Ugandas PPP Experience
David Ssebabi
Director Privatization Unit
Ministry of Finance, Planning and Econ Devt
Highlights
Government Commitment (2008/9 budget)
Limited experience in PPPs
Concessions arising from privatisation
Sector driven concessions
Ad hoc & poorly coordinated - mixed results
PPP framework being developed
PPP Policy approved
PPP Bill approved by Cabinet
Recent PPP Projects
Sector
Project
Transport
Rift Valley Railways
Pioneer Bus Co BRT
Energy
Bujagali Hydro
Eskom - Hydro
Umeme - distribution
Aggreko Thermal Plant
Mini-hydros several
West Nile Power mini grid
Water
Small Towns Water Projects
Kampala Ondeo Management Contract
Tourism
Serena Hotel
Business
Infrastructure
Local Market Developments - several
Structure of Umeme Concession
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Government of
Uganda
Electricity Regulatory Authority (ERA)
Licence for
Ownership
UEGC
UETC
Bujagali
Other IPP
(future)
Kenya
Tanzania
Trans
Operator
System
Operator
UEDC
Distribution
Licence
Supply
Licence
Support
Agreement
Lease
Agreement
The Company
Power Sales
Agreement
(Distribution Concessionaire)
Export /
Import
Customers
Agreements provide for:
Supply
electricity within 1.0 km beyond
existing grid
60,000
new connections in the first five
25,000
new connections per year thereafter
years
Quality
of supply and customer service
standards
Impact of Umeme Concession
Before Concession
High system losses (35% to
40%)
Low revenue collection rates
(65% in 1996/97)
Performance after Concession
System losses reduced to 27%
Revenue collection at 98%
Accounts receivable at 1
month
Umeme servicing debts that it
took over during concession
Access to power > 10% of
population
High accounts receivable (7
months of sales in 1997)
Poor quality service (frequent
power outages and system
breakdowns)
Access at only 5% of population
Other benefits
Tax
generation ~ $24m corp tax and $33m
VAT in 7 years
Lease
payments ~ $110m in 7 years
Investments
>100m to date
Challenges
Nature
High
2006 drought
cost of heavy fuel oil for thermos
Unfavourable
Insufficient
High
forex movement
power delays in Bujagali
expectations inquiry by Parliament
Rift Valley Railways - Concession Structure
Government of
Uganda
Freight
Concession
InterGovernmental
Agreement
Government of
Kenya
Interface
Freight
Agreement
Concession
(Holding Company)
Passenger
Concession
Concessionaire
Performance
Bond
Concessionaire
Performance
Bond
RVR Uganda
RVR Kenya
Rift Valley Railways how it
performed
Performance at restructuring
Low freight volumes
Investment targets not met
Quality and frequency of pax
services (Kenya)
Quality and frequency of pax
service not met
Maintain infrastructure and
equipment to set standard
Infrastructure and equipment
not maintained per standard
Conform to set safety
standards
Safety standards not conformed
to
Defaulted on payment of
concession fees
Investments in infrastructure
and equipment
Pay agreed concession fees
Restructuring
Concessionaire Obligations
Meet specified freight
volumes
Restructuring of the joint
concession
Reasons for poor performance:
Government Intervention:
Poor management
Lack of technical expertise
Inadequate funding
Substitution of lead investor
Renegotiate agreements to provide for
Minimum investments of $40m in 24 months
Obtain financing of $54m in 24 months
New technical services agreement
Exclude certain assets from the concession
Restructuring took a lot of time and effort, but resulted in:
New performance targets
New financing
Introduction of new technical services partner
Lessons learnt
Limited capital local/foreign.
Transparent procurement process.
Rudimentary and nascent financial/capital markets
Recent global financial crisis
Recent trend of global interest in emerging markets may help.
Need thorough review of feasibility of projects
Must have competitive tendering
High expectations and perception problems.
Private sector viewed as the panacea for all infrastructure
needs
Private sector is expected to deliver at any cost since they
make huge profits.
Tendency to still view state enterprises as a means of resource
distribution even at the risk of less productivity and efficiency
Drivers for success
Political commitment
Political and economic stability
Legal and regulatory reforms
Technical and management capacity
To structure the project and procure the private party
To monitor the concession contract
To renegotiate
To management public perception and expectations
When the going gets tough!
Temptation for government to to take back the project but
beware:
Cost of restarting the project under government may be too high
Set precedent and drive away foreign investors leading to
reduction of private sector investments
Immediate burden on the national budget to meet capital and
operating costs of the enterprise
Lack of credibility of government policies and programs
Litigation which may not enable government to immediately take
over the project
Cost of buy out payments which may be large depending on
when government proposes to takeover the project
The tough gets going, otherwise???
Lost opportunity to realize investments
Increase in political risk profile of the country
Downgrading of credit rating
Investors will demand guarantees for future projects
Higher return on investment demanded by investors
Drop in doing business index, hence discourage FDI
Erosion of public confidence in contracting with government
Examples of attempted policy
reversals in Africa:
Zambia
Following democratic reforms in 1991, Zambia embarked on several
economic reform programmes. However, from mid-1995 onwards
Zambia began to reverse a number of its reforms and deferred
implementation of earlier commitments. Trade and foreign exchange
reforms were affected and FDI plummeted. The outcome was that by
1999 poverty in Zambia had intensified
Ghana
Ghana began implementing a comprehensive economic reform
program in 1983. Despite major improvements in the economic
situation for several years, reversal of several policies led progress to
come to a grinding halt in 1991 and 1992 with spiraling inflation and
runaway depreciation of the Cede. Despite efforts to resuscitate the
economy, the government has since failed to vigorously promote the
economic reforms
Way forward?
PPP Policy in place, however need
Legal reforms to streamline PPP implementation enact PPP
Law
Establish PPP unit to coordinate implementation of PPP
program
Build capacity of government departments and agencies to
develop, procure and monitor PPP projects
Ensure extensive stakeholder consultations during PPP
project development, procurement and delivery
Public awareness
Thank You
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