China Eximbank provides RMB 1.448 billion government concessional loan for Bridging the Demand Supply Balance Gap Through the Accelerated Rural Electrification Programme Project

Project narrative

On October 18, 2018, the Chinese Government and the Government of Uganda signed a preferential loan framework agreement for the Bridging the Demand Supply Balance Gap Through the Accelerated Rural Electrification Programme Project. Then, on January 16, 2019 the Government of Uganda and China Eximbank signed an RMB 1,448,000,000 ($212,628,487.52) government concessional loan (GCL) agreement [CHINA EXIMBANK GCL NO.(2018) 25 TOTAL NO.(667)] for the Bridging the Demand Supply Balance Gap Through the Accelerated Rural Electrification Programme Project. The borrowing terms of the GCL are as follows: a 20 year maturity, a 2% interest rate, a 0% default (penalty) interest rate, a 5 year grace period, a 0.25% commitment fee, and a 0.25% (RMB 3,620,000) management fee. The GCL is secured by (collateralized against) a minimum cash balance in a lender-controlled bank account (see staff note #2 for more details). The proceeds of the GCL are to be used by the borrower to finance a $212,669,840.08 commercial contract [REB-TBEA-2017-001] between the Rural Electrification Board of the Government of Uganda’s Ministry of Energy and Mineral Development and TBEA Co. Ltd, which was signed on October 31, 2017. According to the Government of Uganda’s Aid Management Platform (AMP), this loan achieved a 62% disbursement rate, with China Eximbank making 12 loan disbursements (worth $132,316,646.61) between 2019 and 2022: a $41,414,085.97 disbursement on June 28, 2019, a $11,855,045.16 disbursement on March 25, 2020, a $6,682,545.78 disbursement on April 23, 2020, a $6,086,003.50 disbursement on July 14, 2020, a $9,948,233.42 disbursement on December 24, 2020, a $3,552,289.45 disbursement on November 23, 2021, a $10,257,876.94 disbursement on February 10, 2022, a $4,912,416.45 disbursement on March 31, 2022, a $13,747,342.28 disbursement on April 28, 2022, a $1,772,080.02 disbursement on June 22, 2022, a $3,551,534.31 disbursement on August 17, 2022, and a $18,537,193.33 disbursement on September 27, 2022. According to the Uganda Ministry of Finance, Planning, and Economic Development's Report on Public Debt, Grants, Guarantees and Other Financial Liabilities for Financial Year 2021/2022, as of December 31, 2021, total loan disbursements amounted to $87,130,010.23 and the loan’s amount outstanding (including arrears) was $87,130,010.23. This project involves the construction of at least 3,839.68 km of medium voltage (33 kv) transmission lines, 5,921 km of low voltage (0.4 kv) transmission lines, the supply and installation of 3,401 distribution transformers (mounted on poles), and the connection of 168,335 single phase consumers and 4,254 three phase consumers. The project is located in central, southern, western, south western, north eastern, north north western, north eastern, northern, west nile, central northern, Rwenzori, Eastern, and mid–western Uganda. In order to ensure adherence to the ‘Buy Uganda Build Uganda (BuBu) policy', the TBEA Co. Ltd was urged to source all the wooden poles and concrete stubs for the project locally. The ultimate purpose of the project is to connect 632 unserved administrative centers (580 sub-counties and 52 town councils) to the power grid. The project is to be implemented in multiple phases. Phase-I includes the official Project Launch Schemes that were selected to achieve visibility in relatively less served districts. Phase-II includes shorter schemes that can be quickly commissioned to increase project visibility in order to achieve, in a short time, a higher percentage of administrative centers connected and manage public expectations. Phase-III includes the longer lines that will require more resources and time while the rest include schemes that are planned to interconnect with lines that are to be constructed by other REA projects, which are yet to be implemented, especially the World Bank funded Energy for Rural Transformation (ERT III) and the African Development Bank (AfDB) funded UREAP projects. The overall objective is to ensure that all lines for which construction is completed are commissioned within the shortest time possible and handed over to the respective Service Providers for management and commencement of implementation of customer connections. TBEA Co. Ltd is the contractor responsible for project implementation. There are between 39 and 45 local subcontracting firms involved in the project. 60 construction teams and about 1200 workers were also mobilized to various project sites across the country. Spain’s EPTISA is responsible for supervising and managing the project over its three year period of implementation. Phase I construction activities began in May 2020 in the following districts: Kapchorwa, Bugiri, Kibuku, Kumi, Madi Okollo Adjumani, Otuke, Omoro, Kyegegwa, Kassanda, Kiboga, Kagadi, Kibaale, Isingiro, Kanungu, Bundibugyo, Rakai, Manafa, Namutumba and Ntungamo. To date, a total of 17,025 MV pits have been excavated, 15,351 MV wooden poles have been erected, 10,225 MV fittings have been installed, and 856.02 km of MV lines have been strung. Also 29,302 LV pits have been excavated, 27,347 LV wooden poles have been erected, 21,762 LV fittings have been installed, and 978.06 km of lines have been strung. 18 schemes have been fully pre-commissioned, and another 17 have undergone the pre commissioning tests. According to the Government of Uganda’s Aid Management Platform (AMP), the COVID-19 pandemic affected the implementation of project activities. In February 2023, Members of the Ugandan Parliament who were a part of the Committee on National Economy reviewed 14 loans targeting the energy sector, one of which was the China Exim GCL for the Accelerated Rural Electrification project. They expressed concerns that the project was "far from achieving the set objectives", citing reasons such as the high costs of connection for the local people who are supposed to benefit from project efforts, and the large number of sub-counties that had yet to be connected. Furthermore, the project presents environmental and social risks because construction has taken place within nationally protected areas, potential critical habitats, and within the lands of indigenous peoples.