By Cirrus Kabale 

Currently, the 10^th parliament is reviewing the Budget framework paper 2021/2022. The pro­posed na­tional bud­get for FY 2021/​2022 is projected at UGX 45.658 tril­lion which is a slight increase of 164 billion shillings of the current budget of FY 2020/2021. A total of 10.330 Trillion Shillings is expected from external borrowing, with Shs 6.744 trillion coming in form of project loans, while Shs 3.585 trillion is expected as budget support loans.

While debt repayment will take the lion’s share with nearly 80 percent of the country’s total tax revenue, the government continues to borrow billions of shillings to invest in electricity and oil projects which have further increased the national debt. Currently, Uganda is indebted to a tune of Shs 66 trillion that’s about 48% of the value of the economy (GDP) according to Bank of Uganda report.

Per parliament’s January 2021 report on the 2021/2022 Budget Framework Paper, Uganda plans on mobilising UGX 20.1 trillion in tax revenue. On the other hand, UGX 15.4 trillion, or 33% of the projected UGX 45.66 trillion budget, will be spent on debt servicing. This means that only 23% of Uganda’s tax revenue will be available for use in Uganda.

Indeed, the continued borrowing for the energy sector has compelled our country to be highly indebted for instance as Karuma dam at $1.7 billion, Bujagali Dam at $862 million, Isimba Dam $570 million, Upgrading and construction of national oil roads- $456.3 million, Kabaale International Airport-$318m, Uganda Rural Electricity Access- Shs4.2b among others.

Over 77% of the tax revenue that Uganda plans to collect in the 2021/2022 financial year could be spent on debt servicing. High indebtedness constrains countries from using their revenues to provide much-needed health, education, water and other services.

It is also a reminder of our country’s sad history of corruption, selfishness and wrong priorities by leaders. This is why the majority of Ugandan citizens remain trapped in misery and poverty amidst heavy borrowing.

Increased national debt burden, the government has invested billions of shillings in large hydropower projects financed through loans adding to the already high national debt burden that stands at 48% of the GDP. For instance, Karuma and Isimba hydropower dams costs over $2.268 billion (about Shs 8.28 trillion). Yet the projects have been restricted to grid connected consumers mainly those in urban centers and large industries leaving out the rural households that represent the majority in the country. Other energy projects include the crude oil pipeline that is estimated to cost over $3.5 billion (about Shs 12.7 trillion) and will be financed through debts. The government’s appetite of over borrowing will result in over-burdening of the taxpayers.  

What is more disappointing is that there have been minimal economic returns from the accrued debts by the government. According to 2015 World Bank study showed that for every shilling invested in infrastructure projects in Uganda, less than a shilling is recouped. This loss was seen for over a decade prior to the study. Yet more money is set to be borrowed to invest in the energy projects and roads through the next 2021/2022 financial year budget. 

Poor government planning, the government is continuing to investment in expensive electricity even when it is evident that grid electricity has failed the benefit citizens especially for the rural households. The current electricity capacity in the country stands at 1268.9MW as of October 2020 by Electricity Regulatory Authority (ERA). Out of the available 1268.9MW, only 700MW is consumed majorly by industries and few citizens and 526MW is wasted. 

This has made the few Ugandans who are connected to the electricity to pay exorbitant power tariffs to compensate for the unconsumed power making the majority population in rural areas lacking access to electricity. Instead of government investing in off-grid solar energy to provide power access to the rural communities, it just extends electricity transmission lines and passes through peoples’ homes due to unaffordable electricity. 

Secrecy government dealings, the government continues to operate in darkness especially in signing agreements for the electricity and oil projects. The lack of transparency in electricity, oil and gas contracts has caused public suspicion and raised corruption concerns. For instance, power purchase agreements, Production Sharing Agreements (PSAs), Host Government Agreements (HGA) among others that government signed with electricity and oil companies operating in Uganda remain secret in violation of Article 41 of the Constitution. Such violations of government’s laws have increased the levels of corruption and mismanagement of revenues. Therefore, in a way to promote transparency and accountability, there should be further investigations into the loans for the electricity and oil projects. 

Promoting environmentally destructive projects, the government is promoting activities in the country such as oil, sugarcane plantations, sand mining, rice growing and others in critical biodiversity which compromise environmental conservation. Worse of all, the above-mentioned activities are undertaken in forests, lakes, rivers, national parks and others which undermines the government’s efforts to conserve the environment to promote food security, water access, combat climate change to benefit the poor Ugandans. 

The above environmental resources and the biodiversity support Uganda’s $1.6 billion tourism industry and is expected to increase to $3.0 billion in 2025, $2.005 billion agricultural sector and the $171 million fisheries sector among others. The resources also provide employment to over 5.3 million Ugandans in the various sectors. 

What is more interesting is that government continues to risk billion-dollar industries from tourism, agriculture, fisheries, and as well as risking the employment of over 5.3 million Ugandans who only depend on a single job. This creates a million questions as to whether it is viable for Uganda to promote such activities like oil and gas in eco-sensitive areas especially at a time when countries that are expected to consume Uganda’s oil and gas resources are transitioning to use of clean energy.

Limited investments in off-grid energy access, it should be noted that over a decade, the government has increased investments in hydropower projects and connect them to the central grid with the aim of increasing access to electricity. However, this has failed to deliver and to-date, only 22% of the population has access to electricity and over 95% of Uganda's population still depends on biomass to meet their energy cooking needs. 

This is because they cannot afford the high-power tariffs. Yet over dependency on biomass has resulted in destruction of forests with disastrous effects on climate and negative impacts on the health and education of citizens. Poverty has also increased from 19% to 22% in Uganda and amidst worsening poverty levels, repayment of national debts has increased fromUgs 56.526 trillion in the 2020/2021 financial year to UGX 66 trillion in 2021/2022.

High levels of corruption, it should be noted that Uganda loses over UGX 500 billion in corruption which costs taxpayers huge amount of money. For instance, Uganda lost over Shs. 24 billion to Eutaw Construction Company Inc., a fictitious branch of a US firm, in the infamous Mukono-Katosi road scandal. It is also common knowledge that the country lost about Shs. 4.7 billion in the bicycle scam when a sham company, Amman Industrial Tool and Equipment (AITE), was procured to deliver70,000 bicycles for local council one (L.C.1) chairpersons. To date, no bicycles have been delivered yet taxpayers’ money was paid for them. 

Such acts in the country have contributed to increased poverty, poor health, lack of electricity access, education and other social services. The country’s development agenda demands good governance practices and appropriate actions in curbing corruption and mismanagement of the national resources to enable the realization of socio-economic transformation of Uganda. 

Mismanagement of public resources or revenues, the government has continued to misuse the public resources and other revenues that are expected to be invested in the useful infrastructural developments. Some of the cases where the government has misused the funds include oil revenues abuses such as UGX 6 billion presidential hand shake, raiding the treasury to buy fighter jets, failure to account for over $ 1 billion signature bonuses, withdrawal of UGX 200 billion oil revenues without parliamentary approval and others. 

Noteworthy, the most recent case was the allocation of the Covid-19 supplementary budget that opened the eyes of many Ugandans to the sectors that the government prioritises during budgeting processes. In the midst of a pandemic, the government sought to prioritise security over the health and well-being of Ugandans. It is clear that the Ministry of Health is the lead agency in the fight against Covid-19, however, other ministries and agencies allocated themselves similar responsibilities in order to get a share of the Covid-19 supplementary budget. This paints a bad picture of a scramble for and partition of public resources which clearly shows government’s misuse and wastage of public resources.

 Therefore, I call upon parliament to do the following

 (i). Amend the electricity Act 1999 to address the continuous challenges affecting the electricity industry. 

(ii). Reject the approval of loans by the government to invest in failed energy projects that undermine the promotion of environmental conservation. 

(iii) Urgently increase investments in renewable modern energy options particularly off grid solar that have the potential to meet the energy needs of majority of Ugandans especially the poor women and men who live in rural areas. Electricity and oil will not meet the needs of communities.

 (iii). Further, Parliament should reject funding for projects that degrade the environment such as oil roads, sugarcane growing, hydropower dams, rice growing, sand mining and others. 

(iv). Finally, government should allocate three quarters of energy annual national budgets to off-grid energy projects.

Cirrus Kabaale, Project Officer at Environment Governance Institute (EGI)

In the past twelve months, the African energy sector has seen several encouraging developments – in the form of both Foreign Direct Investment (FDI) and strategic partnerships – that have advanced the sustainable development of its natural resources.

In fact, despite a global downturn in investment in 2020, FDI flows to developing economies accounted for 72% of global FDI, the highest share to date. Given the magnitude of Africa's oil and gas reserves – not to mention its abundant renewable resource wealth – the continent remains a highly attractive market for inbound investment, which is vital for its growth.

Take Uganda, for instance, which is home to one of the largest onshore discoveries in sub-Saharan Africa. Following multiple petroleum discoveries in Uganda's Albertine Graben – estimated to contain 6.5 billion barrels of oil, of which 1.4 billion are considered recoverable – foreign investments into the country are expected to reach nearly $20 billion.

Last April, Total E&P Uganda B.V. signed a Sale and Purchase Agreement with Tullow Oil PC, through which Total will acquire Tullow's entire 33.34% interests in Uganda's Lake Albert development project and the East African Crude Oil Pipeline (EACOP). Five months later, the Ugandan Government and Total signed a host government agreement for EACOP, representing a significant step toward reaching a final investment decision.

The deal pushes along an extended development process – slowed by infrastructure issues, tax complications, then COVID-19 – that not only promises to bring first oil by 2022, but also provides a pathway to monetization via associated transport infrastructure.

In addition to developments at Lake Albert, the Ugandan Government has proven its commitment to attracting FDI to its hydrocarbon sector through its second licensing round held last year, as well as its invitation to local and foreign entities to forge joint-venture partnerships with the Government.

By prioritizing the establishment of mutually beneficial partnerships, the emerging East African producer aims to facilitate the successful transfer of skills, knowledge and technology, initiating an influx of technical expertise and working capital into the country.

"Those who have been locked out from access to opportunity want the same from the energy sector that the energy sectors want from governments.  We must not forget local content, local jobs, local opportunities especially for young people and women" Stated NJ Ayuk Executive Chairman of the African Energy Chamber.

Meanwhile, in West Africa, Senegal has been reaping the rewards of a long-standing partnership with Germany, which has resulted in more than one billion Euros in funding, including significant support for small-scale power plants and renewable energy projects. Holding sizeable potential for solar and wind energy development, Senegal serves as a regional leader in renewable deployment as a means of rural electrification.

Indeed, energy is a central component of poverty alleviation across Africa, with electricity access enabling greater independence, clean cooking and potable water, as well as dramatically improving the well-being of individuals, businesses and communities alike.  Rural populations are cognizant of the challenges posed by a lack of stable electricity supply – increased urban migration, lack of access to basic services, low economic competitiveness, to name a few – and distributed renewables can represent the fastest and least expensive path to electrification.

European interest in Senegal has shed light on and served as a model for co-operation opportunities between renewable-rich African countries and developed partners, which offer cutting-edge technologies and technical expertise to transform raw resources into viable off-grid and mini-grid solutions.  

Furthermore, while the cost of deploying renewable technology has never been lower, the availability of renewable-focused capital has never been higher. Investment in commercial and industrial solar has demonstrated resilience against the pandemic, continuing to be seen as a safe investment in light of rising utility costs and increasing distribution of both solar and financial technologies.

Yet resource potential and low costs of equipment are not enough; Senegal and other resource-rich African nations require active investor interest and strong government support to unlock diversified energy mixes. In turn, a lack of investment represents a pointed threat to the achievement of long-term energy security.

"Young people and women have shown their great resilience, and it is our hope we close these deals in the renewable energy sector, Africans can have a sense of some hope that they will be included in the industry contracts and opportunities. It is no longer correct for the African to be the last hired and the first fired" Concluded Ayuk.

Moreover, without sustained levels of FDI continuing to move the needle on oil, gas and renewable developments, energy export revenues run the risk of being stranded and resources left undeveloped. For emerging producers like Uganda – as well as Tanzania, Kenya, Mozambique, among several others – this would mean foregoing critical government revenues that could aid in a much-needed, post-COVID-19 economic recovery.

FDI is vital to Africa's growth, and while it may be challenging to procure capital in a tepid global economy, it is even more difficult not to. Yes, COVID-19 has put emerging producers in a tough spot: new exploration is seen as risky, and new producers lack existing assets or low-cost development of marginal fields on which to fall back.

However, it is not an option to slow or postpone time-sensitive developments that promise to harness natural resource wealth and make sustainable improvements in standards of living across the continent. Africa requires a sustained flow of investment and has proven time and again that it offers the scope of projects and magnitude of resources that are worthy of foreign capital.

By Charity Migwi, Edwin Mumbere & Evelyn Acham

The East African Crude Oil Pipeline (EACOP) is expected to reach a Final Investment Decision (FID) as soon as the end of March 2021.This will pave way for the commencement of the construction phase of the pipeline.

South Africa’s Standard Bank, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) and Industrial and Commercial Bank of China (ICBC) are among the lead financial advisers intending to secure $3.5 billion to fund the construction of this pipeline projected to release 34.3 million tons of carbon into the atmosphere each year once complete.

This comes at a time when the entire world is aiming to remain within the recommended 1.50C and abide by the principles of the Paris Agreement.

In a statement to an inquiry by Uganda's Daily Monitor, Standard Bank claimed to have suspended their financial support to the disastrous project as they await an independent Environmental and Social Impact Assessment (ESIA).

This process is, however, standard practice under the Equator Principle and it seems that Standard Bank is merely pointing to its routine due diligence process with little regard to the call by numerous Civil Society Organizations (CSOs) and local communities to withdraw their support to such an irreversibly damaging project.

High risks and meagre earnings for both countries

The EACOP is touted as the project that will unlock East Africa’s future by taking Uganda’s oil to the rest of the world. This will supposedly increase the Foreign Direct Investment (FDI) for both countries by over 60% during the construction phase.

Conversely, the value of Uganda’s oil reserves has already fallen by approximately 70% since 2013. This value is expected to fall even further as the world transitions into a low-carbon economy.

Even from the Tanzania ESIA it estimated that the government will only get $240 million from the project after its construction, which is peanuts compared to the environmental and social implications faced.

Furthermore, the Ugandan government is bound to accrue losses of up to $1.4 billion, much more than the $130 million that the Ministry of Finance intends to borrow from the domestic market. Public debt is already projected to rise to 54.1% by 2023 in Uganda.

The EACOP project thus risks driving East Africa further into unsustainable debt at the mere prospect of reaping meagre earnings with the only entities bound to benefit being the foreign oil companies such as Total.

No government should take such dire economic risks and push the lives of its already struggling citizens into deeper poverty. Standard Bank in cahoots with other major EACOP proponents are, however, resolutely keen on baking debts, the kind that future generations will still be tasting decades from now.

East Africa does not need oil or any fossil fuels to unlock its future especially when there are viable, affordable and clean alternative sources of energy such as solar and wind, which are renewable and have better prospects when it comes to long-term job opportunities. East Africa needs to focus on a just transition to renewable energy that guarantees the extensive deployment of millions of clean jobs .

EACOP bound to destroy lives and natural habitats

The proponents of the pipeline have claimed that EACOP will create short term employment for highly skilled and semi-skilled professionals, as well as casual laborers over a period of 2 to 3 years. It is estimated that 10,000 jobs would be created during the construction phase, boosting the income of the households along the pipeline.

However, what we have witnessed in Uganda, Tanzania as well as other East African countries, very few jobs are usually allocated to the local community, thus leaving them even more vulnerable and disenfranchised.

The project will result in the physical displacement of local communities from their ancestral and communal land. It is anticipated that EACOP will directly affect approximately 14,000 households in Tanzania and Uganda leading to loss of income and livelihoods.

Moreover, the pipeline risks polluting water resources of which over 40 million people in 9 countries depend on; an unacceptable human rights violation.

Beyond ruining people’s lives, the pipeline will tear through some of the world’s most significant habitats, home to endangered species including African elephants, chimpanzees and lions, pushing them ever closer to extinction.

What can Standard Bank and other financial institutions do?

By playing an advisory role and without a clear commitment to withdraw their financial support from the EACOP project, Standard Bank will be fueling the transition of billions of dollars from public coffers into the pockets of a few fossil fuel proponents who are undoubtedly ready to create tons of emissions that will lead to a planet choking on carbon and exacerbate the already worsening climate crisis, making it extremely difficult for an already vulnerable continent experiencing the adverse effects of climate change.

Standard Bank has a responsibility to take care of the people and the planet by leading a new pathway for Africa through spurring investment in renewable energy that will guarantee access to cheaper and cleaner power across Africa, and in the process create jobs for millions of youth across the continent.

At a time when millions of petitioners have protested against the EACOP, Standard Bank needs to follow in the footsteps of Barclays Bank and Credit Suisse, who have publicly committed to not financing the disastrous EACOP project. The future needs banks that are committed to having a fossil fuel exclusion policy and an investment plan that unlocks Africa’s future with 100% renewables.

By Charity Migwi of 350Africa.org, Edwin Mumbere of the Center for Citizens Conserving (CECIC) and Evelyn Acham of the Rise Up Movement.

Equity Bank Uganda has launched a new loan portfolio dubbed “Structured Commodity Finance Loan (SCF)”; a financing solution aimed at supporting the growth of agribusinesses and smallholders.

The structured commodity finance loan will allow agribusinesses to borrow against their agricultural inventory which can be used as collateral for security and repayment. Agribusinesses stand to benefit from SCF by receiving financing to ensure that cash flow is available for maximum output; with the intention of repaying the loans once sale of the agricultural produce is complete. A financing solution that will allow them to sustain customer demand and have access to new markets and customers.

Commenting during the launch of the new financing solution, Equity Bank Uganda Executive Director Anthony Kituuka said, “Agriculture remains a key sector in our economy and as Equity, we have chosen to invest in upscaling smallholder and medium holder farmers because they play a key role in the growth of the economy. With the new Structured Commodity Financing, farmers and agribusiness SMEs can now effectively manage their liquidity and mitigate against risks related to the production, purchase and sale of farm outputs.” 

Working with the farmers, Equity will isolate assets which have relatively predictable cash flows attached to them through price discovery and discounting.  The agribusinesses will then use these to mitigate risk and secure affordable credit with flexible repayment terms.

With the new facility, customers can now access loan amounts of between shs30 million to shs5 billion at competitive interest rates per annum determined on a case-by-case basis and repayable within flexible periods as agreed during the application process.

Farmers and agribusiness SMEs looking to access the new financing solution will need to have an existing bank account with Equity Uganda while new customers will be required to open new accounts with the bank and provide previous banking history and statements. All agribusiness SMEs will also have to provide proof of operation in the commercial agribusiness sector for at least one year and demonstrate ability to repay the loans as well as meet the other mandatory loan application requirements.

Other than SCF financing, Equity offers farmers various financing solutions including production loans which aims at improving crop and livestock production, asset finance loans for farm machinery such as tractors, marketing loans and processing loans which allows them to add value to their farm inputs and increase sales.