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Proposals for financing Uganda’s Water and Environment Sector

Published on: 03/10/2017

Stakeholders are discussing options to keep the sector afloat in the face of dwindling donor funding to Uganda's water and environment sector.

The 9th Water and Environment annual Joint Sector Review (JSR) was held from 26th to 28th in Kampala. The theme of the JSR was "exploring financing opportunities for water and environment sector investment". The theme underscored the fact that funding for the sector, particularly from development partners, would reduce by the end of the financial year, especially with DANIDA ending its over 25 year funding support in June 2018 and thus creating a deficit of over Uganda Shilling 15 billion.

Sharing the key study findings on the contribution of Water Resources Development and Environmental Management to Uganda's Economy, Commissioner Sam Atuba noted that it was worthwhile investing in the Ministry of Water and Environment interventions as these would yield significant economy-wide impacts by 2040. He indicated that the study found that the benefits to GDP directly exceeded the investment costs (about 8 times) – when undiscounted - and that investing US$5.3 billion to the sector (26 years) under the moderate investment scenario would realise a cumulative GDP gain of US$38.1 billion. However, the study found that investing US$8.4 billion to the sector (26 years) under the High Investment Scenario would realise a cumulative GDP gain of US$ 67.2 billion.

Maris Wanyera, the Acting Director in charge of Debt and Cash Policy in the Ministry of Finance, Planning and Economic Development (MoPFED) reminded the participants that the sector's conventional sources of finance included; Domestic (tax and non-tax) sources, Grants (on and off budget), Loans (domestic and external) and Public Private Partnerships (PPPs).

Ms. Wanyera informed the participants that Government was considering or already involved in several new sector financing opportunities including; the Climate Change Fund (CCF) earmarked for climate related projects and including; the Adaptation funds (US 7.1 million grant), the Green Climate Fund (loans and grants) and the Global Environment Facility (GEF grant for wetlands restoration, community resilience and readiness and project preparation).

Ms. Wanyera noted that accessing the CCF involved a lengthy validation process especially for the Adaptation and GEF and that it could only be accessed by accredited institutions for large projects to the tune of Uganda Shilling 300 million and above. Hence, the agreed undertaking to fast track the accreditation of the Ministry of Water and Environment (MWE).

In addition, Ms. Wanyera shared other funding options which though cumbersome and full of processes, could be considered by the MWE. These include:

Funding OptionDetails
Regional fundsInvolved multilateral funders include; Africa Development Bank, World Bank, European Union and bilateral partners such as Japan
Export credit financingThis is solicited support led by Government. It involves identified and pre-qualified contractors. It is very costly and requires 15% of the total funds for the project paid up front. The maturity of the credit is up to 20 years. Projects financed through this option include; Karuma Hydro Power plant and the planned Bukasa Inland Port
Contractor facilitated financingThis involves contractors mobilising funds and bidding to design and construct projects based on Government innovations and projects. Government hopes to use this option to reduce its expenditures on big infrastructure development projects by ensuring that the contractors express interests in the projects and source for their funding from financial institutions, e.g. road construction
Infrastructure bond/Euro bondsGovernment hopes to use this option to source financing for infrastructure related projects such as the oil project. This is an alternative debt funding avenue
Public-Private Partnerships (PPPs)Ventures funded and operated through Government and Private sector for example, UMEME, ESKOM, Bujagali hydro power dam. Gains include their sharing of risks while the constraints include; requirement of guarantees, creation of contingent liabilities

For the PPPs, Ms. Wanyera appealed to the MWE to conduct studies and use the findings to develop fundable projects and to interest funding partners. She cautioned the sector to note and look out for the various institutional related requirements that include:

1. At Cabinet level
• The need for Cabinet approval following the submission of the project and sometimes the lengthy discussions between cabinet, MWE and the MoFPED to ensure ownership
• Cabinet does not approve capacity building proposals and use of consultants. These should be avoided unless the sector proves that they are really needed
• Cabinet does not approve borrowing for investment purposes

2. At Parliament level
• Loan approval guidelines issued by Parliament must be adhered to
• The sector must justify its capacity to absorb resources on all projects
• All projects must align with the National Development Plan

3. At Development Partners level MWE should
• Open and efficiently operate and manage Escrow accounts
• Provide evidence of budget provision for counterpart funds
• Conduct Rapid Assessments
• Conduct and publish Environmental Social Impact Assessments
• Provide proof of accountability and good governance

4. At the Ministry of Finance level MWE is expected to:
• Follow the Public Investment Management System procedures
• Seek approval from the MoFPED Development Committee
• Provide evidence of availability of counterpart funds in the Medium Term Expenditure Framework
• Follow the Public Finance Management Act, Part VI (Public Debt, Grants and Guarantees

From the above submissions, it is clear that the water and environment sector does not have enough finances and therefore needs to actively lobby Government to allocate higher levels of funding for the sector in the national budget. But this also requires the sector to improve its efficiency in resource mobilisation and utilisation as well as look for more funding through own sector generated revenues.