COVID-19 & the Energy Sector: Opportunities for the Legal Profession
Monday, May 4, 2020 (4:00pm – 6:00pm)
Hosted on live on Zoom, You Tube and Facebook
Summary of Highlights
For two hours on Monday, May 4, 2020 (4:00pm – 6:00pm), Mr. Bernard Oundo, the Managing Partner, of Citadel Advocates ─formerly Oundo & Co. Advocates─ a member firm of the Citadel Law Africa Network (CLA) and Ms. Hellen Akankwastsa, an Associate at Mwesigwa Associated Advocates co-hosted a webinar on the opportunities presented by the country’s fast growing energy sector for lawyers in Uganda and, most especially, in view of the COVID-19 pandemic and its implications on business in all sectors. The webinar, which was held under the auspices of Zoom Clinics for Lawyers which is a COVID-19 business recovery support initiative co-founded by Mr. Oundo in order to support Ugandan lawyers to remain relevant amidst emerging trends in the legal profession.
Much of the tone and thrust of the discussions at the webinar rotated around the specific development of COVID-19 and its impact on the energy sector, while at the same time providing broader insights into the opportunities and challenges which the sector presents for lawyers as well as how those can be harnessed and addressed respectively.
At the centre of the discussions was a rich panel comprised of: Mr. Harold R. Obiga (Director Legal and Regulatory Affairs, Electricity Regulatory Authority of Uganda) who shared the perspective of a regulator; Ms. Esther Naikoba Mulyagonja (Company Secretary, Uganda Electricity Distribution Company Limited); Mr. Martine Eron (Manager Corporate Services, Uganda Electricity Transmission Company Limited); Mr. Allan Rwakakooko (Senior Legal Manager, Umeme Limited) who spoke from the point of view of a private player in the distribution of electricity; as well as Mr. Innocent Ddamulira (Associate, Ligormarc Advocates) who shared his perspective as a former lawyer for Umeme limited and now as a private practitioner advising clients in the energy sector. Furthermore, Ms. Primah Atugonza Kyambadde (Legal Counsel, Africa Legal Support Facility) was co-opted in order to highlight the role of the African Legal Support Facility and its capacity building programs for African lawyers to meaningfully engage in the energy sector.
Overview of the energy sector in Uganda
Uganda’s energy sector currently has a total of 83 licensed players, both government and independent power producers (IPPs). These players are spread across the three subsectors (generation, transmission and distribution) with an excellent tariff of 97% cost recovery aided by one of the region’s best regulatory environments with appropriate systems and procedures that are inclusive of all interests, is stable and participatory in nature when it comes to issues such as determination of the tariff, continuity, etcetera (AfDB, 2018 & 2019). The country has six main energy sources namely: Large Hydro (894.4MW), Other Hydro (156.4MW), Cogeneration (61.5), Total Thermal (25.4MW), Solar (12.9MW), as well as Imports (5.5MW). However, the electricity consumption capacity in Uganda is still low with a peak demand of only 723.7% which is almost half the total installed capacity of 1,246.4MW which is much lower in terms of the GDP per capita in comparison with the installed capacity in other countries such as South Africa and Egypt (40,000MW). This state of affairs informs some of the interventions in the country’s energy sector. In order to increase access to electricity by more users, there deliberate steps being taken including introduction of the ready board solution to poorer housing units which are being provided moreover at a free cost. However now because of COVID-19, such pro-poor services are being suspended in favor of more urgent issues.
Impact of Covid-19 on the energy sector in Uganda
- Financial projections
One of the most obvious impacts that COVID-19 has had on the energy sector is the threat to meeting the financial targets hence a revenue gap. For instance, ERA requires an annualized ESI revenue of Ush. 1.959 trillion (translating into a monthly revenue of Ush 163.28 billion) which is based on five key factors namely: the anticipated consumption of energy (GWh) from different sources; the annual average exchange rate; the average consumer price index for relevant goods and services; the international Fuel Price; as well as the anticipated outage duration. However, due to the change in these factors due to COVID-19, the set revenue targets are going to be substantially affected hence a need to adjust the ERA requirements.
- Deemed energy demands on account of take or pay provisions of most agreements
Since the outbreak of COVID-19, and related developments such as the passing of measures on social distancing and travel restrictions, industrial operations have substantially been cut down thereby affecting the consumption of energy since it is the industries which consume the largest percentage of the country’s energy. Yet, considering that most of the agreements with IPPs are on a take or pay basis, UEDCL will still have to pay for the generated, even if not consumed (i.e.; deemed), energy. Notably, the power generation plants had already set up and in addition entered into long term financing agreements and it is not their fault that it is ultimately not consumed.
- Delayed commissioning of new plants
According to ERA, there are at least 9 power generation projects (both small and large HPPs) under construction that have already issued notices that they will not be able to meet their commissioning milestones due to the developments emerging out of the COVID-19 outbreak. As such, as much as 750.6MW of energy will not be added on the grid. However, according to Harold, this is not a bad thing in the immediate term since it reduces on the cost of payments for deemed energy.
- Distribution and Transmission
COVID-19 has also had an effect on the development of the energy network such as the high voltage networks, the pylons as well as poles which transport the low voltage power for example to homesteads.Due to serious obstacles to the supply chain, some projects have stopped in favor of focusing on restoration of supply in order to ensure continuity for households, health centres, etc. This will ultimately affect the customers especially in the rural areas who were being targeted for connection on the grid.It was also noted that change in law and force majeure will definitely come into play considering that key players such as UETCL may not be able to meet their obligations for example to UEGCL resulting into dire consequences. There are also changes that are unique to the electricity sector which may require a certain level of compensation to the utility in the event of change in the law.
- Reduction in Energy demand
ERA estimates that the country’s energy demand has fallen from 726.38MW in January to between 508MW & 580MW as at end of April 2020 accounting for a loss of between 5% to 18%. However, this is still relatively low compared to some other jurisdictions within the region which recorded loses as high as 30%.
General impacts to the entire value chain
- Declarations of Force Majeure and financial implications across all parties (Contractors, Suppliers, UETCL, IPPS etc)
- Reduced revenue collections for the sector could affect the financial viability of the ESI.
- Supply chains delays (meters, connection materials, constriction materials)
- Reliability of supply: Inability to respond to faults, delayed execution of reliability improvement projects
- Access to supply will be delayed restricted due to health and movement restrictions put in place.
- Organizational efficiency: organizations will have to optimize the delivery of world class services with minimal resources.
- Increased operational costs for utilities to offset the effects of Covid-19 including but not limited to, safety equipment and adoption of measures in response to Covid-19.
Strategies to address the impacts of COVID-19
- Tabling the tariff not to grow higher
- Renegotiating energy contracts with the financers in view of the changes in the revenue stream.
- Tax considerations have been made in some jurisdictions eg Jamaica
- Stimulus packages by way of capitalization in the short term and stimulated support in the long term.
- Maintaining critical infrastructure by for example allocating extra resources such as vehicles to support the field departments in the sub sectors to monitor and maintain energy infrastructures
- Ensuring limited access to field teams including having them work in the night.
- In re contracts with IPPs, a number of force majuer notices have been sent out to them communicating adverse effects that can’t enable the company meet its deemed energy obligations.
- As a way of ensuring reliability of power for essential services, there are emergency offers not to disconnect even when they are on pre-paid arrangement.
Opportunities available in the Sector for the legal profession during and immediately post COVID-19
- COVID-19 marks the time for the advocates to be most relevant for their clients. Many client are distressed. Be proactive in advising the clients in line with the guidelines eg from the BoU, MoGLSD, etc. Lawyers should propose relevant clauses with which to redeem their clients eg force majuer in addition to advising clients to organize their books of accounts.
- There is going to be a lot of litigation and arbitration on different issues and stages of the energy sector. Lawyers should start preparing responses to all key emerging issues of force majeur, adverse effect, change of law etc. Be ready to engage meaningfully.
- There is a big need to re-adjust most of the running contracts in the sector which definitely requires involvement of lawyers since just one project can have a minimum of 5 lawyers up to as much as 50.
- The sector will need other competencies eg dispute resolution to enable the operators run their work.
- However, the sector is very technical and involves heavy cost of projects meaning that the investors cannot easily risk their business with novice service providers such as lawyers. There is, therefore, a lot of capacity building that needs to be done for lawyers through a number of platforms such as online academies and internships eg under ERA and the Africa Legal Support Facility. Specifically, the ALSF Academy offers free online training packages in basic issues at the different levels. There are also handbooks eg on financing, power purchasing agreements etc which are downloadable for free.
- Junior lawyers could also consider joining firms handling matters before the Electricity disputes tribunal. Notably, there is an attempt to open up the sector to smaller firms by imposition of less stringent requirements for their entry as providers for a select category of legal services.