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Home » Opinions » Energy, Oil and Gas top are Key Investment Areas in Uganda

Energy, Oil and Gas top are Key Investment Areas in Uganda

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By Brian Kalule….

In his 2016/2017 Budget Speech delivered in June 2016, Finance Minister nominee Matia Kasaijja noted that the 2014 National Population Census stated that access to electricity had more than doubled (from 7,8% to 20,4%) in Uganda since 2002.

Kasaijia said that it was the government’s objective to once again double access to electricity for both domestic and industrial use, bringing power to 40% of the population by 2040. The generation of power, as well as the harnessing of oil and gas resources, has become essential for the development and growth of Uganda.

In this regard, a great deal of state investment has been allocated to the Rural Electrification Programme. Hydropower, harnessed from energy generated by the Nile River, is a key part of the country’s power generation programme, with several projects currently in development. Kasaijia said that hydro power generation capacity had increased to 830 mega watts from 596 mega watts in 2010. In addition, the number of distribution connections increased by 143 000 to 790 000, an annual increase of 13%.

In addition, the oil and gas sector continues to be a key area of growth and investment, with new legislation recently enacted to protect resources and encourage investment. In this regard, it was noted in the Budget Speech, that Shs.188.2 billion had been allocated to the implementation of programmes for oil and gas development, as well as institutional and skills development, including operationalising the National Petroleum Authority and the establishment of the National Oil Company.

Hydropower projects in Uganda

The government recently commenced the construction of the Karuma Hydropower Project, worth about UGX4,3 trillion ($ 1,7 billion). The 600MW dam was commissioned by President Yoweri Museveni in August 2013. Eighty-five per cent of the funding will be procured by Sinohydro Corporation Ltd, a Chinese firm with a soft loan from the China Exim Bank, and the Uganda government will provide the remaining 15%. In his Budget Speech, Kasaijja noted that the Karuma project was 27% complete, with project completion scheduled for 2019.

The Ayago Power Station is a 600MW hydroelectric power plant that will be constructed on the Victoria Nile, downstream of Karuma Power Station but upstream of Murchison Falls. The project will be developed in two simultaneous phases, known as Ayago North (estimated capacity: 350MW) and Ayago South (estimated capacity: 250MW). In August 2013, a previous award was rescinded and the construction contract was awarded to China Gezhouba Construction Company. Similarly, work towards the construction of power projects on River Ndugutu, River Sindila and River Nyamagasani has commenced.

The preliminary works for the construction of the 183MW Isimba Hydropower Project located in Kamuli District along the River Nile have also started. The project construction contract had been awarded to the China International Water and Electric Corporation, a Chinese government-owned firm. Construction began in October 2013 and is expected to last approximately four years at a cost of $415 million from the China Exim Bank. Kasaijia noted that construction work at the Isimba hydro power project was 25% complete, and that the project was scheduled for commissioning by August 2018.

There are also a number of solar power and geothermal power projects that have either been established or are in the process of being established by both government and private entities. The viability of a nuclear-powered electricity producing plant is also seriously being considered by the Ministry of Energy and Mineral Development.

Legal framework – the Petroleum Act, the Petroleum Exploration, Development and Production Act and the Public Finance Management Act

Uganda’s legal framework for the management of its oil and gas resources was recently finalised. The framework includes the enactment of the Petroleum (refining, gas conversion, transmission and midstream storage) Act 2013, the Petroleum (Exploration, Development and Production) Act 2013 and the Public Finance Management Act 2015. The relevant institutions, including the establishment of the National Oil Company and the Petroleum Authority of Uganda, have been concluded to ensure prudent management of oil and gas resources.

The Petroleum Authority of Uganda (PAOU), also known as the Uganda National Petroleum Authority, regulates the production of petroleum in Uganda. Its mandate is to grant exploration licences, refining licenses, transportation licences, marketing licences and give investment advice. The authority derives its existence and power from the Petroleum (Exploration, Development and Production) Act 2013. As a relevant institution to support the commercial interests of Uganda, the Uganda National Oil Company was incorporated on June 12 2015.

Uganda – oil refinery development

As part of the refinery development programme, land acquisition for the proposed oil refinery at Kabaale in Hoima is almost complete. The environmental baseline study for the oil refinery project has also been concluded. The major priority for the government for the next financial year will be commencement of detailed engineering studies for the oil refinery, following the selection of a Lead Investor on a Private-Public Partnership (PPP) basis.

The Ugandan oil pipeline

Uganda has also recently announced that it will build a major pipeline to export its oil through Tanzania. The 1 400 kilometres (800 miles) project will connect Uganda’s western region near Hoima with Tanzania’s port of Tanga. The project is expected to cost about $4 billion and create 15 000 jobs. The discovered oil reserves in Uganda are estimated at some 6,5 billion barrels and the country expects to start production in 2018. Once completed, it will be East Africa’s first major oil pipeline.

Renewable energy

The construction of a 10 megawatt, solar photovoltaic plant in Sororti, 300km northeast of the capital, Kampala, commenced in March 2016 and it is expected to be operational and connected to the national grid later this year. This project will provide new renewable, clean and low-carbon sustainable electricity to 40 000 homes and businesses. The project’s EPC was awarded to Spain’s TSK Group, with parts of the work sub-contracted to local firms.

With many important developments in progress in the energy and oil sectors, the country looks set vastly improve its power generation capacity, providing access to electricity to more of its population and with that, increasing its potential for socio-economic growth.

Kalule is a senior associate with  Bowman’s AF Mpanga office  in Kampala, Uganda.