WSHPDR_2013_Final_Report-updated_version

Legislation on small hydropower
The Government offers investors incentives in the form
of value added tax (VAT) exemption on hydropower and
related road projects. The challenge with this is that
although the developers enjoy the exemption, their
suppliers are not. The suppliers therefore find it difficult
to recover the VAT they paid to supply materials to the
developers and are usually unwilling to work on such
projects yet the Government stipulates that local
suppliers and contractors should be involved as much as
possible. Suppliers tend to increase their prices in order
to recover the VAT which affects the developers who
have to absorb the higher costs. 14
Therefore, the application of these incentives is still
vague. It is not uncommon for the developers to
continue paying VAT on hydropower projects. The
process of claiming the VAT may sometimes be
frustrating to the developers.
Barriers to small hydropower development
Although considerable potential for hydropower
development exists in Uganda, very few developments
have been carried out in the last 10 years. The existing
barriers can be broadly categorized into design,
technical, technological, socio-environmental, and
financial:
Design challenges: Small hydropower sites are
sometimes located on rivers around agricultural
areas. Thus the sediment load in the rivers may
increase, thereby necessitating the use of de-silting
basins and flushing trenches as part of the design.
This increases the cost of the project.
Technology: The technology to bore through
waterway structures like tunnels is not readily
available in Uganda. Therefore, in planning the
waterway structures, this has to be taken into
account. The lack of appropriate technology may
result in having a longer waterway than planned
since tunnels may not be an easy option to pursue.
Technical capacity gaps: With all the potential that
has been identified through various studies, until
2011, there was no university in Uganda offering a
course on the development and design of
hydropower schemes of any size. The specialization
to undertake feasibility studies, designing and
costing of hydropower projects has been mainly
undertaken by foreign consultants.
Socio-environmental barriers: Many sites for
hydropower development are located in populated
areas. The inhabitants are usually the owners of the
land required for the project. Therefore, developing
a hydropower plant in such areas will necessitate
displacing and relocating population to other areas.
It must be noted that in Uganda, the process of land
acquisition is slow and expensive, since land is
individually owned. Even when the affected persons
may have been compensated, the process of
registering the land in the names of the developer
may end up being very expensive and time
consuming.
Financial barriers: Several studies had been carried
out concerning the lack of participation from the
private sector in the development of hydropower
projects. They concluded that among other factors,
the cost of borrowing in Uganda is the highest in
the world. Moreover, the development banks in the
country are limited by their net worth. Although
some commercial banks have ventured into lending
to developers of such projects, they generally prefer
to lend only short term (five years at most). 14
Other challenges: The need for guarantees from the
Government against the transmission body’s failure
to meet its payment obligations, the need for a
political risk guarantee from the World Bank, long
lead times for projects, and investors often fail to
raise the equity required by the lenders. These
factors make it unfavourable for potential
developers to engage in hydropower generation in
Uganda. 14
References
1. Akello, Christine Echookit (2007). Environmental
Regulation in Uganda: Successes and Challenges. Law,
Environment and Development Journal, p.20.
Available from www.leadjournal.org/content/07020.pdf.
2. United States Geological Survey, U.S. Department of
the Interior-U.S. Geological Survey (2012). A Climate
Trend Analysis of Uganda in Famine Early Warning
Systems Network: Informing Climate Change Adaptation
Series. Available from
http://pubs.usgs.gov/fs/2012/3062/FS2012-3062.pdf.
3. International Energy Agency (2011). World Energy
Outlook 2011. 9 November 2011. Paris.
4. Energy Programme Uganda (n.d.) Rural Electrification.
Available from www.energyprogramme.or.ug/whypower-villages-rural-electrification/.
5. Republic of Uganda, Electricity Regulatory Authority
(2011). Electricity Sector Performance Report. Available
from
http://era.or.ug/publications/annualpublications71e9/.
Accessed 25 January 2013.
6. Van der Plas, Robert J. and A. Kyezira (2009).
Uganda’s Small Hydro Energy Market. Berlin. Available
from www.giz.de/Themen/de/dokumente/gtz2009-entargetmarketanalysis-hydro-uganda.pdf.
7. Republic of Uganda, Electricity Regulatory Authority
(2011). Sector Update Newsletter. Issue 5, March.
Available from http://era.or.ug/publication/view/era-
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