In a $27 million deal ATI backs a local power producer, adding 50MW to Uganda’s national grid
Uganda, like other countries in the region, is prioritizing energy supply as a cornerstone of their economic development agenda. With a potential gap of over 200 MW during periods of drought, the government implemented several short-medium and long-term measures including purchasing additional thermal generation capacity. Under this strategy, Uganda’s first indigenous power producer has a contract to supply the government with a minimum of 50MW, which is backed by the African Trade Insurance Agency (ATI).
Power producers, who have in place power purchase agreements (PPAs) with national utilities, often require additional security from banks. This security typically protects lenders against the possibility of default on scheduled payments under the agreement. In this transaction, ATI put in place a $24 million cover against non-honouring of a sub-sovereign to help the producer secure $40 million worth of bank financing.
“With an abundance of opportunities in the energy sector, we are seeing an increasing number of lenders and power producers looking for risk mitigation solutions even before they enter the market. I predict this to be a tremendous growth area,” notes Benjamin Mugisha, ATI’s Resident Underwriter in Uganda.
Aging infrastructure, periodic droughts and increasing demand contribute in part to Uganda’s current energy deficit. While heavy reliance on hydropower places the country at an even greater disadvantage during periods of seasonal droughts. The current central grid connected hydropower capacity is 300MW with an additional 80 MW being installed. During periods of drought, output could reduce to as little as 80- 90 MW while demand has risen to 260MW during the day and 350MW in the evening.
The energy deficit, according to Uganda’s Ministry of Energy and Mineral Development, reduces industrial and commercial activity decreasing the national GDP by as much as 1.5%. The Ministry estimates that Uganda will need to invest close to $4.5 billion in the entire sector to address the shortfall in energy production.
In its bid to meet energy demand, the government of Uganda has identified these core objectives:
- Increasing public private partnerships in power generation and supply
- Increasing financial sustainability in the sector in light of fluctuating petroleum prices on the world market
- Increasing regional power trade in East Africa
- Address the declining Lake Victoria net basin supply and to stop any environmental degradation
With financial and technical support from the European Investment Bank (EIB), ATI is becoming an active player in the African energy sector. Under the EIB initiative, ATI is expected to become one of the key partners and members for the Africa Energy Guarantee Fund (AEGF), which aims to enhance access to proper risk mitigation and credit enhancement tools for energy sector projects in Africa.