Uganda

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Introduction to the Country

Quote
"The hunter in pursuit of an elephant does not stop to throw stones at birds."
Traditional proverb, Uganda.

Population
32,369,558

Capital
Kampala

Government type
Republic

Legal system
The legal system is based on English common law and customary law and is subject to the compulsory jurisdiction of the International Court of Justice (with reservations).

Economy overview
Uganda has substantial natural resources, including fertile soils, regular rainfall, small deposits of copper, gold, and other minerals, and recently discovered oil. Agriculture is the most important sector of the economy, employing over 80% of the work force. Coffee accounts for the bulk of export revenues. In 2000, Uganda qualified for enhanced Highly Indebted Poor Countries (HIPC) debt relief worth $1.3 billion and Paris Club debt relief worth $145 million. These amounts combined with the original HIPC debt relief added up to about $2 billion.

Map

Next election due
2011

Legal and Regulatory framework

Uganda currently owes most of its electricity to hydropower development and currently has two operational hydropower plants. Electricity at the two operational hydropower plants, Nalubaale and Kiira complex is currently being generated by ESKOM ltd, under a 20 year concession agreement, since 2003, from the Government owned Uganda Electricity Generation Company ("UEGCL").

The Uganda Electricity Transmission Company Limited ("UETCL") is the System Operator and owns transmission lines above 33kV. UETCL is the bulk supplier and single buyer of power for the national grid in Uganda.

Distribution of power in Uganda is solely managed by the Uganda Electricity Distribution Company Limited ("UEDCL") which in 2005 gave UMEME ltd a twenty- year concession to distribute electricity in Uganda.

There is no monopoly over the generation of power in the country.

There is a small but growing percentage of power which is being generated from alternative sources, such as biomass co-generation, thermal, peat, geothermal and solar sources.

 (a) Key enabling legislation

(i) List of key legislation and regulations

The Electricity Act 1999, Cap 145: This Act covers mainly: the mandate of the Electricity Regulatory Act; the various licences applicable to the electricity sector in Uganda and the requirements that an applicant must satisfy in order to obtain various licences for power generation, distribution and transmission.

The National Environmental Act Cap 153: This Act sets up The National Environment Management Authority ("NEMA") which is responsible for regulating the impact of energy investments on the environment and awards certificates of environmental clearance necessary before any licence can be given under the Electricity Act.

The Town and Country Planning Act Cap 246: This Act deals with the various licences necessary before one can be allowed to develop certain designated areas.

The Water Act Cap 152: This Act deals with the requisite consent one must acquire in order to construct any works or to take and use water.

The Land Act Cap 227: This Act is relevant for the requisite confirmation by the Minister responsible for water and natural resources of relevant usury rights over land and water.

The Income Tax Act: This Act provides for the taxation regime and any exemptions that may be accorded to the project.

(ii) Overriding legislation and regulations:

The terms of the specific licence issued under the Electricity Act, 1999 will prevail over the terms of any contract (such as a power purchase agreement). There are certain obligations and liabilities under the Occupational Safety and Health Act 2006 which will apply regardless of contractual provisions.

 (b) Powers and capacity of the Government and Constitutional issues

(i) Governmental involvement

Uganda is a unitary state. The overall responsibility for energy production and policy in Uganda is with the Government of Uganda and directly under the Ministry of Energy and Mineral Development.

(ii) Powers of Government

These are derived under Acts of Parliament and the Constitution of the Country.

(iii) Powers in respect of the project

The Government has in certain instances given undertakings in support of energy projects.

(iv) Power to contract

The Government of Uganda has the power to enter into contracts on a commercial basis.

(v) Legislative restrictions applicable to the giving of sovereign guarantees

The Government of Uganda may only enter into sovereign guarantees in certain restricted circumstances.

 (c) Regulator

(i) Overview of regulators and their powers

The power sector in Uganda is regulated by the Electricity Regulatory Authority ("ERA") which is a body corporate established by the Electricity Act, 1999, Cap. 145.

(ii) Does the regulator typically enter into project documents relevant to the Project?

The ERA has the power to enter into and grant a generation licence pursuant to the Electricity Act, 1999.

(iii) What is the form of licence issued and can it be amended?

ERA is empowered to issue licences for generation, transmission and distribution. A licence once issued may be amended and modified following the set procedure.

(iv) Is the regulator regarded as being genuinely independent from government/the utility? How is the regulator funded?

The ERA is established as a corporate entity and is intended to be an independent body. It receives its funding in part from the Government consolidated fund, as well as grants and donations from the Government and in part from levies charged on electricity generated.

 (d) Procurement

(i) Procurement or tender process

According to the Electricity Act, 1999 and the Public Procurement and Disposal of Public Assets Act, there must be a public procurement process where the project is initiated by the Government. However this does not preclude a party from individually applying for a licence for a project where it has identified the project on its own.

(ii) Other specific procurement requirements

The salient procurement issues are that the procurement must comply with the principles of non discrimination, transparency, accountability, fairness and competition.

 (e) Power plants

(i) Is there a standard form of power purchase agreement?

There is no standard form PPA used in Uganda though certain templates have however evolved over time due to IPPs such as Bujagali. Members of Trinity and Shonubi Musoke have been involved in the development of such a form of PPA over a number of years.

(ii) Independent Power Projects: are there any IPPs in existence?

Please see “Legal and Regulatory Framework” section.

(iii) Merchant power: are there merchant power plants and if so, are they allowed to (or obliged to) sell power back to the grid?

At present there are no Merchant Power Plants operational in Uganda. All capacity/energy is sold to UETC pursuant to a long-term PPA.

 (f) Consents required and authorisations from other ministries

(i) List of key licences, permits or consents

  • The environmental clearances under the National Environmental Act, 1995;
  • The Construction permit and the Surface Water Permit also referred to as the Abstraction permit under the Water Act 1995;
  • An Investment licence issued by the Uganda Investment Authority;
  • Licence/concession for use of land under the Land Act, 1998 and
  • Riparian consents where the project impacts on water flow to other countries within the Riparian region.
  • Trading Licence
  • Electricity licences for generation, transmission and distribution.
  • Municipal Consents.

(ii) Are consents capable of being secured and are transferable to the lenders?

The licences obtained under the Electricity Act, 1999 may only be transferred with the express consent of the ERA. This requirement for consent may extend to the decision to deposit the licences as security.

(iii) Process of application for consents

There are standard forms for the application.

 (g) Competition law

(i) Exclusivity: are any rights of exclusivity granted to a project company enforceable?

The ERA may and has in the past granted rights of exclusivity to project companies and such rights once granted are enforceable.

(ii) Restrictions on competition: are there any restrictions on the ability of a project company to compete freely in the country?

There are no restrictions on the ability of a project company to compete freely in the country.

 (h) Environmental regulations

(i) Regulations: are there any environmental or health and safety regulations or legislation applicable to power plants?

The main regulation is the requirement for an environmental impact assessment ("EIA") to be conducted by the National Environment Management Authority (NEMA) upon which environmental clearance licences are awarded.

(ii) Additional consents required by a project company

There are other minor environmental consents and authorisations which are required to operate. These are all governed by the National Environment Management Authority.

Finance and Tax matters

(a) Financial assistance

(i) Does the concept of financial assistance exist?

Under the Companies Act, Cap 110, a company may not provide financial assistance for the purpose of purchasing its own shares or the shares of its holding company.

(b) Lending restrictions/banking monopolies

(i) Any restrictions applicable to the importation of capital by lenders?

Save for anti money laundering guidelines and provided that the lender does not purport to take deposits locally there are no restrictions on foreign banks providing capital for a project.

(ii) Requirement for the lenders/security agent to be registered in the jurisdiction?

There is no requirement for the lenders/ security agent to be registered in Uganda.

(iii) Can foreign lenders lend into the jurisdiction?

Foreign lenders can lend into the jurisdiction.

(c) Restrictions relating to repatriation of dividends

(i) Are there any restrictions relating to repatriating dividends?

Dividends declared by a Ugandan-incorporated company are a shareholder's property right which may be disposed of by the shareholder in any manner they see fit, including repatriation. There is no restriction under the Companies Act in relation to this. However repatriation of dividends will attract the payment of taxes.

(d) Convertibility

(i) Are there any restrictions on the convertibility of the jurisdiction's currency?

Pursuant to the liberalisation policy of Government there are no restrictions on the repatriation of funds and or dividends.

(e) Interest payments

(i) Are there any restrictions on the payment and compounding of interest? If so, does this also affect both local and foreign lenders?

There is no restriction on the payment or compounding of interest by either local or foreign banks under Ugandan law.

(f) Tax

(i) Are there any withholding tax issues in relation to interest payments and fees to foreign lenders or payments received under any agreements?

A withholding tax is chargeable on interest payments and fees to foreign lenders on loans used by a project company and on the payment of principal in respect of a debt.

(ii) List of double taxation treaties.

Uganda has double taxation treaties with India, UK, Zambia, Netherlands, Mauritius, Norway, South Africa, Italy and Denmark. With the exception of the UK the Withholding Tax rates are lower with the above countries than with other countries for which there are no Double Taxation Treaties.

(iii) Lender risks in respect of tax liabilities/tax domiciliation as a result of providing debt and/or taking/enforcing security interests

In the process of providing debt to the project or Project Company and/or taking/enforcing security interests lenders should be mindful of transfer pricing concerns and thin capitalisation issues.

(iv) Can loan repayment / enforcement proceeds be treated negatively from a tax perspective for the lenders?

A loan can be treated as equity or the rates can be changed to market rates by URA if the parties are related and transfer pricing issues arise.

(g) Stamping costs

(i) Details of stamp duty costs

Stamping Costs are determined by the Stamps Amendment Act, 2000.

A loan agreement which does not relate to the deposit of title is charged stamp duty as any other Agreement and this is currently a nominal fee of Ug Shs 5,000. Other agreements relating to deposit of title--deeds, pawn pledge etc attract a stamp duty of 1% of the total value.

Debentures and Mortgages attract a stamp duty of 0.5 %.

Security, Enforcement and Insolvency

(a) Overview of security regime

(i) Can a security interest be obtained over a company's assets, e.g.:

Security interests may be registered over a wide range of company assets including book debts, inventory, land , fixtures/immovable assets, moveable assets, income streams, equipment, insurances, shares in the project company, local bank accounts, contract rights, intellectual property rights and other intangible assets

The securities envisaged may take the following forms: Mortgages, Debentures, Share Pledges, Liens on Accounts, Assignments of Receivables, Assignments, Chattels Mortgages, and Deeds of Hypothecation.

(ii) Can shares of a project company validly be pledged and enforced under an English law share charge?

A charge may be granted over shares in company as security for a loan.

(iii) Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility?

There is no provision under the Companies Act that bars a company from granting a security interest in order to secure its debt obligations as a borrower under a credit facility or as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility. However, such an act must not be prohibited by the Memorandum and Articles of Association of the said company.

(iv) If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?

If the borrowings to be secured are under a revolving credit facility, the same priority considerations arise as would with any other credit facility in the event of insolvency under Common Law.

(v) Can the relevant security interests be granted to a security agent or trustee on behalf of the lenders from time to time?

A security agent may be appointed by the lenders in respect of a credit facility.

(vi) Please indicate the claims that would have priority over the relevant security interests.

Preferential creditors are only given priority over unsecured creditors. But it is to be noted, that under the Companies Act, Cap 110, where the assets of the company available for the payment of general creditors are insufficient, government taxes, salaries, NSSF contributions would take priority over the claims of holders of debentures under any floating charge created by the company.

(vii) Is there a public security registry?

There is a public Companies registry which may be searched to ascertain whether a project company has any security documents or any document dealing with any financial arrangement in place, such as guarantees, indemnities, debentures or suretyships given by or for the benefit of a project company. There is also a Land Registry, which may be searched to ascertain whether there are any existing mortgages over land owned by a project company.

(viii) Formalities in respect of security creation:

There are periods within which certain securities must be registered and duty paid thereon e.g. a debenture must be registered within 42 days from the date of creation. Filings are done with the Companies Registry for shares, debentures and security over immoveable properties is done at the Lands Registry.

There are no requirements for notice to shareholders etc save as may otherwise be provided in the memorandum and articles of association or a shareholders agreement.

The steps required to perfect security depend on the particular security. All debentures and mortgages must have stamp duty paid thereon before the same are submitted for registration. Registration at the companies and lands registries may take anywhere from 2-60 days.

The most significant costs are stamp duties which range from 0.5-1% of the value of the facility.

(b) Insolvency and enforcement regime

(i) Is there a court or similar register that can be searched in respect of proceedings and insolvency actions?

Searches may be conducted at the court premises or on the respective company files at the companies registry.

(ii) Summary of the different options for an insolvency related process.

The Insolvency process in Uganda is governed by the Companies Act, Cap 110. The options available include:

Voluntary winding up: this may be effected by the shareholders or the creditors, where the Company passes a resolution for the company to be wound up and reaches an arrangement with its creditors to have the Company wound up under the supervisions of a jointly appointed liquidator.

Receivership: under this arrangement a secured creditor may apply to Court for the appointment of a receiver to allow for the realisation of company assets subject to security.

Scheme of arrangements/reconstruction: by this procedure, the company may reach a compromise with its creditors to settle their debts without the company being wound up. Such a compromise must be sanctioned by the Court and is binding if the appropriate majorities of each class of creditors/members agree.

(iii) Are summary or expedited proceedings available?

There are no expedited proceedings under the insolvency laws of Uganda.

(iv) Are any governmental or other consents required in connection with:

There is only one insolvency regime in Uganda and it governs all companies incorporated under the Companies Act.

(v) Do lenders inherit all environmental liabilities when they become owner of the shares upon enforcement (or at any other time)?

Lenders will generally assume all liabilities which attach to the property right in a given project, including environmental liabilities, if they enforce security and acquire the property in a given asset.

(vi) Can security interests be enforced by both private sale and public auction, and is it necessary to appoint a court or other official to carry out the enforcement?

The mode of enforcement of a security interest is dependent on its security agreement in accordance with whose terms it shall be enforced. Except that, in the case of a mortgage, under the Mortgage Act Cap 229, where the mortgage gives express power to the mortgagee to sell without applying to court, such sale shall be by private treaty or public auction.

Corporate, Insurance and Employment matters

(a) Corporate vehicle

(i) Project company incorporation:

(A) Type of corporate vehicle

There is no specific requirement for a particular form of business association/corporate vehicle under the Electricity Act 1999, however the most common vehicle is a private company limited by shares. A private company limited by shares cannot have less than 2 shareholders nor can it have more than 50 shareholders.

There are no minimum share capital requirements for a company limited by shares under the Electricity Act, 1999 or the Companies Act Cap 110

(B) Issues relating to thin capitalisation

This is provided for under the Income Tax Act of Uganda.

(C) Requirement to have indigenous shareholdings

There are no legal requirements to have a specific percentage of shares or equity in a project company held by indigenous nationals. It is also possible to use a company formed and registered in a foreign jurisdiction for a project in Uganda, provided, within thirty days of such a company establishing a place of business in Uganda, such a company is registered with the Company Registry as a foreign company carrying on business in Uganda. There are however certain restrictions as regards the land that may be held by a foreign company.

(D) Estimated timescale for incorporation in the country. Are there any specific fees or other costs payable to governmental authorities in respect of incorporation?

The estimated timescale for the incorporation if a limited liability company in Uganda is 2-4 days and the incorporation fees payable are 0.5 % of the share capital plus nominal registration fees.

(b) General corporate issues

(i) Is a private company free to lend and/or issue guarantees?

A private company is free to lend and issue guarantees, subject to its memorandum and articles of association.

(ii) Are there any restrictions on dividend distribution?

The declaration and distribution of dividends are regulated by the Company's Articles of Association.

(c) Insurance

(i) Mandatory insurance: are there any insurances which the project company or the Project is required to have by law (or regulations or similar)?

There are certain mandatory insurances that ERA requires the Project Company to take. These are usually specified expressly in the licence for the particular IPP.

(ii) Is there any minimum requirement to place the insurance with local insurers or any other similar restrictions? If so, can reinsurance be lawfully placed internationally?

All insurances must be placed in Uganda with local insurers by law. The local insurance company may reinsure abroad.

(iii) Are there any restrictions in respect of granting security rights over the insurances or reinsurances?

Security may be granted over insurance by way of an assignment of the right to insurance proceeds.

(d) Employment

(i) Legislative/regulatory issues: is there any legislation or regulation impacting on foreign employees, in particular the conditions relating to work and residence permits? Please give an indication of the process and costs in relation to obtaining work and residence permits.

The Employment Act 2006 governs employment law in Uganda. Under this Act there are no restrictions as to foreign employees, however under the Immigration Act Cap 69, no foreigner is permitted to work in Uganda without an entry/work permit.

(ii) Foreign restrictions: are there any restrictions that apply to foreign employees and foreign contractors/subcontractors and if so what do they need to do in order to comply with local legislation?

Specific detailed advice should be sought on this issue.

Land

(a) Land registry: is there a land registry (or similar) in the country that can be searched to confirm whether a project company has granted of any mortgage, charge, option assignment, lien or other encumbrance over the whole or part of the properties or assets of a company.

The Land Registry under the Ministry of Lands, Housing and Urban Development maintains a register of certificates of title detailing the descriptions of property, the registered proprietors thereof and the details of any mortgages, charges or encumbrances that might exist in respect of each property.

(b) Landlord's rights: please indicate whether there are any rights which accrue to the landlord (or the government or any other bodies) that may override the terms of a land lease or threaten the rights of a project company particularly any right of repossession or acquisition.

Under the Land Acquisition Act, Government may, subject to paying sufficient compensation to the owner of land compulsorily acquire any land. Compensation may also be paid for wayleaves passing through an individual's land.

(c) Direct agreement: are you aware as to whether a direct agreement in respect of a lease has been previously been provided to lenders on other transactions?

We are not aware of any direct agreement provided to lenders in respect of a lease.

(d) Forfeiture rights: do relief from forfeiture rights exist and would the lenders be entitled to rely on such rights?

None are applicable.

(e) Is there any additional legislation governing property rights?

Property rights are also governed by the Land Act cap 227.

(f) Are there any formalities with which lenders need to comply when enforcing security over land?

The Mortgage Act sets out formalities for enforcement in relation to land, where there is no provision in the mortgage document to dispose of the land by express sale, such a security may be realised either by the appointment of a receiver, by the mortgagee taking over the property or by foreclosure. In the case of foreclosure, this is done by court sanction.

International law and arbitration

(a) Supra-national treaties

(i) List all Bilateral Investment Treaties to which the country is party.

There exist bilateral investment treaties with the Egypt, Eritrea, Mozambique, Sudan, China, Sweden, United Kingdom, France, Germany, Netherlands and Switzerland.

(ii) Is the country a signatory to the Energy Charter Treaty?

Uganda is not a signatory of the Energy Charter Treaty.

(b) Arbitration

(i) Requirements and restrictions applicable to the choice of arbitration roles and place of arbitration

Arbitration in Uganda is governed by the Arbitration and Conciliation Act Cap 4 which follows the UNCITRAL Model law.

(ii) Are foreign arbitral awards / decisions are enforceable in the country (i.e. is the country a party to the New York Convention on the Recognition of Foreign Arbitral Awards (the "Convention")?

Uganda is a signatory to the 1958 New York Convention relating to the enforcement of foreign arbitral awards and mode of enforcement and the Arbitration and Conciliation Act of Uganda provides for the enforcement of this treaty.

Renewable Energy

(a) Has the country enacted any legislation specifically designed to promote and enable the development of renewable energy projects?

Currently Uganda has no legislation specifically enacted and designed to promote and enable the development of renewable energy projects.

(b) Is the country is a signatory to the Kyoto Protocol?

Uganda is a signatory to the Kyoto Protocol.

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