Joint Sector efforts to resolve PPA and IA issues

In early 2014, both the Standardized IA and PPA (for small hydropower) were approved by Uganda’s Solicitor General. The PPA and IA have been developed by Trinity International LLP in their role as legal counsel to GoU/KfW. This was widely seen as a key milestone for GoU, ERA and the GET FiT Program, as it paves the way for significantly reduced transaction costs while providing a truly bankable security package to investors. The milestone was the culmination of dedicated efforts by all stakeholders, including extensive involvement of DFIs, over several months. Notably, the GET FiT hosted Commercial Bank roundtable in February 2014 revealed general consensus that the agreements now were balanced and bankable. The first PPAs had already been initialed after only hours of negotiation. With the support of the GET FiT Program, and based on the standardized documents for hydro, the PPA / IAs for biomass/bagasse and solar PV-based projects are also being developed.

The progress of the Ugandan regulatory framework for renewable energy development and its effect on the country’s renewable energy investment climate was confirmed by Bloomberg’s Climate Investment Ranking for 2014. Uganda was ranked number 10 among 55 emerging markets in Africa, Asia, Latin America and the Caribbean, and thus number 3 in Africa, only beaten by South Africa and Kenya. Joint sector and GET FiT efforts on PPA and IA development have played a key role in getting there.

However, following the PPA/ IA negotiations that took place during the developer week in June 2014, it became apparent that some changes to the risk allocation in PPA/ IA were necessary. According to the dedicated interconnection policy, the implementation and timely provision of power evacuation infrastructure lines are the responsibility of GoU through REA not UETCL which is only in charge of HV lines. UETCL rightly claimed not to have any operational influence on the procurement and construction of such lines. After stakeholder consultation, it was hence agreed that the obligation to pay deemed energy for late MV interconnection would be transferred from the PPA to the IA, by which GoU effectively relieves UETCL of any financial liabilities resulting from delayed provision of MV power evacuation infrastructure. Approval of these changes was obtained from the Solicitor General in October 2014.

By November 2014, a total of seven developers had initialed the revised PPAs with UETCL and submitted these to ERA for clearance. In the subsequent final approval process, concerns were raised by the Solicitor General which led to minor amendments to the “Change in Law” provision in the PPA. Although the issue was resolved fairly quickly with dedicated efforts from ERA, the GET FiT Secretariat and Trinity LLP, it prevented signing of first PPAs in 2014 and illustrates that the process of standardization is more challenging than expected and requires continued efforts and engagement. The first PPAs (Nengo Bridge, Lubilia, Siti I and Siti II) were signed in January 2015. Further PPAs and IAs are expected to obtain clearance within the first Quarter of 2015.