Finance, Energy Fued over UGX1.5Trn Power Deal As NRM 2021 Poll hangs in Balance over delayed rural connections


Kampala – The National Resistance Movement (NRM)’s electoral chances in 2021 are under threat following a fierce row over a World Bank-funded electricity project worth Shs1.5trillion meant for rural areas.

Pepper Intelligence Unit has landed on documents that show a brewing conflict between the ministry of Finance and that of Energy over which agency to implement the project, as World Bank, who are the funders, looks on in shock and fury.

This row has lasted almost a year as peasants in the deep villages go without connection to the power greed as promised by NRM during the 2016 presidential elections.

Because of this row, this website has learnt that the ruling party’s re-election mobilisers are stuck because they can’t explain to the electorate why so many villages in the countryside have spent five years not connected to the grid despite their capacity to pay the bill and availability of enough electricity.

So serious is this project that even Finance Minister Matia Kasaija has been forced to intervene and remind the ministry of energy officials about how urgent it is and its consequences for the NRM party, come 2021. In a letter dated 12th August, 2020 and seen by Red Pepper, Kasaija wrote to energy officials giving them 10 days to clarify on the matter—the ultimatum expired on Saturday.

“…most importantly rural connections are vital for government more especially at this point in time when we are seeking Peoples mandate. We cannot therefore afford to delay this vital project. In a view of the above, we are writing to seek your final position to enable the World Bank.  If we don’t receive your response in 10 days from the date of this letter, we will respond back to the Bank confirming the implementation modality as proposed in your letter of February 11,2020,” reads part of the letter by Minister Kasaija dated 12th August.

Kasaija echoed a similar concern by the World Bank who sought clarification on the matter in a letter dated August 12, 2020 addressed to the ministry of energy.

THE GENESIS

In January 2018, Cabinet of Uganda approved free The Electricity Connections Policy 2018-2027 to enable Ugandans to access free electricity connection. Government lobbied the World Bank to fund the project and the latter had no objection.

As a result, World Bank offered to fund the project under Electricity Access Scale-up Project(EASP) at a tune of USD400million and this would see over one million Ugandans, small businesses, industrial parks, and refugee centers connected: it would also increase electricity demand by close to 170 Megawatts (MW).

The design of the EASP started two and a half years ago, however, up to date, it is yet to take off. The implementation should have been effective at the beginning of 2019. However, the protracted battles on which electricity agency should implement it have left many Ugandans suffering as many cannot be connected to the electricity even as the country heads for elections. The free electricity connections policy had always been seen as one of the big gifts the government of Uganda had given to its People. There are allegations that whoever implements this project has a 10% commission (USD10million) and sources say, this could be the reason why it is dragging on.

Intelligence sources also say, the World Bank is getting tired every day that passes and if this controversy is not solved by September this year, Uganda risks losing the funding and another good project will be gone, just like that.

ENERGY OFFICIALS GIVE NODE TO REA

On February (11th) this year, the ministry of Energy officials proceeded to write to the World Bank clarifying that the project would be implemented by REA.

“The ministry of Energy has received Aide memoire for the mission and has taken note of the discussions held with the different stakeholders.

In regards to Component1: Grid connectivity Access Scale-up implementation, the MEMD is in concurrence with the implementation arrangements spelt out in the draft Aide memoire. To clarify further, REA will be the implementing agency. REA will carry out central planning to ensure that there is equitable distribution of electricity across the country and also reach out to the unserved and underserved communities. Materials will be procured in bulk to enable gains from economies of scale. REA’s capacity will be strengthened through the creation of a strong Project Implementation Unit which will include working closely with utility companies. In addition a supply chain management consultant will be procured to support the timely delivery of materials. A design and supervision consultant will as well be procured and play a key role in ensuring that the project remains on schedule.The MEMD will establish a strong monitoring unit and strong monitoring mechanisms to monitor REA’s performance to ensure that it remains satisfactory under the EASP/ The MEMD remains grateful to the support rendered by the World Bank in increasing access to electricity in Uganda and pledges full support to advance the EASP project.

U-TURN

Whereas everything was on schedule and having been the intention of the World Bank to have its board of directors approve the project in July, this could not happen. On 27th July, 2020, energy officials wrote to the World Bank appearing to contradict the February position. This time they opined that REA has no mandate to implement the project under some other electricity agencies’ areas.

Energy officials opine that for REA to procure connection materials on behalf of other electricity agencies is an act that would cause higher power losses and also lead to violation of contractual and regulatory obligations under the concession agreements.

The Ministry of energy also clarified that REA was to implement the project basing on elements that fall within its mandate (i.e in rural areas outside the Umeme operated foot print).

The ministry also clarified that some electricity agencies like Umeme will be paid directly by the government of Uganda for contracted and delivered services. They observed that involvement of REA would have a negative impact on Umeme’s regulatory targets.

WORLD BANK SHOCKED

Following this U-turn, on 5th August, the World Bank wrote to the ministry of finance (being the borrower on behalf of the government) seeking more clarification.

“Reference is made to the letter from Hon.Mary Goretti Kitutu Kimono, Minister of energy and Mineral Development, of July 27,2020.This letter is expanded on the Hon. Minister’s letter of February 11,2020,which was the basis of the current design of the proposed Electricity Access Scale up Project (EASP) (copies of the referenced letters are enclosed). We would like to re-confirm our commitment to supporting the Government of Uganda’s vision towards achieving universal access to energy services. Accordingly, the Bank commenced a pre-appraisal mission on June 8, 2020 to finalize the project design with the aim of presenting the proposed project to the Bank Board of Executive Directors on July 15, 2020. However, advice from the Ministry of Energy and Mineral Development (MEMD) outlined in the letter of July 27, 2020 has necessitated further due diligence to complete appraisal and the postpone the presentation to the Bank Board.

We hereby outline the issues highlighted in the July 27, 2020 letter from MEMD and elaborate on the Bank’s reflections and follow-up discussions.

1. a) Rural Electrification Agency (“REA”) should only implement parts of the project that fall within rural areas outside Umeme Limited’s operation areas. To accommodate this request, Component 1 (Grid Expansion and Connectivity) must be divided into two parts: (i) Connectivity within Umeme footprint; and (ii) Grid Expansion and Connectivity in rural areas outside of the Umeme footprint. We note that under Statutory Instrument no.62 of 2020 establishing the Rural Electrification Fund and REA, “rural areas” and defined to mean “areas in Uganda beyond the national grid”. As per this definition, all areas where an electricity Service Provider, including Umeme operating the national grid, are outside of REA’s mandate as such, we finance customer connections within the national grid, (i)which agency is mandated. As such, we would appreciate a clarification on, (i) which agency is mandated to implement and finance consumer connections within the national grid, and (ii) the basis determining which areas fall within or out of the national grid. It is critical to have clarity on the REA mandate to clearly define REA’s role under the proposed project and ensure it is implemented according to your legal provisions.

b) An implementing agency, different from REA, will supervise the connections in Umeme footprint. The implementing agency selected by the government of Uganda should establish a Project Implementation Unit (PIU) adequately staffed with PIU capacity should be strengthened with Supervision Consultants and Independent Verification Agents (IVA). To ensure Umeme is targeting consumers for connections in an efficient and equitable manner. Environment and Social Commitment Plan (ESCP) should reflect the commitment plan of the implementing agency supervising Umeme, allocating adequate budget to carry out its environment and social safe guard’s responsibilities. Likewise, the roles and responsibilities of this implementing agency should be reflected in the Stakeholder Engagement Plan (SEP).

c) Grid Extensions by REA in rural areas and in communities hosting refugees should be through Engineering Procurement and Construction (EPC) contracts. The rationale stated for this request is that it has been the practice in all previous REA activities. However, there have been significant delays due to weak procurement and contract management. Capacity is experienced under the ongoing Energy for Rural Transformation III Project (ERT-3 P133312).To enhance overall implementation capacity, the proposed EASP developed adequate risk mitigation measures and suggested the use of Planning, Design and Supervision Consultant (PSDC) and the Materials Logistics Agent (MLA) in lieu of Efficiency contracts. Our request would be not to change the project design at this state preparation and allow REA to gain further experience from an alternate procurement method.

2. Bring Ministries responsible for Health, Education and Water on board as implementing agencies under Component 2. We are pleased to know that the role of Uganda Energy Credit Capitalization Company (UECCC) in implementation of Component 2 (Financial Intermediation for Energy Access Scale up) is cleared MEMD.We understand that MEMD is playing a coordinating  role with ministries responsible for health, education and water. MEMD is also conducting a study to identify the facilities to be electrified along with the suitable implementation mechanism to benefit respective ministries form Component 2, implemented by UECCC.

3. Procurement of materials and equipment which are available in countries. With regard to procurement under the proposed project, we would like to point out the projects that receive financing from the Bank are subject to the Bank’s Procurement Regulations. For purposes of national procurement arrangements, the Bank’s Procurements use Uganda’s procurement law but only to the extent that such laws fulfills the requirements of the Bank’s Procurement Regulations paragraph 5.4. As such where the nationals market approach is used for procurement, it is required, among others, that the procurement opportunity is advertised openly at the national level and is open to eligible firms from any country. In March 2017 (updated February 2018), as part of Government of Uganda’s Buy Uganda Build Uganda (BUBU) initiative, the Public Procurement and Disposal of Content in Public Assets Authority issued a guideline titled “Reservations to Promote Local Content in Public Procurement” which specifies thresholds below which only Ugandan or Ugandans registered companies are eligible to participate, which is not consistent with the universal eligibility requirement under paragraph 3.21 of the Procurement Regulations that “The Bank permits eligible firms and individuals from all countries to offer Goods, Works, Non-consulting Services, and Consulting Services for the Bank-financed projects.” Hence this PPDA Guidelines on reservations will not apply to the Bank financed projects. 

That said, under Annex VII para 2.4 of the Procurement Regulations, sustainable Procurement is provided for.Paragraph 2.24 requires that “The sustainable procurement requirements should be based on evidence (i.e., with supporting data), and on existing social-label criteria, eco-label criteria, or information collected from stakeholders in industry, civil society, and international development agencies.”MOFPED has agreed to identify funding for the studies to gather  empirical evidence to fulfil the requirements…We look  forward to concluding the appraisal of this important project in a timely manner, so that we can present this project to the Bank’s Board of Executive director by September 2020.”

MIN OF FINANCE GIVES ULTIMATUM

Following a demand for clarification by the World Bank, on August 12th, the ministry of finance wrote to energy ministry officials in a strongly worded letter castigating them for backtracking on the February agreed position.

This is how Minister Matia Kasaija expresses his displeasure:

“Reference is made to your letters ref: ESD/198/01 dated 11th February, 2020 and July 27, 2020. Further reference is made to a letter from the country manager World Bank dated August, 5, 2020 responding to your two letters referenced above.

As observed in the letter from the letter from the country manager, your letter dated February 11, 2020 formed the basis for the project design on the undertaking that REA will be the Implementing Agency to oversee implementation across all utility companies including Umeme Limited as clearly articulated in your letter. Based on this understanding, the project proposal was finalized with the aim of presenting to the Board of the World Bank for approval. My ministry, in collaboration with your office, is also in advanced stages to present the proposal to Cabinet for clearance. However, we note in your letter of July 21, 2020 this position has changed without clear justifications. This change may necessitate further due diligence by the Bank to ascertain the proposed modalities which will delay the projects approval processes both for the World Bank and Government of Uganda.

Because of these unprecedented changes the Bank has requested for our opinion and guidance to enable them proceed with project preparation and submission to their board for approval.

It is our considered guidance as the borrower that the implementation arrangements as detailed in your letter of 11th February, 2020, be maintained in order not to delay the implementation of the project. You may wish to note that according to the Electricity Connections Policy, rural connections are in the armpit of REA. Furthermore. And most importantly rural connections are vital for government more especially at this point in time when we are seeking Peoples mandate. We cannot therefore afford to delay this vital project.

In a view of the above, we are writing to seek your final position to enable the Bank.  If we don’t receive your response in 10 days from the date of this letter, we will respond back to the Bank confirming the implementation modality as proposed in your letter of February 11, 2020.”

WIDER PICTURE

According to documents obtained by this Newspaper, the project is supposed to be implemented by Rural Electrification Agency (REA), however, going by the current events, their mother ministry of Energy could be having another plan.

The energy officials , basing on the recently gazetted statutory instrument (SI) for REA, opine that  REA can only implement ‘projects’ beyond the main electricity grid/network hence rendering it an ‘off grid’ organization. With this, REA is not supposed to implement projects in areas where the electricity network exists including those in rural areas.

To make matters worse, this effectively nullifies the existing concessions/leases REA has signed with various service providers including (BECS, PACMES, KRECS, KIS, and UEDCL) since these operate the main grid outside some other electricity agencies footprint. This also puts the recently signed contracts at risk of being null and void since they do not align with the law as provided under the recent Statutory Instrument. “Many contracts were signed in July, 2020 under the world bank energy for rural transformation (ERT) Project while others are to be signed soon under the African Development Bank (ADB) financed under Uganda rural Electricity Access Project (UREAP). The fate of ongoing projects like the Sub County headquarters project is not also known,” a top REA official is quoted in one of the documents in our possession.

He also adds that:” We don’t know why the Statutory Instrument was hurriedly carried out while the country was nursing the fevers of Covid-19 without enough stakeholder consultation…the Statutory Instrument excludes key stakeholder representation like  the ministry of finance and the ministry for Local Government from REA board. These were formerly represented by the permanent secretaries.”

According to this REA top official, the Statutory Instrument as a result, makes it difficult for donors to partner on REA projects. “It would only be logical to have one institution like REA carry out the mandate of implementing rural electrification projects in Uganda. This same ideology is clearly spelt out in the free electricity connections policy of Uganda.”

Insiders say a lot is going on between REA and its mother ministry. REA, an organization mandated to extend electricity to rural areas, appears to be losing the grip over this and the unending resolution of this conflict is threatening not only the peasants’ chances to enjoy a free connection to the grid but the power base of the ruling NRM.

Up to now, some rural areas don’t have electricity (yet they were promised in the 2016 NRM-reelection manifesto). Sources are attributing this to some mafia who want either to fail NRM or are busy making money from projects awards and kickbacks.

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