The Government of Uganda has signed an agreement with the Regional Liquidity Support Facility (RLSF), a joint initiative of the German Development Bank (KfW), and the African Trade Insurance Agency (ATI) to support renewable energy projects in Uganda.
The agreement was signed by Finance Minister Matia Kasaija, Energy Minister. Irene Muloni, Willy. K. Kiryahika, Managing Director & CEO, Uganda Electricity Transmission Company (UETCL) and George Otieno, CEO, African Trade Insurance Agency (ATI).
Speaking during the signing ceremony in Kampala, Kasaija, said government was committed to improving conditions for investors within the local energy sector.
He said: “With this agreement, we see RLSF providing a perfect complement to our on-going strategy of accelerating the delivery of clean energy to the national grid.” He said Uganda through concessions had managed to invest in the electricity grid to the tune of US$500 (about Shs1.9 billion) in the last decade.
“RLSF is a tool that can ensure more renewable energy projects reach financial close. For Africa, small and mid-sized projects may be a better fit to the current environment requiring less financing and they can be implemented much quicker. This could be a model that works in many other African markets that may just pave the way for an expansion of the facility or other such initiatives,” said Otieno.
The World Bank estimates that the continent needs to generate annual capacity of 7,000 MW but such generation capacity cannot be achieved without private sector participation.
Under the program, RLSF will offer protection to new small and mid-sized renewable energy projects up to 50 Megawatts (MW). The initiative targets other countries in Sub Saharan Africa.
The RLSF has an initial capacity equivalent to USD74 million and will protect IPPs against the risk of delayed payments by public off-takers.
The Facility is designed to help independent power producers (IPPs) developing renewable energy projects in Africa to obtain the liquidity they need in the event that their off-taker (frequently a state owned entity) delays payment.
It will provide immediate cash collateral supported by guarantees to a commercial bank that will in turn open a standby letter of credit to the benefit of the IPP. The amount provided will enable the IPP to operate and service the debt for up to 6 months. Furthermore, unlike most IPP letters of credit (which tend to be 12 month tenors) the facility is designed to be in place for multiple years.
Speaking of the launch of the facility in November last year, Dr. Thomas Duve, KfW Director Southern Africa and Regional Funds, said “We highly appreciate the opportunity to partner with ATI on this innovative instrument. The RLSF is a strongly market-driven concept, emphasizing KfW’s strategy to support and leverage the resources of local partners and the private sector.”
Also speaking of the launch in London, John Lentaigne, ATI’s Chief Underwriting Officer said: “We are delighted to be working with the German government, represented by KfW, on an initiative that directly targets one of the main bottlenecks preventing green power projects from being financed in Africa.”
While, Jef Vincent, Senior Advisor to ATI, who has overall responsibility for the initial implementation of the facility, added: “Unlike some of the alternative solutions to the liquidity issue, ATI’s guarantee (as provided via the RLSF) will not require a counter-guarantee from the relevant Ministry of Finance, and as such we are confident this will be a very useful tool for those projects that we expect to support.”
The facility, in combination with ATI’s traditional suite of political and trade credit risk insurance products, in particular ATI’s arbitration award default cover, means that ATI is able to cover the full range of political and financial risks facing investors on such projects, read a recent statement.