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

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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”