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The Buseruka Hydropower project will build and commercially operate a 9-MW hydroelectric powerplant to support small-scale renewable energy power generation to a rural area of Uganda including commercial service delivery of energy by a private enterprise. As shown in Figure 1 below, the project site is located on the flanks of the Western Rift Valley, which is accessible from Kampala through Kiboga. The nearest town is Hoima, which is 35 km to the east. The elevation at the site is between 600 and 900 meters above sea level. The project includes the construction and installation of a small storage reservoir along the river bay, a run-of-river canal, fore bay, penstock, turbine, generators, control room, tailrace, and substation. It also involves the erection of a 46-km, 33 kV evacuation line for grid connection, as well as the extension of transmission and distribution networks to areas that are currently not served by the national utility company, Uganda Electric Transmission Company Ltd (UETCL). The project site is mountainous and uninhabited, making access challenging. Access roads will therefore need to be constructed around the project area.
Project Objectives: To provide roughly 26,000 consumers in the project area with access to least-cost and reliable electricity
Development Impact: From a broad perspective, this project will contribute to the attainment of the Millennium Development Goals in that it will help address the reversal of loss of environmental resources, will contribute to productive and decent employment, will help improve the delivery of health services, and will benefit rural primary and secondary schooling.
Despite Uganda's impressive economic growth in the recent past, the ongoing electricity crisis has strained the country's medium-term growth prospects. Substantial power shortages and outages have limited commercial and industrial productivity, with larger businesses opting for expensive diesel generators. Not surprising, manufacturing, high-value agriculture, and processing industries have seen a significant increase in their operating costs with a concurrent decline in profits. At the same time, there have been other macroeconomic consequences, including higher than projected inflation (from 2006) and a widening trade deficit (due to higher oil prices and increased diesel fuel imports). The Government has been implementing a number of reforms and measures since 1999, with a comprehensive Strategic Plan to radically transform the Ugandan power sector. However, there is still a pressing need to increase power supply to meet the burgeoning demand. Hence, the Government's identification of increased energy supply (especially in rural areas) as a priority in its 2007 Budget.
Uganda's national power demand is estimated at 380 MW, while the maximum supply capacity stands at about 251 MW, creating a gap of 129 MW. Nevertheless, Uganda's per capita electricity consumption remains one of the lowest in the world, at a mere 44 kWh. In addition, it is estimated that only between 3.5 and 6% of the population has access to electricity supply through the national grid (this figure drops to 2% in rural areas). 2.23 Deterioration of the sector is attributable to delays in adding new generation capacity, drought experienced across the region in recent years, and annual growth in demand for electricity of about 8% . Uganda is expected to lease and commission 150 MW of oil-fueled power generation as well as some generation from bagasse (a sugar cane derivative used for renewable power generation), and from small hydropower plants between 2006 and 2010 to help meet this demand. Alternative sources of power that are presently in use include wood fuel (which has the negative effect of contributing to deforestation, loss of natural habitats, air pollution, and potentially harmful emissions) and high-cost diesel generators.
Analysis of Strategic Alignment and Development Impact
Alignment with Bank Strategy:
The project aligns with the Bank's Private Sector Operations Strategy to promote the participation of private investors in the financing of infrastructure projects; it will also consolidate the Government's program to attract more investors into its energy sector. Affordable power supply with improved reliability will increase electricity access to both rural households and businesses; it will stimulate economic growth and improve living standards. Fewer blackouts will reduce the need for expensive and air-polluting backup generators. As such, the project is also in line with the Bank's recently approved Clean Energy Investment Framework and one of the first to benefit from the Carbon Credit Scheme. This project is therefore well aligned with both Ugandan and AfDB development priorities, and will directly address the respective goals laid out to increase access to least-cost power, while also stimulating economic, social, and environmental benefits.
The proposed project will help UETCL avoid using thermal generation for rural electrification. The main economic benefit is the savings in capital and operating costs on the avoided thermal capacity. The Buseruka plant is a very cost-effective power producer with an averaged cost of power of about US 7 ¢/kWh. In addition, the project will both cater to new consumers in Hoima District who lack access to electricity, and also improve supply to those consumers who are already connected to the grid. Furthermore, there is the potential to expand rural electrification by extending the distribution network to neighboring fishing villages and other potential customers outside the project's immediate scope, but who are located in the general vicinity of the project area.
Overall, the project's benefit to the Buseruka community is USD 0.3 million, while there will be cash inflows to the local labor pool of about USD 0.2 million. UETCL will derive the greatest benefit (about 55% of the overall project PV of USD 39.8 million) through savings of USD 22.1 million, while the Government will gain 25% through VAT, corporate taxes, labor income taxes, and other indirect taxes. Hydromax will derive about 10% of the total benefits. Development Goals: From a broad perspective, this project will contribute to the attainment of a range of Millennium Development Goals in that it will help reverse the loss of environmental resources, will contribute to productive employment, improve the local water supply, health services, and primary and secondary schooling targets. The baseline and target figures of the project's impact, including secondary benefits, are shown in the Logframe Matrix in Annex 1.
Access to Electrity:
The project aims to provide roughly 26,000 consumers in the Buseruka area with cost-effective and reliable electricity supply on an incremental basis throughout the life of the project. This will directly benefit rural households and rural enterprise development, with expected increase in economic activity and trade. In particular, it is expected to benefit key large industries, including the Bugambe Tea Estate Factory, the Rwenzori Highland Tea Company (RHTC), and the Mwenge Tea Factory. It could also lead to the development of fish factories along Lake Albert. All of these commercial activities employ a considerable number of workers, and have the capacity to expand their output and create more jobs for local people. 3.8 Another indirect benefit is the improvement to the rural road network through Hydromax Ltd's construction of a 2.6-km road leading to the project site. The project sponsor will additionally create access points along the river to provide water to the grazing animals of the herdsmen in the project area.
Approximately 232 jobs will be created during the construction phase, including 67 permanent positions. About 25% of these jobs will require skilled labor, while the remaining will be mostly unskilled and casual labor from the surrounding area. The Sponsor will ensure a gender balance in hiring skilled workers, while not prejudicing women in the hiring of unskilled labor. To this end, Hydromax will make special provision for female accommodation facilities. 3.10 Finally, the project will benefit from the Carbon Credit Scheme and will generate additional revenues of about USD 150,000. Also, as part of the Environment Management Plan, an aforestation program costing USD 75,000 will be implemented, which will result in the planting of about 40,000 trees.
AMMAR Tarek Saleh Mostafa - PESD0