AFRICAN DEVELOPMENT FUND
MULTINATIONAL
THE INTERCONNECTION OF ELECTRIC GRIDS OF NILE
EQUATORIAL LAKES COUNTRIES (NELSAP)
ONEC/GECL
November 2016
TABLE OF CONTENTS
1. MULTINATIONAL NELSAP INTERCONNECTION PROJECT ....................................................... 1
1.1 BACKGROUND ........................................................................................................................................... 1
1.2 IMPLEMENTATION ARRANGEMENTS .......................................................................................................... 1
1.3 PROJECT OBJECTIVE .................................................................................................................................. 1
1.4 PROJECT COMPONENTS ............................................................................................................................. 2
1.5 PROJECT COST AND FINANCING PLAN ....................................................................................................... 3
1.6 OVERALL PROJECT IMPLEMENTATION STATUS AND CHALLENGES ............................................................ 4
2. UGANDA’S SECTION IN NELSAP INTERCONNECTION PROJECT ............................................. 5
2.1 PROJECT DESCRIPTION .............................................................................................................................. 5
2.2 PROJECT COST AND FINANCING ARRANGEMENTS ..................................................................................... 5
2.2.1 Initial Project Cost .......................................................................................................................... 5
2.2.2 Initial Financing Arrangements ...................................................................................................... 5
2.3 STATUS OF IMPLEMENTATION OF THE PROJECT IN UGANDA ...................................................................... 6
3. REASONS FOR THE PROPOSED SUPPLEMENTARY LOAN FOR UGANDA .............................. 6
4. REVISED PROJECT COST AND FINANCING PLAN ......................................................................... 7
4.1 REVISED PROJECT COST ............................................................................................................................ 7
4.2 REVISED FINANCING PLAN ........................................................................................................................ 8
5. ALIGNMENT WITH THE BANK POLICY AND PROCEDURE FOR SUPPLEMENTARY
FINANCING ................................................................................................................................................ 8
6. LEGAL FRAMEWORK ...........................................................................................................................10
6.1 LEGAL INSTRUMENT .................................................................................................................................10
6.2 CONDITIONS ASSOCIATED WITH FUND’S INTERVENTION .........................................................................10
6.2.1 Conditions Precedent to Entry into Force ......................................................................................10
6.2.2 Conditions precedent to first disbursement ....................................................................................11
6.2.3 Other Conditions ............................................................................................................................11
7. CONCLUSION ...........................................................................................................................................11
8. RECOMMENDATION..............................................................................................................................11
ANNEX-1 “STATUS OF ADF AND JICA LOANS DISBURSEMENTS”
ANNEX-2 “CALCULATION OF FINANCING GAP”
ANNEX-3 “GOVERNMENT’S REQUEST FOR THE SUPPLEMENTARY LOAN”
CURRENCY EQUIVALENTS
Exchange Rate at Bank’s
Appraisal (July 2008)
Exchange Rate at JICA’s
Appraisal (March 2010) Exchange Rate as of July 2016
UA 1 = USD 1.63362
UA 1 = EUR 1.03630
UA 1 = UGX 2,638.87
JPY 1 = USD 1 / 106.3999
JPY 1 = EUR 1 / 167.72846
JPY 1 = UGX 15.1819
JPY 1 = 1 / 90.67852
JPY 1 = EUR 1 / 123.02826
JPY 1 = UGX 22.79163
UA 1 = USD 1.39884
UA 1 = EUR 1.25999
UA 1 = UGX 4,752.74
JPY 1 = USD 1 / 102.90026
JPY 1 = EUR 1 / 114.2398
JPY 1 = UGX 33.01867
Bank’s Fiscal Year
1st January – 31st December
Borrower’s (Uganda) Fiscal Year
1st July – 30th June
Weights and Measures
m Meter KOE kilogram of oil equivalent
cm centimeter = 0.01 meter kV kilovolt = 1,000 volts
mm millimeter = 0.001 meter kVA kilovolt ampere (1,000 VA)
km kilometer = 1,000 meters kW kilowatt = 1,000 watts
m² square meter GW gigawatt (1,000,000 kW or 1000 MW)
cm² square centimeter MW megawatt (1,000,000 W or 1 000 kW)
km² square kilometer = 1,000,000 m² kWh kilowatt hour (1,000 Wh)
ha hectare = 10,000 m² MWh megawatt hour (1,000 KWh)
t (t) metric ton (1,000 kg) GWh gigawatt hour (1,000,000 KWh)
Acronyms and Abbreviations
AfDB African Development Bank NELSAP Nile Equatorial Lakes Subsidiary Action
Program
ADF African Development Fund OPGW Optical Ground Wire
EPC Engineering, Procurement
and Construction
PAPs Project Affected Persons
ESMP Environmental and Social
Management Plan
RAP Resettlement Action Plan
EU-AITF European Union – Africa
Infrastructure Trust Fund
SIDA Swedish International Development
Cooperation Agency
FC Foreign Costs SEK Swedish Krona
GoU Government of Uganda UA Units of account
JICA Japan International
Cooperation Agency
UETCL Uganda Electricity Transmission
Company Ltd.
JPY Japanese Yen UGX Ugandan Shillings
LC Local Costs USD United States Dollar
NBI Nile Basin Initiative WB World Bank
NEL Nile Equatorial Lakes
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MANAGEMENT RECOMMENDATION TO THE BOARD OF DIRECTORS ON
PROPOSED SUPPLEMENTARY LOAN FOR UGANDAN PORTION OF THE
INTERCONNECTION OF ELECTRIC GRIDS OF NILE EQUATORIAL LAKES
COUNTRIES (NELSAP) PROJECT
Management submits this Memorandum and Recommendation to provide a supplementary loan
of UA 5.840 million by re-allocating from 70% of cancelled balances of loans of completed
projects to the Republic of Uganda to finance the funding gap of the above project. The shortfall
arose mainly from depreciation of loan currencies (UA and JPY) against the contract currencies
of EUR and US Dollar and variation orders due to changes in scope.
1. MULTINATIONAL NELSAP INTERCONNECTION PROJECT
1.1 Background
1.1.1 It is to be recalled that on 27 November 2008 the Board approved financing of ADF
loans and grants of UA 99.77 million for the Interconnection of electric grids of Nile Equatorial
Lakes (NEL) Countries project comprising of: UA 17.73 million for Kenya (loan), UA 7.59
million for Uganda (loan), UA 15.15 million for Burundi (grant), UA 27.62 million for
Democratic Republic of Congo (grant), UA 30.47 million for Rwanda (grant) and ADF grant
UA 1.21 for Nile Basin Initiative (NBI).
1.1.2 The initial design of the project consists of the construction of 769 km of 220 kV and
110 kV transmission lines and 17 transformer stations to interconnect the electric grids of Nile
Equatorial Lakes Countries, namely; Burundi, Kenya, Uganda, DR Congo and Rwanda in order
to improve transboundary energy exchange among those countries.
1.2 Implementation Arrangements
1.2.1 With respect to project implementation arrangement, the State Ministries responsible
for energy of the NBI participating countries are the project Executing Agencies. In each
country, the national electricity companies, in charge of transmission, are responsible for
implementation of the project through National Project Implementation Units (NPIUs) on
behalf of the supervisory ministries.
1.2.2 The Nile Equatorial Lakes Subsidiary Action Program (NELSAP) Regional
Coordination Unit (NELSAP-RPCU), on behalf of NBI is responsible for the project
coordination and supervision at regional level. In discharging its coordination and supervisory
duties, NELSAP-RPCU is guided by Project Technical committee drawn from power system
operations and planning experts from participating power utilities and ministries responsible
for electricity. The NELSAP-RPCU is responsible to the Project Steering Committee comprised
of Permanent Secretaries of ministries responsible for electricity and Chief Executives of power
utilities in participating member countries. Consultants are recruited to support the NELSAP-
RPCU on a needs basis.
1.3 Project Objective
1.3.1 The main development objective of NELSAP Interconnection Project is to improve the
rate of access of electrical power for the people of the member countries and to foster regional
power trade through interconnection of their electrical networks. Furthermore, the
implementation of the project will help to reduce electricity energy prices in the NEL countries,
attract investments, and enhance global competitiveness. The interconnection will provide an
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added advantage of sharing capacity reserves and economies of scale that will allow the
development of big hydropower plants in the region.
1.4 Project Components
1.4.1 As per initial design, the components of NELSAP interconnection project are: (i)
construction and upgrading of transmission lines, (ii) construction and upgrading of transformer
substations, (iii) operating and maintenance equipment, (iv) environmental and social impacts,
(v) project studies, control and supervision; and (vi) project administration and management.
1.4.2 As per the feasibility study, the project design was to: (i) construct 220 kV transmission
lines in Uganda, Rwanda and Kenya to interconnect their electric grid, (ii) upgrade the existing
Burundi - Rwanda - DR Congo 70 kV transmission lines to 110 kV and 220 kV. In the course
of implementation, after Bank’s approval of the financing, several design changes were
introduced by the countries to align the project with the agreed Eastern Africa Power Pool
requirement that 220 kV be the lowest level of cross-border interconnection voltage and to
increase cross-border power transfers to meet higher projected national demands. The
standardized 220 kV would then obviate the need to upgrade the voltages once the new
generation projects such as the Kivu Lake and Ruzizi Cascade power projects are implemented.
It would also allow for increased imports to support revised national access rates which had
significantly changed from project design stage e.g. for Rwanda 70% in 2018/19 against a
projection of 13% by 2020, Kenya universal access by 2020 against a projection of 22% by
2020. As a result, the Kenya side of Kenya – Uganda interconnection has been changed to 400
kV, the Rwanda – DR Congo interconnection line voltage was increased to 220 kV in both
countries. In Rwanda several substation were introduced and the Rwanda-Burundi
interconnection was added to the project scope after obtaining funding from European Union
and Government of the Republic of Germany. Due to these design changes, the original 769
km of transmission line has increased to 797.85 km.
Table 1.1 Comparison of Original and Revised Scope of the Multinational NELSAP Project
INITIAL SCOPE REVISED SCOPE
Lot 1
KENYA - UGANDA INTERCONNECTION
Construction of 256 km of 220 kV lines:
Uganda side: 127.7 km of 220 kV from
Bujagali via Tororo to Kenya/Uganda
border
Kenyan side : 128.3 km, 220 kV Lessos -
Tororo Border
Construction of 264.7 km of 220 kV & 400 kV lines:
Ugandan side: 131.2 km of 220 kV from Bujagali
via Tororo to Kenya/Uganda border
Kenyan side: 132.5 km of 400 kV Lessos -
Tororo Border
Substations:
Uganda 2 substations of 220 kV
Kenya 1 substation of 220 kV
Substations:
Uganda 2 substations of 220 kV
Kenya 1 substation of 400 kV
Lot 2
UGANDA - RWANDA INTERCONNECTION
Construction of 172 km of 220 kV lines
designed to be operated at 132 kV:
Ugandan side: 66 km of 220 kV from
Mbarara via Mirama to Rwanda/Uganda
Border
Rwandan side: 106 km of 220 kV single
circuit Birembo - Mirama Border
Construction of 169.15 km of 220 kV lines :
Ugandan side: 66.55 km of 220 kV from Mbarara
via Mirama Rwanda/Uganda Border
Rwandan side: 93.2 km of 220 kV double circuit
Birembo – Shango - Mirama Border
Rwandan side: 9.4 km of 220 kV double circuit
Shango – Birembo
Substations: Substations:
3
INITIAL SCOPE REVISED SCOPE
Uganda 2 substation of 132 kV
Rwanda 1 substation of 132 kV
Uganda 2 substations of 220 kV
Rwanda 2 substations of 220 kV
Lot 3
BURUNDI – DR CONGO – RWANDA INTERCONNECTION
Transmission Lines:
Burundian side: 112 km of 110 kV to
upgrade the 70 kV lines (Rusizi 1 -
Bujumbura)
Congolese side: 150 km of 220 kV line to
upgrade the 70 kV lines (Rusizi 1 – Goma
DRC)
Congolese side: 31 km of 110 kV line
Rwandan side: 48 km of 110 kV
Transmission Lines:
Burundian side: 78 km of 220 kV lines (Rusizi 3
- Bujumbura)
Congolese side: 93 km of 220 kV lines (Rusizi 3
– Goma DRC)
Congolese side: 13 km of 220 kV lines (Rwanda
border – Goma DRC)
Rwandan side: 180 km of 220 kV lines
Substations: -
(Rwanda 1 - DRC 2) = 3 substations
(Burundi 1 - DRC 7) = 8 substations
Substations:
(Rwanda 4 - DRC 1) = 5 substations
(Burundi 1 - DRC 0) = 1 substations
DRC - 1 Substation
1.5 Project Cost and Financing Plan
1.5.1 The initial total estimated project cost of the overall NELSAP Interconnection project
was UA 160.20 million. But due to changes in project scope, this has increased to UA 277.422
million, equivalent to total project cost of USD 383.87 million, out of which the counterpart
funding is around USD 32.93 million.
1.5.2 In the originally financing plan the AfDB, Japanese International Cooperation Agency
(JICA), World Bank (WB), the respective Governments promoting the project and the NBI
were the co-financiers of the project. However, the World Bank’s planned contribution to the
portion of the project in Kenya amounting to UA 15.60 million was not approved and after
AfDB’s approval of the project it was found necessary to increase the scope of the Lessos
substation due to the planned Lake Turkana wind power project. As a result, AfDB provided
ADF loan of UA 22.04 million as supplementary financing to fill the gap for the Kenya section.
1.5.3 The countries introduced many design changes after Bank’s approval of the loans and
grants and such changes have increased the total project cost and created financing gaps.
Accordingly, other co-financiers, such as KfW, the Government of the Netherlands and the EU
contributed to the project to bridge the financing gaps. In addition, due to delay in project start-
up, completion and price escalation over time, the Bank provided a supplementary grant to DR
Congo of UA 8.04 million and mobilized additional resources from EU-Africa Infrastructure
Trust Fund (EU-AITF) of EUR 2.0 million for integrated network analysis and grid
operationalization. The Swedish International Development Cooperation Agency (SIDA) also
provided an additional SEK 5 million to NBI/NELSAP for overall project coordination
activities after the AfDB granted ran out. Table 1.1 presents the initial and current financing
plan of the project.
4
Table 1.2 Initial and current financing plan
Co-
financier
Initial financing plan in UA
millions Current financing plan in UA millions
Bu
run
di
Ken
ya
Ug
an
da
D.R
.C
Rw
an
da
NB
I
Bu
run
di
Ken
ya
Ug
an
da
D.R
.C
Rw
an
da
NB
I
ADF 15.15 17.73 7.59 27.62 30.47 1.21 15.15 39.771 13.432 35.663 30.47 1.21
WB 15.60
JICA 37.48 37.48
Counterpart
funding 0.02 1.90 3.07 0.05 1.93 0.38 0.09 7.36 9.842 1.09 4.78 0.38
KfW 17.37
(EUR 18)
34.98
(EUR 36.25)
Netherland 6.27
(EUR6.5)
16.65
(EUR 17.25)
EU-AITF 1.93
(EUR 2)
SIDA 0.51
(SEK 5)
Total 15.17 35.23 48.14 27.67 32.40 1.59 32.61 47.13 60.752 43.02 86.88 4.03
Grand
Total 160.20 277.422
1.6 Overall Project Implementation Status and Challenges
1.6.1 Kenya Scope: Lessos – Tororo transmission line overall progress is at 50% while the
substation extension has attained 61% construction progress.
1.6.2 Uganda Scope: Bujagali - Tororo – Uganda/Kenya border transmission line overall
progress is at 79.9%, Mbarara – Mirama - Uganda/Rwanda border transmission line is 88.6%,
and substations are at 72.03%.
1.6.3 Rwanda Scope: Shango – Mirama transmission line is 100% completed but cannot be
energized because the Uganda components are not complete, Birembo-Shango-Gesenyi-
Kibuye transmission line is at 94%, Shango substation is 80%, Birembo substation is 90%,
Kibuye 35% and Gisenyi 39%
1.6.4 DRC Scope: Goma – Gisenyi transmission line overall progress is 93% and Goma
substation is 37%.
1.6.5 Burundi Scope: Bujumbura – Kamanyora transmission line and Bujumbura substation
have not commenced. The line is funded by AfDB and the substation is funded by KfW who
have suspended financing since 30th June 2016.
1.6.6 There have been two main challenges on the NELSAP grid interconnection project: (i)
contractor performance and (ii) securing wayleaves. The contract issues are being addressed
through restructuring and the Governments especially in Uganda and Kenya have scale-up
efforts to secure the line trace and substation land.
1 The Bank approved a supplementary loan of UA 22.04 million in 16 June 2010 2 Considering the proposed UA 5.840 million supplementary loan to Uganda 3 The Bank approved a supplementary grant of UA 8.04 million in 5 July 2016
5
2. UGANDA’s SECTION IN NELSAP INTERCONNECTION PROJECT
2.1 Project Description
2.1.1 The purpose of the Uganda’s section of the NEL countries power system
interconnection project is to help strengthen the Eastern Africa regional power grid, and
facilitate power exchange within the region.
2.1.2 The NELSAP Uganda initial scope comprises the construction of: (i) 127.7 km of 220
kV transmission line from Bujagali via Tororo substation to the Uganda/Kenya border, (ii) 66
km of 220 kV transmission line from Mbarara substation via new Mirama substation to the
Uganda/Rwanda border; and (iii) the extension of Bujagali, Mbarara and Tororo substations
and construction of new substation at Mirama.
2.1.3 The revised scope, in Uganda, comprises the construction of: (i) 131.2 km of 220 kV
double circuit transmission line from Bujagali via Tororo substation to the Uganda/Kenya
border, (ii) 66.55 km of 220 kV double circuit transmission line from Mbarara North substation
via new Mirama substation to the Uganda/Rwanda border; and (iii) the extension of 220 kV
Bujagali switchyard, construction of new 220/132 kV Mbarara North substation, construction
of new 220 kV Tororo substation and construction of new 220/132/33 kV Mirama substation.
2.2 Project Cost and Financing Arrangements
2.2.1 Initial Project Cost
The total cost of the project in Uganda, including 7% of physical and 3% of price contingencies
and excluding all taxes, duties, levies, was estimated at UA 48.14 million, comprising foreign
exchange costs of UA 29.88 million and local costs of UA 18.26 million. The summary of the
cost estimates by expenditure category is presented in Table 2.1 below.
Table 2.1 Uganda’s Section Initial Estimated Cost by Component
Expenditure Category USD millions UA millions
FC LC Total FC LC Total
Goods and Works 47.914 24.341 72.255 29.330 14.900 44.230
Services 0.817 0.424 1.241 0.50 0.26 0.76
Project Administration 0.082 0.049 0.131 0.05 0.03 0.08
Implementation of Environmental and
Social management Plan (ESMP) and
Resettlement Action Plan (RAP)
0.00 5.015 5.015 0.00 3.07 3.07
Initial Total Project Cost 48.813 29.829 78.642 29.880 18.260 48.140
2.2.2 Initial Financing Arrangements
The initial financing arrangements for Uganda’s portion of NELSAP interconnection project
were the Bank, JICA and Government of Uganda (GoU), with an ADF loan of UA 7.59 million
(15.77%), JICA loan of JPY 5,406 million (77.85%), which is equivalent to UA 37.48 million
and GoU’s contribution of UA 3.07 million (6.38%). Table 2.2 illustrates the initial sources of
financing of the project by expenditure category.
6
Table 2.2 Initial financing plan by source of financing and expenditure category, in UA million
Expenditure Category JICA AfDB GoU
FC LC Total FC LC Total FC LC Total
Goods and Works 24.85 12.63 37.48 4.48 2.27 6.75 0.00 0.00 0.00
Services 0.00 0.00 0.00 0.50 0.26 0.76 0.00 0.00 0.00
Project Administration 0.00 0.00 0.00 0.05 0.03 0.08 0.00 0.00 0.00
Implementation of ESMP & RAP 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.07 3.07
Total 24.85 12.63 37.48 5.03 2.56 7.59 0.00 3.07 3.07
2.3 Status of Implementation of the Project in Uganda
2.3.1 Following Bank’s approval of the project on 27 November 2008, the ADF loan
agreement was signed on 13 May 2009 and JICA loan on 26 March 2010. The ADF’s conditions
precedent to first disbursement were fulfilled on 7th July 2011.
2.3.2 Procurement of Services, Goods and Works: The project implementing agency
(Uganda Electricity Transmission Company Ltd., UETCL) signed contracts on 16 June 2011
with the project supervision consultant, 29 November 2012 with the EPC contractors for the
transmission lines construction and 6 December 2012 with the EPC contractor for the
substations construction.
2.3.3 Implementation of Construction Works: As at the end of July 2016, the status of design,
manufacturing, supply and site physical construction activities of transmission lines and
substations is as follows:
- The overall progress of 131.2 km of 220 kV transmission line from Bujagali via Tororo
substation to the Uganda/Kenya border is 79.9%. The expected completion date is
September 2017.
- The overall progress of 66.55 km of 220 kV transmission line from Mbarara North new
substation via new Mirama substation to the Uganda/Rwanda border is 88.6%. The expected
completion date is April 2017.
- The overall progress of 220 kV substations is 72.0%.
2.3.4 Disbursements: As at the end of July 2016, disbursement rate of the ADF loan is 61.3%
and JICA’s loan is 78.9% (see details in Annex-1).
3. Reasons for the Proposed Supplementary Loan for Uganda
3.1 In the course of implementation, the project encountered financing gaps resulted from:
(i) Substantial worldwide increase in price for various items of the project materials both local
and imported and installation prices. Such increase of materials and equipment price has
resulted in higher bid prices compared with the original project cost estimate at appraisal
stage. Downsizing the project scope or design, after bid opening, would jeopardize the
completion time and achievement of project objectives, given that the project is part of a
coherent program of regional interconnection projects involving five (5) countries.
(ii) Depreciation of loan currencies (UA and JPY) against the contracts currencies (USD and
EUR) has resulted in utilization more of the loan amounts. The procurement process has
been completed four years after the Bank approved the loan and the project completion
time is also extended due to several reasons.
7
(iii) Introduction of design changes such as the construction of new 220/132 kV Mbarara
substation instead of extension of existing Mbarara substation. This change required a new
control building, wider substation area to accommodate future lines and additional
equipment, consequently increasing the project cost.
(iv) Variation orders to change the Optical Ground Wire (OPGW) of 24 fibers to OPGW with
48 fibers to harmonize the specifications with the neighboring countries resulting in
increased the project cost.
(v) Unforeseen ground conditions and terrain resulting in changes in transmission line towers
and foundation types. These changes occurred due to transmission line crossing on swampy
area and hilly landscape.
(vi) The project completion has been extended due to right-of-way disputes with project
affected persons and such extension required to extend the contract duration of project
supervision consultant with costs and incurred also additional costs for project
management.
3.2 All the above issues resulted a financing gap of UA 5.840 million to complete the
construction of the project (see details in Annex-2). It is believed that mobilizing this additional
resource will enable the completion of the project and to achieve its development objectives.
3.3 The GoU considering the regional importance of the project, on 17th June 2016, has
requested the Bank to provide a supplementary loan by re-allocating from cancelled balance of
loans of completed projects (see Annex-3). Accordingly, this supplementary ADF loan is
intended to cover the additional costs arisen from the above mentioned causes.
4. Revised Project Cost and Financing Plan
4.1 Revised Project Cost
4.1.1 Table 4.1 shows the comparison of original and revised contracts prices, excluding local
taxes, of NELSAP Uganda due to reasons mentioned in section 3. Table 4.2 shows the revised
project cost by converting the different currencies into UA with the exchange rate of July 2016.
Table 3.1 Initial financing plan by source of financing and expenditure category, in UA million
Original Contracts Prices Revised Contract Prices
USD EUR UGX USD EUR UGX
All
contracts 37,907,156 9,896,538 42,060,641,621 41,139,327.23 9,896,538 49,446,572,056.21
Table 3.2 Initial and Revised project costs, in UA million
Expenditure Category Initial cost estimate Revised cost estimate
FC LC Total FC LC Total
Works 29.33 14.9 44.23 32.804 14.772 47.576
Services 0.5 0.26 0.76 3.095 0.129 3.224
Project Administration 0.05 0.03 0.08 0.000 0.110 0.110
Implementation of ESMP & RAP 0 3.07 3.07 0.000 9.842 9.842
Total 29.88 18.260 48.14 35.899 24.853 60.752
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4.2 Revised Financing Plan
4.2.1 The co-financier (JICA) will not avail additional resources to the project, therefore the
deficit will be bridged by the Bank and the GoU. Table 4.3 shows the original and revised
financing plan and Table 4.4 presents the Bank’s and GoU’s revised financing plan for the
foreign and local costs.
4.2.2 The revised financing plan modifies the initial ADF’s contribution of 15.77% to
22.11%, JICA’s contribution of 77.85% to 61.69% and GoU’s contribution of 6.38% to 16.2%
of the total project cost.
Table 3.3 Revised financing plan by source of financing and expenditure category, in UA million
Expenditure Category Initial financing plan Revised financing plan
JICA AfDB GoU JICA AfDB GoU
Works 37.48 6.75 0.00 37.48 10.096 0.00
Services 0.00 0.76 0.00 0.00 3.224 0.00
Project Administration (operating costs) 0.00 0.08 0.00 0.00 0.110 0.00
Implementation of ESMP & RAP 0.00 0.00 3.07 0.00 9.842 9.842
Sub-total 37.48 7.59 3.07 37.48 13.430 9.842
Total 48.140 60.752
Table 3.4 Revised financing plan for the Bank and GoU, in UA million
Expenditure Category AfDB GoU
Foreign Cost Local Cost Total Foreign Cost Local Cost Total
Works 6.953 3.143 10.096 0.00 0.00 0.00
Services 3.063 0.161 3.224 0.00 0.00 0.00
Project Administration 0.00 0.110 0.110 0.00 0.00 0.00
Implementation of ESMP & RAP 0.00 0.00 0.00 0.00 9.842 9.842
Total 10.016 3.414 13.430 0.00 9.842 9.842
4.2.3 The proposed supplementary loan will cover financing gaps related to the construction
of transmission lines and substation (works categories), project supervision and audit (services
category) and operating costs for project implementation unit. The GoU will cover the full cost
for implementation of ESMP and RAP. Table 4.5 shows the category of expenditures that will
be covered by the ADF supplementary.
Table 3.5 Category of Expenditure to be financed out of the Supplementary Loan
Category of Expenditure In UA millions
Foreign Cost Local Cost Total
Works 3.274 1.656 4.930
Services 0.780 0.020 0.800
Operating Cost 0.00 0.110 0.110
Total 4.054 1.786 5.840
5. Alignment with the Bank Policy and Procedure for Supplementary Financing
5.1 The proposed supplementary loan is in line with the Bank Group Policy and Procedures
on Supplementary Financing of 1 January 1998: (i) the project is in advanced stage with
disbursement ratio and construction activities more that 60%, (ii) the proposed supplementary
financing for cost overruns is intended to utilize cancelled balance of loans (savings) from
9
completed projects; and (iii) the proposed supplementary loan complies with the Bank Policy
specific conditions for considering supplementary financing as shown in Table 5.1.
Table 4.1 Compliance and Justification with the Bank’s Policy and Procedures on Supplementary Financing
Specific Conditions Compliance
(Yes / No) Justification
i. The project’s overall supervision
rating should be “satisfactory” or
higher.
Yes At the last supervision by end of March 2016, the
overall supervision rating is satisfactory.
ii. The provision of supplementary
financing from the Bank’s ADB
or ADF resources would depend
on the eligibility status of the
RMC concerned in accordance
with the arrangements for
lending from the African
Development Fund prevailing at
the time of processing of such
loan.
Yes The proposed loan is reallocation from cancelled
balance of loans (savings). Therefore, it is in line with
current policy on the utilization of loan savings.
iii. The recipient country is making
a determined effort towards
national development in general
and towards the mobilization of
internal and external resources.
Yes As electricity remains critical for Uganda to attain the
growth trajectory and socio-economic transformation
of the country’s fast growing population and limited
access to electricity, the GoU gives top priority to the
national energy/power project. In addition, the GoU is
committed to complete this regional interconnection
project and other regional integration initiatives.
The GoU is committed also to mobilize internal
resources for compensating project-affected persons
(PAPs) under the project.
iv. The implementation environment
of the country is favorable.
Yes The Government and private sector involvement in the
development of energy sector is positive. Concerning
the implementation of this particular project, except
some challenges related to the acquisition of right of
way for the transmission lines, it is being smoothly
implemented.
v. The cost overrun is due to
circumstances beyond the control
of the Borrower.
Yes The project cost overrun is mainly due to: (i)
i. Substantial worldwide increase in price for various
items of the project
ii. Depreciation of loan currencies (UA and JPY)
against the contracts currencies (USD and EUR)
iii. Need of design changes to strengthen the
reliability of power supply on the interconnection,
iv. Change of material types during construction such
as transmission line towers and foundation types
due to unforeseeable ground conditions and terrain
challenges.
v. Variation orders to change the OPGW of 24 fibers
by OPGW with 48 fibers to harmonize
specification with the neighboring countries
vi. The cost overrun cannot be met
by the Borrower and the
Borrower has not been able to
find financiers and the Borrower
provides justifications for the
request for additional Bank
Group financing.
Yes As the project construction progressed more than 60%,
request to other financiers has not been found feasible
due to time constraint. Any other financier would go
through appraisal process. The only co-financier
(JICA) has not allocated any contingency budget for
2016 and 2017 to the energy sector for Uganda. The
10
Specific Conditions Compliance
(Yes / No) Justification
GoU will cover the cost overrun related to the
compensation payments.
vii. It has not been possible to reduce
the total cost of the project
through changes of specifications
or scope of works or services
without significantly affecting
the project objectives and
viability of the project.
Yes The financing gap occurred during implementation
phase, after all the works and service contracts were
signed. Therefore, it was not prudent to downsize the
scope, as it will not meet the regional power exchange
requirement and project would not meet its objectives.
In addition, the project in Rwanda is designed with 220
kV and in Kenya with 400 kV but to be operated at 220
kV. Therefore, change of specifications or scope for
Uganda portion was not possible to reduce the total
cost.
viii. The project is technically,
economically and financially
viable even with the cost
overruns.
Yes The project remains technically sound, financially and
economically viable, as the currently expected volume
of power trade in the region has increased compared
with the one considered in the feasibility study.
ix. The project cannot be downsized
without damaging its ability to
achieve objectives or its
sustainability.
Yes The objectives of interconnecting the NEL countries,
particularly Uganda – Rwanda and Uganda – Kenya,
can only be achieved by fully constructing the planned
220 kV transmission lines and substations. Reducing
the size or scope of the project will reduce the volume
of power exchange and will not benefit the power
shortage that the NEL countries are facing. Thus the
project would not meet its objectives
x. There are no other exogenous
constraints: financial, managerial
or technical - that would hinder
the project completion.
Yes There is no technical and managerial constraint at this
stage of the project. Concerning the right-of-way
acquisition, the Government has put this issue as top
priority and is resolving the issues with the PAPs and
budgeted all the required funding for RAP. Availing
the supplementary loan will ensure the completion of
the project.
6. Legal Framework
6.1 Legal Instrument
The legal instrument to be used for the supplementary financing to the project is an ADF loan
to be financed by re-allocating resources from cancelled balances of loans for completed
projects promoted by the Republic of Uganda.
6.2 Conditions Associated with Fund’s Intervention
Consistent with the conditions for the original ADF loan signed on 13 May 2009, the
supplementary ADF loan shall be subject to the following conditions.
6.2.1 Conditions Precedent to Entry into Force
The entry into force of the Supplementary Loan Agreement shall be subject to the fulfilment by
the Borrower of the provisions of Section 12.01 of the General Conditions Applicable to ADF
Loan and Guarantee Agreements.
11
6.2.2 Conditions precedent to first disbursement
The first disbursement of the supplementary loan shall be subject to Borrower providing
evidence in form and substance satisfactory to the Fund, confirming the following:
(i) The amendment of the agreement on the On-Lending of the initial loan amount, signed
between the Borrower and Uganda Electricity Transmission Company Ltd. (UETCL) to
include the proceeds of the supplementary loan within the scope of the agreement;
(ii) The achievement of a disbursement rate of at least 90% of the existing ADF Loan for the
project.
6.2.3 Other Conditions
The Borrower shall provide in form and substance acceptable to the Fund:
(i) Progress report on the status of implementation of the existing project at quarterly
intervals; and
(ii) Evidence of the payment of compensation and/or resettlement of persons affected by
the Project, in accordance with the Resettlement Action Plan.
7. Conclusion
The project cost increase is mainly due to is the unforeseen depreciation of loan currencies
against the contracts currencies, the general global price hike of equipment and construction
material and change of designs. From the foregoing analysis, the investment in the NELSAP
Interconnection Project (Uganda scope) is technically sound, economically viable,
environmentally sustainable and regionally desirable. The successful implementation of the
project will be facilitated by the provision of the supplementary loan in order to achieve its
development objectives.
The Uganda portion of NELSAP Interconnection Project is part of a regional NELSAP project
and its completion will resolve the current power shortage in the region in short-term, in the
long-term will establish a solid regional power integration contributes to increase cross-border
energy exchange and electricity access rate in the NEL countries.
The project complies with all relevant Bank policies and also meets four out of the ‘High 5s’
namely, light up and power Africa, industrialize Africa, integrates Africa, being regional and
would improve the living standards of the people.
8. Recommendation
In view of the above, it is recommended that the Board of Directors extends to the Government
of Uganda a supplementary loan not exceeding UA 5.840 million through reallocation of
cancelled balances of loans from completed projects in Uganda, to complete the NELSAP
Interconnection Project (Uganda scope).
I
9. Annex-1 “Status of ADF and JICA Loans Disbursements”
ADF Loan
Disbursements made on
contract currencies
Disbursements made on Loan
currency
Losses due to depreciation of
UA
USD 5,519,531.69
UA 4,654,707.38
UA 42,589.97
EUR 385,034.54
UGX 2,274,331,005.00
Balance of loan UA 2,935,292.62
Disbursement ratio 61.3%
JICA Loan
Disbursements made on
contract currencies
Disbursements made on Loan
currency
Losses due to depreciation of
JPY
USD 25,479,289.86
JPY 4,265,112,625.43 JPY 338,354,565.56
Equivalent to UA 2,350,647.60
EUR 4,427,897.20
UGX 24,422,992,808.00
Balance of loan JPY 1,140,887,374.57
Disbursement ratio 78.9%
II
10. Annex-2 “Calculation of financing Gap”
Revised Contract Amounts (excluding local taxes)
USD EUR UGX
i
LOT-A “Bujagali - Tororo –
Uganda/Kenya Border Transmission Line
”
16,129,717.37 0.00 11,020,092,103.52
ii
LOT- B “Mbarara – Mirama -
Uganda/Rwanda Border Transmission
Line ”
10,542,675.94 0.00 6,278,192,571.43
iii LOT – C “Substations” 9,204,702.84 9,896,538.00 32,148,287,381.26
iv Supervision Consultant 5,262,231.08 0.00 0.00
v Total of revised contract amounts 41,139,327.23 9,896,538.00 49,446,572,056.21
vi Disbursed amounts until end of July 2016 30,998,821.55 4,812,931.74 26,697,323,813.00
vii Undisbursed amounts (v – vi) from the
revised contract prices 10,140,505.68 5,083,606.26 22,749,248,243.21
viii Undisbursed amounts converted into UA
at exchange rate of July 2016 UA 16,070,419.34
ix
Balance of each loans as of end of July
2016
a) ADF Loan
b) JICA Loan
UA2,935,292.62
JPY 1,140,887,374.57
x Balance of each loan converted into UA
at exchange rate of July 2016 UA 10,861,369.12
xi Additional budget PIU operating costs UA 100,000.00
xii Financing gap with exchange rate of July
2016 (viii – x + xi) UA 5,309,050.23
xiii Including 10% contingency UA 5,840,000.00
Total estimated financing gap UA 5,840,000.00
III
11. Annex-3 “Government’s Request for the supplementary loan”