The government is today likely to announce a reduction in the Energy ministry’s budget from Shs1.75 trillion to Shs650.759 billion. This will be first time in three years that the government is reducing the amount of money it is allocating to the ministry.
The National Budget Framework Paper FY201415–FY201819 attributes this to the government’s decision not to allocate money for the construction of the $1.7 billion (Shs4.3 trillion) Karuma Hydro Power Project.
China, in 2013, offered to lend Uganda money to cover 85 per cent of the cost of constructing the 600-megawatt project.
A Memorandum of Understanding signed by the government and Sinohydro Corporation Limited on June 20, 2013 in Kampala, anticipated that financial closure and loan disbursement would be in December 2013.
However, the China Exim Bank has to date reportedly not yet released the money for reasons that are yet to be established. Should China not release the money soon, Uganda might either have to raise the funds locally or borrow from of its development partners to ensure the project is completed by August 2018 as planned.
Failure to complete the project by the scheduled date would increase the likelihood of constrained demand for electricity outstripping supply, as happened in 2010, which might necessitate either power rationing or the use of more costly thermal electricity and that would increase the cost of doing business in Uganda.
Of the Shs650.759 billion the government will allocate to the energy sector, Shs293.582 billion is likely to be for “energy planning, management and infrastructure development”. This is a Shs157.815 billion reduction of what the government had allocated for that purpose last Financial Year.
For large hydropower infrastructure, the allocation is likely to be reduced from Shs1.093 trillion to Shs153.163 billion.
Part of Shs153.163 billion will be used to compensate landowners in the power transmission line corridors from Karuma, Ayago and Isimba to nearby electricity switch stations. The rest will be for refurbishing the electricity transmission and distribution networks.
Shs111.736 billion of the Shs650.759 billion will be for rural electrification, an increase of Shs8.798 billion. Among others, it will be used to erect electricity distribution lines in areas where none exists, such as in the north-eastern parts of the country.
SOURCE: Daily Monitor