On May 4, 2021, Cabinet passed a new statutory instrument to manage the Rural Electrification Fund shifting it from REA to the Ministry of Energy and Mineral Development. Under the new instrument, REA becomes a department under the MEMD.
Clearly, this took many by surprise, also indicating that stakeholders’ consultations were not made on the best way to go about the matter. A number of issues have arisen as a result of these sudden actions as seen below,
- Breach of financing agreements with donors to affect funding pipes
REA is currently implementing rural electrification projects with the majority of the funding to a tune of USD600 million (ugx2,215 trillion) coming from development partners such as the World Bank, African Development Bank, China Exim Bank, Kuwait Fund, German Development Bank, French Development Agency, among others. As part of their financing agreements, provisions upon which funding will be withdrawn as far as the existence of REA is concerned is provided within. For example, the World Bank-financed Energy for Rural Transformation III project also being implemented by REA (USD120 billion REA component alone) provides for the withdrawal of funds under Article II, 2.02 and Section IV of schedule 2 and Article IV, 4.01b of the Financing Agreement.
These clearly spell out the withdrawal of funding if REA is no longer existent together with the statutory instrument 75 of 2001. The world bank letter dated April 9, 2021, also brings out the provisions of suspension of funding. With such letters, it clearly indicates consultations were not made with key stakeholders while coming up with the latest passed SI and may have adverse effects on electrification services in this country.
If the instrument that abolishes REA is gazetted, it will imply that there is no legal framework between the government of Uganda and the donors to enable the continuation of project implementation given that the financing agreements do not provide for MEMD to implement rural electrification projects.
- Immediate halt of ongoing rural electrification projects
Related to the above, numerous contracts have been signed under different donor, financing to enable implementation of projects with the highest being the TBEA co limited that is executing the USD212 million sub-county project funded by China Exim bank. Contract execution of goods works and services are ongoing with also other funders.
These contracts will come to a halt given that the supporting financing agreements with donors will no longer apply to REA-Rural Electrification Board (REB). Note that the solicitor general approvals are given to REA/REB, not the Energy ministry. In addition, the contracts are signed with REA/REB as institutions and Board that will no longer exist if the new instrument is gazetted. Such scenarios will lead to legal battles and financial losses with different parties and moreover, the incomplete infrastructure that has been put in place will be susceptible to vandalism.
- Management structure for the operation of the Rural Electrification Fund
While MEMD indicates that the accounting officer of MEMD will also be in charge of the Rural Electrification Fund, it is not clear what kind of the operational structure will be put in place to operationalize the funds as it has been under REA/REB and whether it is MEMD’s role or Public Service Commission to do this since the fund would now be managed under MEMD.
- Employment contracts with REA
Many employees of REA still have their contracts running. It is not clear how these are to be absorbed under MEMD without the public service commission and how the salaries will continue to be paid to staff not hired through public service. This is also likely to stall project implementation, bring about legal battles and financial losses if not handled well. In their letter dated 19th April 2021, the Ministry of public service commented that no structural changes are to be made for those institutions earmarked for mainstreaming. It is not clear whether consultations were made with Public Service to make changes for REA.
In her communication on Cabinet decisions made on 22nd February 2021, the minister of ICT indicated that a roadmap will be prepared and processes put in place to enable a smooth transition for the affected institutions. the Processes mentioned in this communication don’t seem to have been followed at all when it comes to REA and may turn out to be inhumane to many REA staff. One wonders if there was an emergency to warrant such a hurried move without following the guidelines to be issued by the ministry of public service.
- The fight for control of funds
the battle for the management of the proposed World Bank Electricity Access Scale-Up Project (EASP) amounting to USD400 million for rural electrification, which has been ongoing for the last two years between MEMD and REA, informs the chaos that is ongoing in changing the status of REA. In her letter dated July 27, 2020, the Minister MEMD indicated that REA had no mandate to implement rural electrification projects in areas where Umeme lines are.
In order to emphasize further, a new statutory instrument 62 of 2020 to manage REA and the REF was established and gazetted on 30th April 2020 by the minister which regarded rural areas as those beyond the grid hence excluding REA from implementing projects along the existing electricity grid even in rural areas. Subsequently, the SI 62 was quashed by the court in September 2020. The instrument approved on 4th May 2021 now enables the MEMD to take over the funding, REA has been managing, hence, granting MEMD their desire to control the rural electrification funds.
- Coverup for the financial mess
It was discovered recently that two would be former officials of REA ie Mr. Godfrey Werikhe and Mr. John Turyagyenda were being paid a contract salary with the latest seen paid in March 2021 in their standard chartered bank accounts. These officials were sent on suspension by the board under SI 75 2001 for corruption and mismanagement of projects reported in an IGG report. Their contracts ended in December 2020. The permanent secretary MEMD has emphasized in a New Vision press release in April 2021 that the officials were no longer employees of REA and they had no employment contracts. Evidence of their salary payments was seen after the PS had denied the allegation that was going around on social media platforms that the two had been given new contracts.
The accounting officer Ms. Joan Mutiibwa continues to pay herself a net salary of ugx20 million per month even when she does not hold the position of CEO. The position was previously provided for under the quashed SA 61 which the minister usurped the powers of the REA board and appointed her skipping the managers that were senior to her.
Note that REA has no salary structure for an accounting officer. The payment of salaries to non-employees (assuming the minister did not fraudulently renew their contracts) and the irregular payment of the accounting officer the salary of the ED/CEO is a clear manifestation of impunity and financial loss to the Government. It has been noted that there are more of such and bigger finance issues in REA and one of the best ways to cover them is to dissolve REA very fast.
- Contempt of court
As indicated above, the minister of energy came up with SI 62 of 2020 and got it gazetted in April 2020. The SI was quashed by the court in September 2020 under Miscellaneous Cause 91 of 2020. The court quashed the SI on three key issues.
The SI contravened the provisions in the Electricity Act 1999 which provides for the Rural Electrification Strategy and Plan. The court ruled that the minister breached sections 63 and 64 (3) (a) of the Act in violation of the RESP 2013 to 2022 which program is still running. The ruling indicated that coming with a policy legislative change contrary to it without first amending it and getting it approved by the cabinet was illegal because such a person would be acting beyond the scope provided for in the parent legislation.
In addition, the court faulted the minister for removing the PS of MoD and MoLG from Rural Electrification Board.
Lastly, the court faulted the minister for the failure to follow the procedure for creating SIs and failing to carry out consultations. The recently approved SI on 4th May 2021 is also in contravention of the court ruling. It should be noted that when the SI 62 of 2020 was quashed, the provisions that revoked the SI 75 2001 were also quashed. Before the passing of the new SI on May 4, 2021, MEMD and the Attorney General indicated that there was a legal vacuum for REA. It is not clear why there is such a claim given that SI 62 of 2020 was quashed.
- The capacity of MEMD to implement and manage Rural Electrification Program
With the proposed EASP WB-funded rural electrification project, the portfolio funding of rural electrification is expected to increase to USD1billion (ugx3.6 trillion). More funders like the French Development Agency and African Development Bank are looking at providing more funding for electricity access projects which will further increase the funding. It has already been noticed that MEMD has had challenges with directly implementing projects and also carrying out the oversight riles for the different sector institutions. Funding for some of the projects managed by MEMD has been canceled before.
Currently, MEMD is struggling with challenges surrounding the construction of the Karuma dam. It is not clear if the capacity for MEMD to manage and implement efficiently the rural electrification program and moreover work within the timelines of the donors has been assessed.
Prudent project management practice would require that the supervising the institution is independent of the implementing institution. If REA cannot remain on its own and there is a strong need to merge it, then, putting it together with other energy sector companies may be a more prudent decision and MEMD should retain the role of policymaking, coordination, and oversight of the energy sector institutions.
With the above scenarios, it is not clear whether the responsible government offices studied and assessed the legal implications and resultant financial implications before coming up with the new Statutory Instrument and passing it.
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