and the Land Acquisition Act Cap 226. The Constitution[1] prohibits the government from acquiring land compulsorily unless three conditions are satisfied: the acquisition must be necessary for public use or in the interest of defense, public safety, public order, public morality, or public health; the acquisition must be under a law that provides for prompt payment of fair and adequate compensation prior to the taking of possession; and the law must provide for right of access to the courts for interested persons aggrieved by the decision.

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The compensation should be at fair market valuation assessed on a willing seller and willing buyer basis.32 [The compensation shall also include reasonable costs of disturbance and, in the case of customary tenure, in addition to the amount assessed, a disturbance allowance of a sum not exceeding 15 percent of the sum awarded where that person was using the land as his or her home.33] Before the government can acquire land for public use, it is required to carry out the following process: a. The Minister for Lands, Housing and Urban Development is required to make a declaration by statutory instrument that the land is required for a public purpose.34 The statutory instrument should specify the location of the land to which it relates, the approximate area of the land, and, if a plan has been made, the place and time at which the plan may be inspected.35 b. The minister shall subsequently ensure that the declaration is served on the registered proprietor or, as the case may be, the controlling authority and, if the proprietor is not the occupier of the land, the occupier. c. The assessment officer is required to mark the plan, make a plan, and publish a notice in the gazette informing all owners and those with interests that the government intends to acquire their land for public use and invite them to submit their claims for compensation. A minimum of 15 days’ notice must be given, and the date on which the claims will be heard must be specified. d. The assessment officer will subsequently hold an inquiry with respect to the claims and objections made with respect to the land and make an award specifying the true area of the land and the compensation that should be allowed for the land, which will be forwarded to the minister and the persons having an interest in the land. e. If there is no appeal lodged against the award, the government shall pay compensation and take possession. Where an appeal has been lodged against the award made or the person awarded compensation refuses to accept payment, the High Court on application by the Attorney General may order payment to be made in court.

The major challenge posed by the land acquisition process for the construction of infrastructure projects is disputes relating to the amount of compensation. For instance, there was a delay in the construction of the Kampala-Entebbe Express Highway due to disagreements between the Uganda National Roads Authority and the owner of a property along the road who wanted U Sh 48 billion in compensation, while UNRA had valued the property at U Sh 4 billion. Although the Land Acquisition Act allows the Attorney General to apply to the High Court to have the money deposited in court, this provision has not been enforced or applied. The government is proposing to amend the Land Act and certain articles of the Constitution to ease the acquisition of land for national development. The President appointed a Commission of Inquiry, which has been tasked to inquire into the effectiveness of the land law and the process of land acquisition, administration, management, and registration.

32 Section 41(6) of the Land Act. 33 Section 41(6) of the Land Act. 34 Section 3(1) of the Land Acquisition Act. 35 Section 3(2) of the Land Acquisition Act.

Overall, the government should take steps to ensure that compensation is done in a timely manner and the funds for compensation have been set aside before the acquisition is done. To prevent disputes from stalling construction projects, the law should provide for the establishment of escrow accounts for the payment of compensation when the disputes have been finally adjudicated. The law should also provide for land freezing, which would forbid change of ownership of land that has been acquired for infrastructure works, to curb the transfer of land to speculators. Lender Security Ugandan law allows for security to be taken over real property pursuant to the Mortgage Act No. 8 of 2009, which provides that a person holding land is entitled to mortgage his interest in the land. The lender can also take security over intangible assets of the project company, assignment of proceeds in the project company’s accounts, and share pledge over project company shares as part of the lender’s security package. However, Section 20(1) of the PPP Act requires that any transfer of shares in the corporate status of a special purpose company must have the written approval of the minister and the minister of the contracting authority. These could potentially restrain lenders from taking necessary action if the project company defaults, as the minister could block the share transfer. The government should consider reviewing this provision, as it may be a constraint to PPPs. Key findings and recommendations on legal, regulatory and institutional readiness are summarized in table 4.2.

TABLE 4.2: LEGAL, REGULATORY, AND INSTITUTIONAL READINESS: KEY FINDINGS AND RECOMMENDATIONS

PROBLEM/ISSUE DESCRIPTION RECOMMENDATIONS

Gaps in the The gaps in the legal framework are as Prior to a potential amendment of the PPP PPP Act follows: Law pending more experience, the following could be done in the short term • It does not provide for a transitional to address the weaknesses in the law: provision to deal with PPPs that were initiated prior to the passing of the PPP • The Solicitor General should be Act. requested to provide a legal opinion • It does not provide for a dispute on the application of the PPP Act to resolution mechanism for addressing projects that were initiated prior to the disputes during the tender process. This passing of the PPP Act, in the could result in significant delay, as absence of a transitional provisional. disputes will have to be subjected to the • There should be sensitization and traditional judicial process, which tends to be protracted. training of judicial officers, especially at the Commercial Court, on PPP The project team under the PPP Act does not include representation from the PPP processes and transactions, so that Unit and other stakeholders, such as the matters are expedited when they are Ministry of Justice and Constitutional referred to the High Court. Affairs; the Ministry of Lands, Housing In the long term, it will be necessary to and Urban Development; and other establish a PPP petitions committee relevant key stakeholders. It is important to deal with disputes that arise from that all key stakeholders are involved the tender process. right from the initiation of the project concept • All relevant stakeholders should be consulted as part of stakeholder • The PPP Act does not provide for the engagement during the PPP process. establishment of a PPP node, which would be vital in building the capacity of. In the long term, the PPP Act should

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the contracting authorities as they learn be amended to include representation from projects being developed. The PPP of key stakeholders as part of the PPP node would subsequently be integrated project team. into the structure of the contracting • Contracting authorities should create authority and perform a clear institutional PPP nodes in the short term to build role during the process. capacity and institutional memory. • The PPP Act does not spell out clear These should be established within responsibilities for the debt management the organizational structure. In the department, which is critical for managing long term, the law should be amended the government’s fiscal commitments. to make PPP nodes a legal • Section 20(1) of the PPP Act requires the requirement for contracting transfer of shares in the corporate status authorities. of a special purpose company to have the written approval of the minister and the The PPP Act must eventually be amended minister of the contracting authority. This to eliminate the provision on seeking requirement of approval might create ministerial clearance for any share impediments. Globally there are transfers by the special purpose vehicle. instances of cases where the government wants to create stability for the special purpose vehicle, and it requires as part of the contract that transfers before a specific milestone is achieved or beyond a specific threshold level should be approved by the government. However, it will be cumbersome to require approval of the minister for every share transfer.

Gaps in the Land • Disputes relating to land acquisition are The commission appointed by the Act and its stalling projects in cases where the president needs to work on the following implementation awardee of the compensation refuses to aspects with urgency, given that the land receive compensation. acquisition for the Kampala-Jinja project is • Land continues to be transferred imminent, and the government is planning a structured PPP program with a pipeline (especially to speculators) even after the of projects. government has initiated proceedings for land acquisition. • Escrow account for payment of compensation pending dispute settlement, with government taking possession of land immediately thereafter. Forbidding change of ownership of land for which first notice of acquisition has been issued.

Mortgage Act No. 8 The lender can take security over tangible and The PPP Act must eventually be amended of 2009 and the intangible assets of the project company as to eliminate the provision on seeking PPP Act – part of the lender’s security package per the ministerial clearance for share transfers by inconsistency Mortgage Act. Section 20(1) of the PPP Act the special purpose vehicle. requires transfer of shares in the corporate status of a special purpose company to have the written approval of the minister and the minister of the contracting authority. This requirement of approval might create impediments.

Absence of an There is lack of clarity on the operational An operational framework is required for operational framework framework for management of the the management of fiscal commitments. for managing fiscal government’s fiscal commitments. Specifically, the Permanent Secretary of commitments Whereas a legal and institutional MOFPED should make rules for the specifically for PPPs framework is in place for the management administrative and financial framework of of fiscal commitments and contingent the PPP Unit with other departments of the liabilities through the mandate provided by ministry in accordance with Section 11 (5) the PFM Act, this has not been followed by of the PPP Act. These rules have been clear operational guidelines. The developed by the PPP Unit and approved government needs to develop capacity to by the PPP Committee and could provide deal with the fiscal commitments that will for the establishment of a technical fiscal arise as a result of participating in PPPs. committee comprised of representatives from the Debt and Budget Directorates who would assess the fiscal commitments at every stage of the PPP development and report to the PPP Unit.

Lack of funding to • This is the most critical problem • The government should put funding finance the activities of affecting the activities and delivery of for the PPP Unit as one of the key the PPP Unit the PPP program by the PPP Unit, priority areas to enable execution of and it extremely inhibits the visibility of the PPP mandate as provided under the PPP program. the PPP Act. • The lack of adequate funding inhibits Specifically, the government should the PPP Unit to effect its mandate as increase funding for PPP Unit activities, required by the PPP Act. The from US$280,000 to at least US$5 million. budgetary allocation for the PPP Unit In addition, the government should set up for FY 2016/17 was a meager U Sh and provide funding for the Project 1.5 billion; it has since been reduced Development Facilitation Fund established under Section 29 of the PPP Act. to U Sh 1 billion for FY 2017/18. In addition, the Project Development Facilitation Fund, whose purpose includes supporting the activities of the PPP Unit, has not been set up. In the absence of adequate financing to support the activities of the PPP Unit, there will be significant challenges in the implementation of the PPP program in the country.

Lack of capacity to • The key driving force is funding. The Capacity within the PPP Unit and advise on PPP PPP Unit does not have an adequate contracting authorities can be built in the transactions budget to attract PPP expertise with following ways: provisioning of adequate requisite skills and capacity as part of budget for PPP activities and funding of the PPP Unit, to provide the high-level the Project Development Facilitation Fund. PPP advisory services expected of This will facilitate the following: the PPP Unit. The two available staff • Hiring experienced consultants who and the director in the PPP Unit can provide hands-on support to the PPP only do what is within their means in Unit and thereby transfer skills and financial and economic transaction knowledge to its staff and the advisory. Legal and technical contracting authorities. expertise is completely lacking in the • Ensuring that staff members PPP Unit. undertake formal PPP training to build • There is a lack of capacity and their capacity. expertise at the contracting authorities • Organizing study tours and to prepare, tender, and manage PPP secondments for the PPP Unit and projects. The development of the contracting authority staff. government’s technical and management capacity to prepare

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quality business cases and manage the tendering process is critical for an effective PPP program in Uganda. Institutional processes The PPP Act provides for unsolicited The World Bank Group has worked on the in unsolicited projects projects. However, it does not provide processes to be followed for unsolicited details on the processes to be followed. projects in PPPs and provides good practice cases. It is important to incorporate some of these good practices in the PPP Manual for Uganda (the PPP Manual of processes is one of the recommendations of the diagnostic). Specific guidelines on the treatment of unsolicited proposals should be developed to guide the process.

Upstream project The PPP Act provides that, after checking • The World Bank Group is working on screening the costs and benefits of potential projects, an early screening tool for PPP methodologies prior to line ministries can apply for registration of projects. The PPP Unit should include project registration projects. However, there are details on this in its PPP Manual and ensure that early screening methodologies that should every project is screened using this be followed. tool. • Specific PPP Guidelines for project screening dealing with preliminary cost-benefit analysis will be developed by the PPP Unit, resources allowing. Disclosure The PPP Act requires disclosure of The World Bank Group is working actively information on PPPs, but there is no in this area and can provide technical disclosure framework for PPPs that can assistance to the Government of Uganda operationalize the disclosure mandate. to develop a detailed disclosure framework and web portal. It is recommended that the draft PPP Guidelines be updated or separate disclosure guidelines be drafted to provide clear information on the level of project cycle information to be publicly disclosed, as well as the reporting of contingent liabilities and other PPP-related fiscal commitments. Appropriate disclosure-related clauses are recommended for any process manuals, bid documentation, or standard contract documentation that will be drafted. This will help to build and institutionalize the transparency and credibility of the PPP program in Uganda.

Note: FY = fiscal year; MOFPED = Ministry of Finance, Planning and Economic Development; PFM = Public Finance Management; PPP = public-private partnership.

5. Government Support and Managing Fiscal Risk

5.1 Budgetary System and Public Investment Management

Budgetary System The budgetary system in Uganda is a consultative process among MDAs. The budget allocations are informed by the Medium-Term Expenditure Framework, which is a five-year plan that captures indicative allocations across the government. The budget process involves consultations with MDAs, local governments, civil society organizations, development partners, and the private sector. The majority of the budget operations are carried out through the 16 SWGs, which are required to prepare and submit Sector BFPs according to guidelines provided by MOFPED. In brief, each financial year, SWGs prepare and approve the sector budget estimates, ministerial policy statements, and procurement plans; allocate resources to sector needs; and propose new projects within the sector. The Ministerial Policy Statements and BFPs act as a basis for allocation of resources to public priorities to be funded in the fiscal year. Each Sector BFP sets out the budget strategy, specifying the objectives and performance targets for a given sector in a financial year. It also provides details of the sector’s previous performance and plans. As illustrated in the budget cycle in figure 5.1, MOFPED consolidates all the Sector BFPs from the 16 sectors and prepares the National BFP, which is presented to the Parliament by December 31 every year. The National BFP is the government’s overall strategy document for the budget and provides the link between the government’s overall policies (identified in the NDP) and the annual budget. It contains information on macroeconomic policy and plans; overall fiscal strategy, such as revenue projections; the overall resource envelope for the medium term; overall priority interventions (identified in the NDP); and proposed sectoral expenditure plans. MOFPED further prepares the background to the budget, which gives the chronicled history on the allocation details in the budget. The Parliament discusses the budget in detail through its sector budget committees and makes recommendations for allocations, cuts, and additions to given priorities. Through the budget process, development initiatives, such as projects, are allocated resources. For projects that are approved by the Development Committee, the Budget Directorate and Debt Management Directorate in the Ministry of Finance allocate resources to the projects for their entire lifetime. Projects in Uganda are usually intended to deliver a given asset for at least five years. At the end of five years, the project will exit the Public Investment Plan or be extended for a given time period.

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FIGURE 5.1: BUDGET CYCLE

MDAs 1 SWG 1 SBFP 1

MDAs 2 SWG 2 SBFP 2

NBFP MOFPED Parliament National MPS Budget

MDAs … SWG… SBFP …

MDAs 16 SWG 16 SBFP 16

Budget Allocations to MDAs (expending agencies)

Source: Diagnostic study on Public Invetment Management, World Bank, Washington, DC, August 2016.

Note: MDAs = ministries, departments, and agencies; MOFPED = Ministry of Finance, Planning and Economic Development; MPS = Ministerial Policy Statement; NBFP = National Budget Framework Paper; SBFP = Sector Budget Framework Paper; SWG = sector working group.

For PPPs, as they create multiyear commitments, the annual budget is required to indicate a statement of the multiyear commitments to be made by the government in the financial year, a plan for the government debt and any other financial liabilities for the financial year to which the annual budget relates, and a plan for the guarantees to be issued in the financial year. Section 13 (1) of the PFM Act provides that a vote shall not enter into a contract, transaction, or agreement that binds the government to a financial commitment for more than one financial year or which results in a contingent liability, except where the financial commitment or contingent liability is authorized by the Parliament. This section is consistent with Section 13(2) of the PPP Act. The PFM Act authorizes a vote to make a multiyear commitment as long as it is consistent with the objectives of the Charter of Fiscal Responsibility and the BFP.

The multiyear commitments have created an avenue for planning and resource allocation for PPPs, as they require payments over the entire lifetime of the project, which will go beyond the five-year budget allocation. In the case of availability payments, which are annual government commitments, MDAs can now indicate in their multiyear statements the required resources for PPP projects. Public Investment Management According to the World Bank Public Expenditure Review (2010), Uganda has a relatively weak Public Investment Management (PIM) System. The review shows that the actual investment allocations to the Public Investment Plan are below 50 percent of the portfolio, with approved projects clogged by expenditure activities that are not necessarily capital in nature. The challenges identified include (i) poor project selection, (ii) chronic under-execution of capital projects, (iii) cost overruns, and (iv) neglect to operate and maintain created assets. In addition, the mid-term review of the first NDP identified several challenges that have implications for the delivery of future NDPs and the development targets envisaged in Vision 2040. The key challenges, which often led to delays in the implementation of core and other NDP projects, include conflicting prioritization of programs and projects in governments; limited technical analysis and appraisal prior to inclusion of projects in the Public Investment Plan; limited analysis of financing requirements for individual projects; limited structures and technical capacities in MDAs to develop, manage and implement complex projects; and slow and cumbersome procurement. MOFPED has embarked on a process to address the weaknesses identified in the Public Expenditure Review, aimed at proposing a new direction process framework to strengthen the PIM System in Uganda. A diagnostic study of the current framework was carried out and a new PIM System action plan was proposed, as shown in the figure 5.2.

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FIGURE 5.2 PUBLIC INVESTMENT MANAGEMENT ACTION PLAN

Source: Diagnostic study on Public Investment Management, World Bank, Washington, DC, August 2016.

Note: IBP = Integrated Bank of Projects; PIM = Public Investment Management; PPP = public-private partnership.

The reformed PIM System framework has introduced gradualism in project preparation by introducing decision gates at each stage of project preparation: 1. Project concept. Irrespective of the source of the project idea, the entry point into the Public Investment Plan shall be by way of preparation of a concept note that must be submitted to the accounting officer responsible for the relevant vote/agency. The concept note ensures that the project idea is consistent with the national strategic priorities as specified in the NDP, SIPs, and agency strategic plans, and enables stakeholder control for duplication of intervention in the sector. The concept shall be approved by the relevant committee within the sponsoring vote; the relevant committee of the SWG; and the Development Committee at MOFPED. 2. Project profile study, which shall be presented to the ministry by the sector in the pre-investment phase. At this stage, the sector is expected to have employed the logical frame approach in examining the problem that gives rise to the project idea, clearly specifying alternative solutions, objectives, activities, outcomes, verifiable indicators, risks, and consistency with the NDP. An approval by MOFPED allows the project profile study to proceed to the pre-feasibility study stage and entitles the sector to an allocation of resources to undertake a pre-feasibility study.

3. Pre-feasibility study, which shall be presented to the ministry by the sector. The principal objective of a pre-feasibility study is to choose among alternatives identified during the profile study and examine the project potential through a sensitivity analysis to determine its critical variables. It is also at this stage that a decision is made on whether the best alternative should be implemented via a PPP or traditional approach. The result of a pre-feasibility study is normally a recommendation to proceed with the best alternative to a deeper feasibility study and entitles the sector to an allocation of resources to undertake the study. 4. Feasibility study, which shall be presented to the ministry by the sector. After completing all the modules of the pre-feasibility phase, the project must be examined to see if it has potential to meet the financial, economic, and social criteria that the government has set for investment expenditures. This is the final step in the appraisal of a project. 5. Final investment decision and budgeting. After the project feasibility study is completed, a final decision on the investment must be taken. A decision is then made to provide funding, through the traditional fiscal budget, PPPs, or international cooperation (grants and/or loans), and to proceed to the execution of the project. The challenge here is that the PPP project preparation process is more detailed and the attendant documents are quite elaborate. For example, Section 22 of the PPP Act requires that the feasibility study, together with the draft request for qualification and request for proposal, including the evaluation criteria and draft PPP agreement and attendant documents, be submitted to the PPP Committee for consideration and approval.

The core logic of PIM is that while public services connect citizens and firms to buyers/users, thereby serving as an important catalyst to economic growth, they must be efficient to justify the public outlay. The International Monetary Fund has recently noted that “comparing the value of public capital (input) and measures of infrastructure coverage and quality (output) across countries reveals average inefficiencies in public investment processes of around 30 percent.” Specifically, it will be important to explore how the department responsible for the PIM can work closely with the PPP Unit, and how the two processes can be interlinked. The challenge in attempting to interlink the two processes is such that the PPP process is stipulated by law, whereas the PIM process is not backed by law and, as such, various processes as required by the PPP Act must be complied with and approvals from the PPP Committee must be sought prior to progression to the next stage. This notwithstanding, the revised Development Committee (DC) Guidelines provide that during the prefeasibility stage, the project sponsoring agency is required to identify whether the project objectives are best achieved through financing using the Traditional Public Sector Model (TPS) or the PPP model. Where a project is found to be best suited for implementation as a PPP, it may be forwarded to the PPP unit in line with the requirements of the PPP unit. It is important to note that currently projects are entering the two streams separately in many cases, that is, the projects entering each process are different. It is also important to check if early PPP screening methodologies can be used in conjunction with the PIM method to assess suitability for PPP early on, as envisaged in the PIM process.

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5.2 PPP Project Preparation Funding and Framework for Government Support to PPPs

Compared with publicly procured infrastructure projects, PPPs require significant additional upfront, detailed feasibility analysis and preparation to design a robust project structure that meets the government’s development objectives and infrastructure service needs, and presents a suitable and attractive investment opportunity to the private sector. The PPP Act further details the PPP processes that contracting authorities should comply with when preparing PPP projects. The PPP Act provides for the establishment of a PDFF, with the objective of providing project preparation funds for the provision of viability gap financing, as well as a source of liquidity to meet any contingent liabilities arising from a project. However, this fund has not yet been set up in accordance with Section 29 of the PPP Act, although PDFF Guidelines were previously drafted by the PPP Unit and approved by the PPP Committee. There is a pipeline of projects emerging within the various line ministries, as mentioned in chapter 2 of this Diagnostic Report, which would need project development funding. Funding is available on a project-by- project basis from multilateral development banks and others, based on their inclination to fund and their views on the soundness of the project idea. The Government of Uganda needs a sustainable funding source to prepare good and bankable projects on a sustainable basis. The government can establish such a fund in the short term, given the legal mandate for it and existing draft guidelines. The draft guidelines were prepared some time ago and may need to be reviewed by financial and legal specialists who are experienced in the legal, governance, and operational issues of such funds. In addition, there needs to be a framework that deals with the use and eligibility of projects for funding.

5.3 Framework for Managing Fiscal Commitments and Contingent Liabilities

The Report on Public Debt (Domestic and External Loans), Guarantees and Other Financial Liabilities and Grants for the Financial Year 2015/16, March 2016, indicates that Uganda remains at low risk of debt distress. Uganda’s public indebtedness is likely to increase over the next five years, due mostly to the scale of infrastructure priorities set out in the NDP. The recent large depreciation of the shilling, weak exports, and low revenues raised the external debt burden. NDP II estimates that the ratio of net present value of debt to GDP may reach 40 percent in 2019 if Uganda borrows largely on nonconcessional terms. Figure 5.3 shows the trends in Uganda’s debt-to-GDP ratio over 10 years. Uganda has fiscal space to increase its borrowings to finance infrastructure, given its current low level of external indebtedness.

FIGURE 5.3: DEBT-TO-GDP RATIO

Source: Report on Public Debt (Domestic and External Loans), Guarantees and Other Financial Liabilities and Grants for the Financial Year 2015/16, Government of Uganda, March 2016.

Managing Fiscal Risks The Legal Framework for Managing Fiscal Commitments from Public Investments and PPPs includes requirements for approval, tracking, reporting, and monitoring of these liabilities. For example, Uganda tracks binding sovereign guarantees, particularly credit guarantees for loan repayments. However, other fiscal commitments, like explicit and implicit contingent liabilities, have not been tracked very carefully in the past. However, the Report on Public Debt (Domestic and External Loans), Guarantees and Other Financial Liabilities and Grants for the Financial Year 2015/16, March 2016, includes tracking of the contingent liabilities arising from seven PPP projects and estimates these at 0.15 percent of GDP at the end of 2016 (table 5.1). It is not clear why the other PPPs, including the large number of IPPs, are not being tracked or reported. It is important that the fiscal commitments arising from PPPs are managed well, so that the potential advantages of the PPPs are not eroded. The following subsections set out the stages for managing contingent liabilities within the existing policy and legal framework. Approval of Guarantees Article 159 (2) of the Constitution requires all forms of government borrowing to be authorized by an Act of Parliament. This Article provides that the Government of Uganda shall not borrow, guarantee, or raise a loan except if it is authorized by an Act of Parliament. The terms and conditions of the loan can only come into operation after they have been approved by a resolution of the Parliament. Section 36(1) of the PFM Act vests the authority to raise money by loan and issue guarantees in the Minister of MOFPED. No other person, public corporation, state enterprise, or local government is allowed to raise a loan or issue a guarantee without the approval of the minister. The minister is also required to seek parliamentary approval before guaranteeing the repayment of the principal and interest. The Directorate of Debt within MOFPED is responsible for preparing the requests and recommendations for approval to the Parliament. The Public Debt Management Strategy (2016) for FY 2106/17 to FY 2020/21 requires the evaluation of costs and risk trade-offs to be undertaken for all borrowing considerations, to determine the most optimal financing

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strategy for each financial year. In addition, the draft policy on sovereign guarantees proposes the creation of a credit committee comprised of different departments in MOFPED to guide the recommendation for approval or rejection of proposed guarantees. Issuance Before the government can issue a guarantee, the Public Finance Management Act 2015 Section 39(2) requires the minister to determine that the intended purpose of the loan is consistent with government policy and is in the public interest, and that the borrowing entity is capable of servicing the loan. In addition, Regulation 22(1) of the PFM Act Regulations requires the minister to confirm that the entity has the financial ability to repay the loan and confirm that the project for which the loan is sought cannot be financed without a guarantee and is consistent with the requirements of the NDP. The entity is required to provide the draft loan agreement, draft financing agreement, disbursement schedule, and repayment plan to the minister for review and approval [1]. Once the commitment is approved by the Parliament, the Ministry of Finance is authorized to award the guarantee. Management, Tracking, and Reporting Section 36 (4) of the PFM Act requires the minister, by April 1, to prepare and submit to the Parliament a detailed report of the preceding financial year, on the management of the public debt, guarantees, and the other financial liabilities of the government. Under Section 42(2) of the PFM Act, the minister is required to prepare and submit to the Parliament a report on the management of public debt, guarantees, and any other financial liabilities to the government, which shall subsequently be published. The report shall include an analysis of the risks associated with the guarantees. In addition, the Public Debt Management Framework of 2013 requires MOFPED to produce and publish annual estimates of contingent liabilities, including guarantees. Such guarantees should be recorded and analyzed in such manner that provides a fair estimate of the current and future budgetary implications, to provide an early warning signal of any future pressures. This is undertaken by the Debt Directorate in MOFPED. Regulations 8 and 9 of the PFM Act Regulations, 2016, require sectors to prepare BFPs and include a statement of the main sources of risk, such as loans, guarantees, PPP arrangements, contingent liabilities, and an estimate of the likely fiscal impacts of risks if they materialize. Monitoring Section 39 (4) of the PFM Act requires the minister to table before the Parliament, with the annual budget, a report of the existing guarantees, which shall include an analysis of the risks associated with those guarantees. Regulation 22(4) requires the borrowing entity to submit to the minister the plan for recovery of the loan as well as a report on the status of the repayment of the loan every three months during the duration of the loan agreement. Managing Fiscal Commitments with Specific Regard to PPPs While the PFM Act mandates recording of fiscal commitments and contingent liabilities, the fiscal commitments recorded only appear to relate to liabilities such as those related to external debt, loans, and guarantees reported in the Loans and Grants Report each financial year. However, other commitments and contingent liabilities, such as implicit and explicit contingent liabilities, are not estimated fully or recorded, tracked, or disclosed apart from those in the seven PPP projects that have been reported over the past few years. This could lead to insufficient disclosure of government fiscal commitments, thus building up significant fiscal exposure.

The procedure for monitoring fiscal commitments and contingent liabilities under the PFM Act applies equally to PPPs. In addition, within the legal framework of the PPP Law, the PPP Unit is required to collate, analyze, and disseminate information including data on the contingent liabilities of the government in relation to a project, review and assess requests for government support in relation to a project, and advise the PPP Committee on the support that should be accorded to a project.36 Section 11(2) of the PPP Act also mandates the PPP Unit to monitor contingent liabilities and accounting and budgetary issues related to PPPs with the relevant offices within the ministry. Section 13(2) of the PPP Act precludes an accounting officer from entering into an agreement that in any way binds the contracting authority to a future financial commitment that results in a contingent liability, except where the future financial commitment or contingent liability is authorized by the Parliament in the budget of the contracting authority. In addition, feasibility studies are required by Section 22 of the PPP Act to indicate any envisaged future contingent liability. The PPP Act clearly addresses the “what” question and does not address the “how” question. Currently, there is no operational framework for managing fiscal commitments arising specifically from PPPs. There is limited capacity in the Debt Directorate and PPP Unit to estimate, capture, and record the fiscal commitments from public investments and PPPs. This is principally because the PPP Unit is understaffed with inadequate funding to attract appropriate expertise to undertake the development of a PPP Contingent Liability Management Framework. The PPP Unit cannot manage to fund PPP capacity development for the Debt Directorate toward better understanding and analysis of the contingencies arising from PPP projects. It is important that a sound operational framework for managing the fiscal commitments arising from PPPs is developed, to ensure that fiscal commitments are well understood and managed in a transparent and fiscally responsible manner. The framework will ensure that PPP contingent liabilities are monitored, reported on, and budgeted for. The framework should also include clear institutional responsibilities for the Debt and Budget Management Directorates within the ministry and the relationship with the PPP Unit at all stages of the PPP project cycle. There is a need to review and clarify the roles for oversight of state- owned enterprises and contracting authorities, and how these will relate to PPPs, since several PPPs will be undertaken by contracting authorities. It is also necessary to build capacity in the Debt Directorate, Budget Directorate, and PPP Unit to enable the assessment of contingent liabilities as part of the overall PPP capacity-building program. Models for estimating and capturing liabilities need to be improved to factor in the economic cost-benefit analysis and forecast the potential liability and its probability of occurring. In addition, there is an urgent need to set up the PDFF, which is provided for by the PPP Act for purposes of meeting any potential payments arising from contingent liabilities.

36 Section 11(2) of the PPP Act.

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TABLE 5.1: FORECASTED CONTINGENT LIABILITIES FROM PPP PROJECTS

FY FY FY FY FY FY (U Sh billions) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 (EST) (EST) (EST) (EST) (EST) (EST)

Works and Transport Sector 4.03 4.12 4.26 4.33 4.43 4.53

Kenya-Uganda Railways Project 4.03 4.12 4.26 4.33 4.43 4.53

Energy and Mineral Development Sector 91.19 93.12 96.20 97.93 100.11 102.34

Bujagali Power Project 61.71 63.02 65.10 66.27 67.75 69.26

Umeme Electricity Distribution Project 14.21 14.51 14.99 15.26 15.60 15.95

Eskom Electricity Generation Project 1.06 1.08 1.12 1.14 1.17 1.20

Kilembe Mineral Project 14.21 14.51 14.99 15.26 15.60 15.95

Tourism, Trade and Industry Sector 1.06 1.08 1.12 1.14 1.17 1.20

Kampala Serena Hotel Lease/ 1.06 1.08 1.12 1.14 1.17 1.20 Concession Project

Multi-sectors 27.35 27.93 28.86 29.38 30.03 30.69

Kalangala Infrastructure Services Project 27.35 27.93 28.86 29.38 30.03 30.69

TOTAL 123.60 126.30 130.40 132.80 135.70 138.78

% OF GDP

Works and Transport Sector 0.00 0.00 0.00 0.00 0.00 0.00

Kenya-Uganda Railways Project 0.00 0.00 0.00 0.00 0.00 0.00

Energy and Mineral Development Sector 0.11 0.10 0.09 0.09 0.08 0.07

Bujagali Power Project 0.07 0.07 0.06 0.06 0.05 0.05

Umeme Electricity Distribution Project 0.02 0.02 0.01 0.01 0.01 0.01

Eskom Electricity Generation Project 0.00 0.00 0.00 0.00 0.00 0.00

Kilembe Mineral Project 0.02 0.02 0.01 0.01 0.01 0.01

Tourism, Trade and Industry Sector 0.00 0.00 0.00 0.00 0.00 0.00

Kampala Serena Hotel Lease/ 0.00 0.00 0.00 0.00 0.00 0.00 Concession Project

Multi-sectors 0.03 0.03 0.03 0.03 0.02 0.02

Kalangala Infrastructure Services Project 0.03 0.03 0.03 0.03 0.02 0.02

TOTAL 0.15 0.14 0.13 0.12 0.11 0.10

MEMORANDUM

GDP (Nominal: U Sh billions) 83,688.4 92,244.0 101,939.6 112,903.8 125,331.2 139,126.5

Source: Report on Public Debt (Domestic and External Loans), Guarantees and Other Financial Liabilities and Grants for the Financial Year 2015/16, Government of Uganda, March 2016, Annex 8.

Note: FY = fiscal year; GDP = gross domestic product; PPP = public-private partnership.

Key findings and recommendations on funding and managing fiscal risk are included in table 5.2.

TABLE 5.2: FUNDING AND MANAGING FISCAL RISK – KEY FINDINGS AND RECOMMENDATIONS

ISSUES TO NOTE FINDINGS RECOMMENDATIONS

PIM and PPP MOFPED is currently working to put in At the time of integration of the PIM and PPP processes place a PIM process as provided in the processes, it is important that the integration PPP Manual. preserves the requirements of the PPP Act, The PPP Act stipulates processes and to minimize noncompliance and potential institutions for structuring and audit and Inspector General of Government implementation of PPP projects, and queries. compliance with the PPP Act is critical when designing attendant processes.

Framework for The fiscal commitments recorded currently It is recommended that a fiscal commitments Assessment and relate to direct liabilities such as external and contingent liabilities framework be Management of debt, loans, and guarantees reported in the developed to deliver integrated assessment Government Loans and Grants Report each financial and management of all PPPs on a Financial year. Other commitments and contingent programmatic basis, with clear criteria for the Commitments to liabilities are not estimated, recorded, approval of all government financial PPPs and Debt tracked, or disclosed, except those for commitments and contingent liabilities. In Management seven PPP projects that have been addition, it is recommended that the Strategy reported over the past few years. Government of Uganda’s medium-term debt There is no operational framework for management strategy include specific managing fiscal commitments specifically consideration of direct and contingent from PPPs. liabilities associated with PPPs. Finally, it will be imperative that capacity is developed within all relevant entities to ensure effective oversight of the fiscal implications of PPPs.

Project preparation The PPP Act provides for the PDFF, but it Several items need to be carried out in the and viability gap has not yet been operationalized. short term: funding Reviewing draft PDFF guidelines and processing their approval within government Establishing the PDFF Creating a budget line for funding the PDFF Soliciting funds from multilateral and bilateral agencies for the PDFF Creating a framework for eligibility and use of funds, including creation of different product lines Creating other sources of funding, such as from the fees of successful projects and other revenues from projects.

Note: MOFPED = Ministry of Finance, Planning and Economic Development; PDFF = Project Development Facilitation Fund; PIM = Public Investment Management; PPP = public-private partnership.

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6. Access to Finance

Access to adequate and affordable local and international finance will be critical for the development of a robust PPP program in Uganda. Accordingly, this chapter assesses the breadth of potential financing sources for PPPs in Uganda, to understand the availability of different financing instruments and credit enhancement mechanisms, and the role of development banks and institutional investors in financing PPPs.

6.1 Past Financing Experience

The KJE, which is a project currently under implementation, provides an example of how projects are likely to be financed in the future. It has a commitment of concessional financing from multilateral and bilateral institutions and is exploring the possibility of local currency financing through the National Social Security Fund (NSSF) and a syndicate of local banks, to reduce the currency risk to the extent possible. The demand risk will also be taken by the government, given the hesitation of lenders to lend to projects that are exposed to currency and demand risks. In all the current IPPs, the demand risk and currency risk are assumed by the government. Most of the financing comes through equity and foreign financing.

6.2 Current Project Finance Market and Limitations

Commercial Banks The key banking players in Uganda include Barclays Bank, Equity Bank, Stanbic, Bank of Baroda, Centenary Rural Development Bank, Housing Finance Bank, Standard Chartered Bank, and Development Finance Company of Uganda (DFCU) Bank, among others. Most commercial banks, DFCU being an exception, do not make loans with tenors over five years. The Central Bank of Uganda allows commercial banks a maximum of 30 percent mismatch of assets and liabilities on their balance sheets, which constrains their ability to provide long-term loans. Stanbic is the largest commercial bank in Uganda and is interested in exploring options for financing local government infrastructure needs. However, Stanbic can only fund up to US$50 million in any single project, due to credit limits set to avoid overexposure. DCFU was established as a development finance company and, due to its substantial long-term funding bases/partners, is also interested in exploring municipal infrastructure projects. Centenary Bank is primarily involved in rural micro-finance and supports the farming and agricultural processing needs of small farmers. Housing Finance Bank is primarily a mortgage banker. Equity Bank provides loans to small and medium-size businesses. The lending rate as of the end of December 2017 is 23 percent. Limited domestic financing is detrimental to local companies that miss out on infrastructure projects. As noted by the Public Procurement and Disposal Authority, infrastructure contracts mostly go to foreign firms. (According to the Public Procurement and Disposal of Public Assets Act, U Sh 1.2 trillion worth of infrastructure projects are held by foreign firms and only U Sh 911 billion by Ugandan companies.) This situation is mostly due to the absence of long-term financing in the domestic credit market that is

101 competitive with loans available to foreign firms. Domestic banks mostly assist with letters of credit and financial guarantees to support the procurement process. The single borrower limit is 25 percent of core reserves. Infrastructure is typically not a good fit due to high rates, short tenors, cost overruns, and other governance issues. Within these constraints, syndication is possible. Bonds The yield curve is relatively flat, with 91-day treasury bills being issued at 14 percent, 364-day treasury bonds at 15 percent, and 15-year bonds at 12 percent. Long-term bonds are not frequently issued, so the rates are not fully representative. Short-term bills are issued quite frequently. Although the Government of Uganda has not yet issued bonds for specific projects or a specific narrow purpose, it has been issuing bonds for the purpose of raising a pool of resources, which go into different areas. Banks in Uganda have not been lending directly to projects, but they have been buying the securities issued by the government. Banks hold the largest chunk of the securities issued by the government, followed by NSSF in the nonbanking sector. Thirteen percent of the total stock of securities is held by off-shore entities. Some corporate bonds have been issued by banks (East African Development Bank and Standard Chartered, which have been redeemed and are not active now), while only one has been issued by a nonbanking corporate entity, Kenya Sugar. Hedging Currency Risk Active forwards and swaps are being used to hedge currency risk.

6.3 Capital Markets and Institutional Investors

Capital Markets The capital market in Uganda is small. This may change once the East African Community (Uganda, Kenya, Rwanda, Tanzania, and Burundi) is strengthened with its own monetary union and a larger unified capital market could emerge. The Capital Markets Authority has put forth a Capital Markets Development Master Plan for Uganda37 that proposes a threefold approach to developing the country’s capital markets to support Uganda’s Vision 2040. It is well recognized that there is a need to increase domestic resource mobilization through enhanced investment opportunities. Most Ugandan businesses are too small to raise capital through capital markets; however, the number of companies reporting a turnover of more than US$10 million is around 200 and of a scale sufficient to list. Currently there are only 16 firms listed in the Uganda Securities Exchange, of which eight are domestic firms, and only five are issuers of corporate bonds. Many companies feel inhibited from listing due to the rigorous disclosure requirements of the Uganda Securities Exchange. However, the Companies Act of 2012 has similar disclosure requirements that are not met and compliance is rarely enforced. Once compliance with disclosure requirements under the Companies Act is enforced, many larger companies may consider listing, as there would be no additional burden involved in listing. The Ugandan government has raised around US$1.8 billion in bonds, which are sold by banks and not traded in the Uganda Securities Exchange. However, the capital markets (net new equity, corporate + government bonds) are still insignificant compared with commercial bank lending for Ugandan companies,

37 Capital Markets Authority Uganda, “Capital Markets Development Master Plan,” Cadogan Financial Limited, November 2015.

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and the potential for capital markets to grow in Uganda is substantial. A case in point is the NSSF, which currently appears to hold 16 percent of all listed Ugandan shares but must invest abroad, with 24 percent of its shares in Kenyan companies. Thus, the domestic demand for shares and bonds is ever increasing, while the supply is fixed and limited, thereby causing the risk of generating an “asset bubble.” The Capital Markets Development Master Plan reviews several approaches and solutions, including better use of market infrastructure, reducing costs and barriers to listing, as well as liberalizing the legal and regulatory framework within which capital markets function.38 For infrastructure financing, capital markets can play a very useful role. An important proposal raised by the Capital Markets Development Master Plan is to allow special purpose companies (their debt and equities) to be listed even though these are new companies with no track record and may not be able to list under current rules. However, given their overall bankability as vetted by the project sponsors, these companies with solid cash flows could be good candidates for trading and being able to access the deeper resources of pension funds and other institutional investors. These solutions will need to be enabled through legislative means that are currently not available. Pension Funds The pension system in Uganda includes the public service pension scheme, NSSF, and voluntary occupational pension schemes. NSSF is Uganda’s premier provident fund, holding about 86 percent all pension assets, with approximately US$2 billion in assets and growing at a rate of 20 percent annually. NSSF invests in Ugandan government debt as well as commercial and residential real estate. Currently, NSSF has 77 percent of its assets invested in fixed-income (including debt and real estate) instruments and 17 percent in equity. NSSF is seeking to change the ratio to include a greater share of equity investments (possibly 70:30 fixed income and equity). NSSF is interested in exploring long-term investment opportunities and is increasingly looking toward investment vehicles in the infrastructure sectors. Once Umeme was listed in the Uganda Stock Exchange, NSSF purchased Umeme’s shares, becoming its largest shareholder. NSSF has approximately 30 percent of its investments in East African Community countries, mostly Kenya, and 70 percent in domestic assets. NSSF can be a premier source of infrastructure financing, as it can invest in special purpose companies once they are listed in the Uganda Stock Exchange. NSSF can also (i) purchase debt if the company is listed and (ii) subscribe to infrastructure bonds if they are issued by accredited and rated entities, such as the African Development Bank, in projects where the company is not listed. The Uganda Retirement Benefits Regulatory Authority is a government agency that is responsible for regulating, licensing, supervising, and controlling the retirement sector in Uganda. It has issued guidelines for liberalization of the retirement sector in the country. It is expected that with the liberalization of this sector, the number and size of pension funds would increase, leading to more long-term money seeking to invest in infrastructure.

38 See the Uganda Capital Markets Development Master Plan, paragraph 2.101, which itemizes regulatory burdens such as two sets of fees for issuance of one security (USE and ALTX), multiple regulators for licensing and supervision of market participants (USE, ALTX), barriers to local government bond issuance, restrictions on investment decisions by NSSF, restrictions on pension funds’ investment decisions, and cumbersome disclosure requirements for listing, among others.

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Private Equity Funds Although there are no private equity funds in Uganda, the private equity market is slowly but surely developing in Africa and particularly in East Africa. Between 2007 and 2014, there were 158 private equity transactions reported in East Africa for a total value of US$1.5 billion.39 Kenya has attracted most of the private equity investors, but interest is growing in Uganda that can attract private equity investors from across the East African Community. Petroleum Fund Uganda discovered oil reserves in 2006 and is preparing to start pumping in 2018. In 2015, the government passed the PFM Act, which, inter alia, details how oil revenues should be invested in infrastructure and to boost agriculture rather than being expended for recurrent expenditures. The PFM Act provides for the establishment of the Petroleum Fund, to serve as a depository for all revenues accruing to the Government of Uganda from petroleum and related activities, and is disbursed to the Consolidated Fund or the Petroleum Revenue Investment Reserve Account in the Bank of Uganda. The Petroleum Revenue Investment Reserve, which is yet to be set up, would present an opportunity for the government to allocate and invest petroleum revenues toward development purposes.

6.4 Climate Finance Market

There is no local climate finance market in Uganda and, as such, all financing for climate adaptation and resiliency initiatives are accessed through international organizations. Uganda has received US$49 million in multilateral climate finance since 2002 for the development of an adaptation program and an early warning system for the Uganda National Meteorological Authority. Ugandan entities will need to be accredited to access specific funds. Key findings and recommendations on access to finance are summarized in table 6.1.

39 Africa Private Equity and Venture Capital Association.

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TABLE 6.1: ACCESS TO FINANCE: KEY FINDINGS AND RECOMMENDATIONS

ISSUES TO NOTE FINDINGS RECOMMENDATIONS

Commercial bank Equity financing and foreign currency Mobilize domestic currency financing through financing financing with very limited financing by a syndicate of commercial banks. local banks

Pension fund NSSF is seeking investment in Kenya and Mobilizing pension funds such as NSSF is investments in outside. NSSF can invest in equities and essential. infrastructure listed debt. However, if another entity, such URBRA should encourage more awareness as the African Development Bank, raises a of the liberalization of the pension fund bond, it is possible for NSSF to invest in market to ensure greater coverage as well as that bond even if the special purpose more funds. vehicle is not listed. Encourage and facilitate the listing of special The current coverage ratio is 11%, which is purpose vehicles so that NSSF investment is quite low, in terms of the total number of facilitated. Ugandans under some form of coverage compared with the national labor force. Work through multilaterals and raise project bonds to which NSSF can subscribe.

Sovereign Wealth This is still being mobilized. The government should prioritize setting up Fund and operationalizing this fund as soon as it starts receiving oil revenues. The government can look at lessons learned in the case of the Nigeria Sovereign Investment Authority and try to set up an exemplary fund. The PPP Unit should engage with the Ministry of Finance department in charge of setting up the proposed sovereign wealth fund with oil revenues, to strategize how these could be prioritized for PPPs. The Nigeria Sovereign Investment Authority is a good example of a well-run fund.

Climate finance The climate finance market in Uganda is There are several climate investment funds not developed. that support the growth of climate finance projects and markets in developing countries that the private sector would like to leverage. The PPP Unit can help bring together Ugandan private and public entities that are eligible to access these funds with private investors to form PPPs.

Note: NSSF = National Social Security Fund; PPP = public-private partnership; URBRA = Uganda Retirement Benefits Regulatory Authority.

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7. Transparency and Accountability

Robust oversight and audit of PPPs can improve PPP governance and performance significantly, while the full and transparent disclosure of information can help PPP programs achieve desired value for money and better outcomes. Disclosing information throughout all stages of PPPs creates the following benefits: • Early phases of projects. Timely information on planned projects to stakeholders, including the public, as well as investors, with details of the need, benefits, and costs of projects. • Procurement phase. Improved governance, higher level of confidence in the fairness of the process, and better quality of bids. • Government financial support and assumption of risks under PPPs. Improved management of the fiscal costs of PPPs and greater accountability of government expenditure. • PPP performance. Increased understanding among users of what levels of service the government/users should be receiving.

In sum, proper audit and disclosure procedures support the objective of a sustainable PPP program. Accordingly, this chapter assesses the audit and disclosure framework in Uganda for PPPs.

7.1 Audit Framework for PPPs

The Office of the Auditor General is established under Article 163 (1) of the Constitution of Uganda. The Auditor General is required to audit and report on the public accounts of Uganda and all public offices and public institutions. The Auditor General is required to conduct financial and value-for-money audits for any project involving public funds, and it must submit to the Parliament annually a report of the accounts audited by him or her for the financial year immediately preceding. The Auditor General is also required to audit all government investments and carry out procurement audits under Section 13 of the National Audit Act. The Policy Framework of 2010 and the PPP Act 2015 provide for audit frameworks. The 2010 Policy (§11) mandated that the Auditor General would carry out value-for-money audits of the PPP program, under the National Audit Act (2008). This would ensure that the resources invested in the PPP projects were achieving their intended aim of improving infrastructure service delivery. The PPP Act 2015 Act is more stringent in its audit requirements and mandates that each PPP project be audited annually from the inception to conclusion phases by the Auditor General (§30). Furthermore, the Auditor General is required to report to the Parliament within nine months of each audit. It is important to build an understanding of PPPs and the capacity of officials from the Auditor General’s Officer to audit PPPs for sound implementation of the requirements to audit each project.

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7.2 Disclosure Framework for PPPs

The PPP Act 2015 provides for a confidentiality and disclosure framework (§47-48). Upon request for information, contracting authorities are required to disclose information pertaining to PPPs in their jurisdiction. The exceptions to this rule include issues of state security, breach of law, privacy rights of the persons involved and proprietary and industrial information that would compromise the contracting authority, and all information submitted confidentially by a bidder. All PPP information is also expected to be published online. All staff of contracting authorities are required to disclose any actual or potential conflict of pecuniary interest in regard to their PPP projects. However, to supplement the requirements of the PPP Act, a detailed framework for disclosure of information would help the contracting authorities and PPP Unit to disclose information systematically in a structured manner. Key findings and recommendations on transparency and accountability are summarized in table 7.1.

TABLE 7.1: TRANSPARENCY AND ACCOUNTABILITY: KEY FINDINGS AND RECOMMENDATIONS

ISSUES TO NOTE FINDINGS RECOMMENDATIONS

Audit framework It is possible for PPPs to be audited under Close coordination will be required between the current framework of the legal mandate the office of the Auditor General and the PPP for audits. All audit reports in Uganda are Unit in the auditing/ monitoring of PPPs. PPP disclosed; audits of PPP projects can be capacity building for the office of the Auditor undertaken under the National Audit Act; General is of paramount importance, as there is no separate framework for audit especially in planning and developing the of PPPs. Under the PPP Act, the Auditor work plan for the audit of PPP projects. General must undertake audits of each Specific audit standards may need to be PPP entered into by a contracting authority, reassessed to ascertain their relevance in the from inception to conclusion, and report to audit of PPPs. the Parliament within nine months of each audit.

Disclosure The PPP Act requires disclosure of The World Bank Group is working actively in framework information on PPPs, but there is currently this area and can provide technical no disclosure framework for PPPs that can assistance to the Government of Uganda to help operationalize the disclosure mandate. develop a detailed disclosure framework and web portal. It is recommended that separate disclosure guidelines be drafted to provide clear information on the level of project cycle information to be publicly disclosed, as well as the reporting of contingent liabilities and other PPP-related fiscal commitments. Appropriate disclosure-related clauses are recommended for any process manuals, bid documentation, or standard contract documentation that will be drafted. This will help to build and institutionalize the transparency and credibility of the PPP program in Uganda.

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8. Gap Assessment

Table 8.1 presents the key questions that are necessary to perform a gap assessment of PPP readiness. The answer “no” to a key question defines a PPP readiness gap, which will need to be addressed in the PPP Action Plan. The prioritization of gaps is structured according to the urgency with which identified gaps need to be addressed in support of the PPP program. The following list provides a timeline for priority actions; it is provided as guidance only, and many items can be addressed in parallel, depending on the government’s ability and capacity to implement the priority level of actions: • Immediate: 0-1 year • Short term: 1-2 years • Medium term: 2-3 years.

TABLE 8.1: KEY QUESTIONS AND TIMELINE FOR GAP ASSESSMENT

THEME KEY QUESTION Y/N PRIORITY

PPP experience Does the government have any experience Y implementing PPPs?

Stakeholder support Does the government support PPPs? Y and ownership Do the general public and other key Y stakeholders support PPPs?

Legislative and Is the legal and regulatory environment Y regulatory framework sufficiently conducive to PPPs?

Do legislation and regulation provide clarity on Y Need guidelines the management of unsolicited proposals? To some extent for treatment of unsolicited proposals

Do other legislation and regulation support the N Immediate implementation of PPPs?

Are legislation and regulation functioning well N Immediate in practice?

Institutional framework Are there institutions in place to support the Y Immediate preparation, procurement, and implementation (the PPP Unit of PPPs? needs to be adequately staffed with adequate funding provided for PPP institutional development)

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THEME KEY QUESTION Y/N PRIORITY

Institutional framework Are there processes in place to guide the N/Y Short term preparation, procurement, and implementation Processes are in of PPPs? place as stipulated in the PPP Act; appropriate guidelines are needed to provide clarity to the detail of the required PPP processes

Are there standardized PPP documents and N Short term templates?

Is there a government communication strategy N Immediate and stakeholder engagement strategy on PPPs?

Do the government and the industry have Y/N (access to) the skills and expertise to To some extent; implement PPPs successfully? adequate budget is needed to attract suitable expertise for successful implementation of PPP projects

Government support Does the budgetary system support PPPs? Y and managing fiscal risk Is there funding available for robust PPP To some extent Short term project preparation, procurement, and implementation?

Is there a framework for government support N Short term to PPPs?

Is there a framework for managing fiscal N Short term commitments and contingent liabilities?

Is there a framework for project-level financial N Short term and economic assessments?

Access to finance Are the necessary PPP project finance N Short term structures and sources available?

Transparency and Are there oversight¸ audit, and disclosure N Short term accountability procedures and institutions in place?

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Annex: Comparison of Uganda’s PPP Experience with Regional Peers

According to the Private Participation in Infrastructure (PPI) Database, Uganda’s public-private partnerships (PPP) experience is limited, with the majority of transactions in the energy sector. Between 1991 and 2015, Uganda achieved financial closure on 28 PPI transactions, generating total investment of US$1.8 billion. To bring this experience into context, this annex compares Uganda’s experience with that of Rwanda, Kenya, and Tanzania, three regional peers with their own PPP programs. This annex also compares Uganda more broadly with the Sub-Saharan Africa region as a whole. The data used to generate PPP project comparisons were drawn from the World Bank PPI Database. To provide some context for the comparisons, table A.1 compares the four countries based on gross domestic product, population size, and land area.

TABLE A.1: MACRO-LEVEL DATA FOR UGANDA, RWANDA, KENYA, AND TANZANIA

UGANDA RWANDA KENYA TANZANIA

GDP (PPP) $84.93 $21.97 $152.7 $150.6 (US$, billions)

GDP per capita $2,100 $1,900 $3,400 $3,100 (PPP) (US$)

Population 38,319,241 12,988,423 46,790,758 52,482,726

Land area (sq km) 197,100 24,668 569,140 885,800

Source: Data from the CIA World Factbook, https://www.cia.gov/library/publications/the-world-factbook/.

Note: GDP = gross domestic product; PPP = public-private partnership; sq km = square kilometers.

TABLE A.2: PRIVATE PARTICIPATION IN INFRASTRUCTURE, BY PRIMARY SECTOR, 1991–2015

SECTOR UGANDA RWANDA KENYA TANZANIA SSA

Energy 25 6 20 20 245

Transport 1 0 4 4 119

Water and 2 0 1 0 35 sewerage

Total 28 6 25 24 339

The comparison of total projects by sector across the Sub-Saharan Africa region highlights that Uganda has accrued more PPI experience than its peer countries since 1991 (table A.2), with Uganda’s projects accounting for about 8.3 percent of total PPIs in the Sub-Saharan Africa region since 1991. Perhaps the

111 most interesting sectoral finding is that Uganda is leading its peers in the Great Lakes Region in PPI, and is third in the Sub-Saharan Africa region, only behind South Africa and Nigeria. Table A.3 shows total project investment according to sector and type of PPP based on the PPI Database.

TABLE A.3: PRIVATE PARTICIPATION IN INFRASTRUCTURE, BY INVESTMENT AND PRIMARY SECTOR, 1991–2015 (US$, MILLIONS)

SECTOR UGANDA RWANDA KENYA TANZANIA SSA

Energy 1,397.9 515.7 2,523.2 643.5 37,513.9

Transport 404 0 472.4 166.7 20,637.0

Water and N/A 0 N/A 0 416.8 sewerage

Total 1,801.9 515.7 2995.6 810.2 58,567.7

The dominant sector in Uganda for PPI is the energy sector; this is comparable with the Great Lakes Region as a whole and Sub-Saharan Africa in general. The numbers generated in table A.3 are from projects where these data were available. However, the general picture would not change much because of the missing data. In recent years, the transport sector has seen an increase in investment and number of projects.

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