Uganda - Energy for Rural Transformation Project

Document of The World Bank Report No: 23195-UG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 38.30 MILLION (US$49.15 MILLION EQUIVALENT) AND A GEF GRANT IN THE AMOUNT OF SDR 9.50 MILLION (US$12.12 MILLION EQUIVALENT) TO THE REPUBLIC OF UGANDA FOR AN ENERGY FOR RURAL TRANSFORMATION PROJECT IN SUPPORT OF THE FIRST PHASE OF THE ENERGY FOR RURAL TRANSFORMATION PROGRAM November 14, 2001 Energy Team Infrastructure Group Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective November 13, 2001) Currency Unit = Uganda Shillings (UGX) UGX 1 = US$0.00057 US$1 = UGX 1740 FISCAL YEAR July 1 -- June 30 ABBREVIATIONS AND ACRONYMS AC Altemating Current AFRREI Africa Rural and Renewable Energy Initiative AIDS Acquired Immune Deficiency Syndrome AKFED Aga Khan Fund for Economic Development APL Adaptable Program Loan ASPFN Africa Social and Environmental Unit 13OOT Build Own Operate Transfer BOS Balance of System BOU Bank of Uganda BUDS Business Uganda Development Service CAS Country Assistance Strategy CBO Community Based Organization CDD Community Driven Development CDF Comprehensive Development Framework C'DM Clean Development Mechanism CEO Chief Executive Officer CIGRE Conference Internationale Grands Reseaux Electriques C02 Carbon Dioxide CPAR Country Procurement Assessment Report CQ Selection based on Consultant Qualifications D)C Direct Current D)FID Department for Intemational Development )PP Detailed Procurement Plan l IA Environmental Impact Assessment I,MP Environmental Management Plan EOI Expressions of Interest ERR Economic Rate of Retum ERT Energy for Rural Transformation E SMAP Energy Sector Management Assistance Program Fl Financial Intermediation FRR Financial Rate of Retum GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas GOU Government of Uganda GPN General Procurement Notice GSM Global System for Mobile Communications GWh Gigawatt Hour I BRD Intemational Bank for Reconstruction and Development ICB Intemational Competitive Bidding  ICT Information/Communication Technology IDA International Development Agency IEEE Institute of Electrical and Electronic Engineers IFC International Finance Corporation IPP Independent Power Producer IPS Industrial Promotion Service ISP Internet Service Provider IXP Internet Exchange Point KW Kilowatt KWh Kilowatt hour LC3 Local Council 3 LC5 Local Council 5 LCS Least-Cost Selection LIL Learning and Innovation Loan M&E Monitoring and Evaluation MEMD Ministry of Mineral and Energy Development MOF Ministry of Finance MOFPED Ministry of Finance Planning & Economic Development MOLG Ministry of Local Government MTN Mobile Telephone Network MWh Megawatt hour NEMA National Environmental Management Authority NFB Not Bank Financed NGO Non-Governmental Organization NORAD Norwegian Agency for Development NOx Nitrogen Oxides NPV Net Present Value NRECA National Rural Electric Cooperative Association OD Operational Directive OED Operations Evaluation Division OPP Overall Procurement Plan PCD Project Concept Document PCF Prototype Carbon Fund PDR People's Democratic Republic PEAP Poverty Eradication Action Plan PMA Plan for Modemization of Agriculture PMR Project Management Reports POP Point of Presence PPA Power Purchase Agreement PRSP Poverty Reduction Strategy Paper PSF Private Sector Foundation PV Photovoltaic QBS Quality Based Selection QCBS Quality and Cost Based Selection RCDF Rural Communications Development Fund RCTB Reformed Central Tender Board RE Rural Electrification REA Rural Electrification Agency REF Rural Electrification Fund RET Renewable Energy Technology SCOUL Sugar Corporation of Uganda Ltd. SFB Selection under a Fixed Budget SHS Solar Home System SIDA Swedish International Development Agency  SIL Sector Investment Loan SME Small & Medium Enterprise SOx Sulfur Oxides SPP Small Power Producer TA Technical Assistance UCC Uganda Communications Commission UEB Uganda Electricity Board ULAA Uganda Local Authorities Association UNCITRAL United Nations Commission for International Trade Law UNDP United Nations Development Program UNICEF United Nations International Children's Education Fund URECL Uganda Rural Electrification Company Ltd. USTDA United States Trade and Development Agency UTL Uganda Telecommunications Ltd VSAT Very Small Aperture Terminal WBG World Bank Group WHO World Health Organization WorLD World Links in Development Program Wp Watt Peak Vice President: Callisto Madavo Country Manager/Director: James W. Adams Sector Manager/Director: M. Ananda Covindassarny Task Team Leader: Arun P. Sanghvi  UGANDA ENERGY FOR RURAL TRANSFORMATION PROJECT CONTENTS A. Program Purpose and Project Development Objective Page 1. Program purpose and program phasing 3 2. Project development objective 8 3. Global objective 8 4. Key performance indicators 8 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 9 2. Main sector issues and Government strategy 10 3. Sector issues to be addressed by the project and strategic choices 17 4. Program description and performance triggers for subsequent loans 20 C. Program and Project Description Summary 1. Project components 25 2. Key policy and institutional reforms supported by the project 26 3. Benefits and target population 28 4. Institutional and implementation arrangements 28 D. Project Rationale 1. Project altematives considered and reasons for rejection 35 2. Major related projects financed by the Bank and other development agencies 35 3. Lessons leamed and reflected in the project design 36 4. Indications of borrower commitment and ownership 39 5. Value added of Bank support in this project 40 E. Summary Project Analysis 1. Economic 41 2. Financial 43 3. Technical 45 4. Institutional 45 5. Environmental 48 6. Social 50 7. Safeguard Policies 51  F. Sustainability and Risks 1. Sustainability 51 2. Critical risks 53 3. Possible controversial aspects 54 G. Main Conditions 1. Effectiveness Condition 55 2. Other ss H. Readiness for Implementation 55 I. Compliance with Bank Policies 56 Annexes Annex 1: Project Design Summary 57 Annex 2: Detailed Project Description 61 Annex 3: Estimated Project Costs 114 Annex 4: Cost Benefit Analysis Summary 115 Annex 5: Financial Summnary for Revenue-Earning Project Entities, or Financial Summary 116 Annex 6: Procurement and Disbursement Arrangements 117 Annex 7: Project Processing Schedule 139 Annex 8: Documents in the Project File 141 Annex 9: Statement of Loans and Credits 142 Annex 10: Country at a Glance 144 Annex 11: GEF Incremental Cost Annex 146 Annex 12: Letter of Sector Development Policy 163 Annex 13: Renewable Energy Policy and Plan 169 Annex 14: Prototype Carbon Fund (PCF) 172 Annex 15: Project Supervision Plan 185 Annex 16: Environment and Social Management Framework -Executive Summary 18 8 MAP(S) IE3RD 31662  UGANDA Energy for Rural Transformation Project Project Appraisal Document Africa Regional Office AFTEG Date: November 14, 2001 Team Leader: Arun P. Sanghvi Country Manager/Director: James W. Adams Sector Manager: M. Ananda Covindassamy Project ID: P069996 Sector(s): CC - Telecommunications & Informatics, DI - Private Infrastructure, PP - Electric Power & Other Energy Adjustment Lending Instrument: Adaptable Program Loan (APL) Theme(s): Environment; Rural Development; Energy; Private Sector; Telecom & Informatics Poverty Targeted Intervention: N Global Supplemental ID: P070222 Team Leader: Arun P. Sanghvi Focal Area: G Sector Manager/Director: M. Ananda Covindassamy Supplement Fully Blended? Yes Sector(s): CC - Telecommunications & Informatics; PY - Other Power & Energy Conversion Program Financing Data Estimated APL Indicative Financing Plan Implementation Period Borrower (Bank FY)__ _ _ _ _ _ _ _ _ _ _ IDA Others Total Commitment Closing US$ m % US$ m US$ m Date Date APL 1 49.15 39.9 74.16 123.31 01/15/2002 08/31/2006 Government of Uganda Loan! Credit, APL 2 45.00 37.5 75.00 120.00 08/31/2006 08/31/2009 Government of Uganda Loan/ Credit APL 3 71.00 36.2 125.00 196.00 08/31/2009 08/31/2012 Government of Uganda Loan/ C redit,_ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Total 165.15 274.16 439.31 _ [ ] Loan [X1 Credit I ] Grant ] Guarantee I I Other: For Loans/Credits/Others: Amount (US$m): 49.15 Proposed Terms (IDA): Standard Credit Years to maturity: 40  Financing Plan (US$m):: Source LocaI Foreign Total BORROWER 7.20 0.00 7.20 IDA 3.00 46.10 49.10 FOREIGN SOURCES (UNIDENTIFIED) 0.00 2.50 2.50 BILATERAL AGENCIES (UNIDENTIFIED) 1.50 5.40 6.90 FOREIGN PRIVATE COMMERCIAL SOURCES 24.79 20.70 45.49 (UNIDENTIFIED) GLOBAL ENVIRONMENT FACILITY 3.00 9.12 12.12 Total: 39.49 83.82 123.31 Borrower/Recipient: GOVERNMENT OF UGANDA Responsible agency: MULTIPLE AGENCIES Ministry of Energy and Mineral Development and Rural Electrification Agency (lead for energy), Uganda Communications Commnission (lead for ICT), Bank of Uganda, Private Sector Foundation, private sector, Ministries of Agriculture, Health, Education, Water, and Local Governnent Address: Contact Person: Permanent Secretary, Ministry of Energy & Mineral Development Tel: 256-41-342-550 Fax: 256-41-349-342 Email: psmemd.upppre@infocom.co.ug Estimated disbursements (Bank FY/US$m): jFY 2002 2003 2004 2005 2006 Annual 2.00 6.00 5.00 11.50 24.65 Cumulative 2.00 8.00 13.00 24.50 49.15 Project implementation period: 2002 - 2006 Expected effectiveness date: 03/15/2002 Expected closing date: 08/31/2006 *.CS APL PM) CS,r R. Ud2 -. XO - 2-  A. Program Purpose and Project Development Objective 1. Program purpose and program phasing: While Uganda's economy has consistently registered high economic performance, with an average real rate of growth of about 6.9 percent since 1990/91, and an average annual increase in real per capita income of 3.7 percent over the last decade, development in rural areas has lagged well behind urban areas. High growth performance has raised living standards, but poverty remains pervasive and extensive; much of Uganda's rural population, about 85% of the national population, remains isolated and has not yet received or seen the benefits of commonplace modem goods and services; and, rural growth prospects are constrained by a lack of, inter alia, adequate physical infrastructure and integration with regional, national and international markets. The bulk of Uganda's estimated Z,00O+ trading center's, whose numbers are rising with population and economic growth, are still unelectriried - like this one, Kisiizi, in Southwestern Uganda. Moreover, lack of modern informationlcommunications channels - which need electricity to function - excludes rural communities from the modern world and impedes the ability of rural enterprises to grow through better integration with provincial and national markets. The purpose of the proposed long-term program is to develop Uganda's rural energy and information/communication technologies (ICT) sectors, so that they make a significant contribution to bringing about rural transformation, i.e., these sectors facilitate a significant improvement in the productivity of rural enterprises as well as the quality of life of rural households. For this to happen, * The conventional model of government-led rural electrification, generally unsuccessful in sub-Saharan Africa, has to be replaced by a private-sector led, comimercially-oriented rural electrification program, in which (i) targeted and efficient subsidies take account of affordability and equity considerations, (ii) investment decisions at the margin - "the last dollar"- are made on a commercial basis, and (iii) provision of output-based aid is balanced against the need to facilitate financial closure of private sector projects - frequently considered as risky by comimercial lenders - by providing some assistance during the construction phase, which reduces the commercial debt financing and associated risk exposure (see section B32b). -3 -  * The rural energy and ICT sectors have to selectively build and exploit synergies between cross-sectoral assets in energy and ICT on the one hand, and, on the other hand with end-user sectors such as health, education, agriculture, water and SMEs, (see section B3), while avoiding unnecessary inter-sectoral linkages that may spread implementation difficulties in one sector to other sectors also (see section Fl). Most of Uganda's 1,500+ rural health clinics - Health Centers II, III, and IV - are unelectrified and lack modem communication facilities. Electricity and ICTs can help improved the health care service quality and timely response. For example, lighting would benefit night time childbirth and emergency surgery, and energy for simple laboratory tests as well as proper syringe sterilization would reduce transmission of infectious diseases such as HIV and hepatitis. Telemedicine and communications can enable life-saving medical advice on an ongoing or as-needed basis (see Annex 2 for details). These linkages are clearly in line with the wishes of the Government and the people. For example, various senior central and local leaders have urged the project team to be aggressive in developing them; Uganda's Plan for Modernization ofAgriculture takes account of this project's contribution to acceleration of rural electricity access; and senior officials in the linked Ministries have incorporated these linkages into their respective mainstream activities. Following its successful universal primary education program, Uganda is facing an increasing demand for secondary education, where electricity and ICTs can greatly facilitate learning, particulariy in vocational and technical schools (see Annex 2 for details). -4 4  Uganda is well-endowed with renewable energy resources, whose development would contribute to environmental protection as well as rural transformation, but little progress has been made so far in utilizing them (with the notable exception of large-scale hydroelectric power generation on the Nile). The global purpose of the proposed long-term program is to contribute to global environment protection by reducing greenhouse gas emissions; it is expected that the development of renewable energy would also make a significant contribution to rural transformation. The proposed project is the first: (i) Bank-wide, under the Global Environment Facility (GEF)/World Bank Renewable Energy Strategic Partnership, which aims to support renewable energy development through a programmatic approach parallel to the Bank's Adaptable Program Loan (APL) instrument, and (u) in the Bank's sub-Saharan Africa Region to utilize the newly launched Prototype Carbon Fund (PCF), which, inter alia, funds projects that produce greenhouse gas emission reductions which could, in the future, be traded internationally under schemes such as the Kyoto Protocol. -~~~~~~~~~~~~ __~~~~~~~~~4 Sugar mill power generation will benefit small-lot farmers, who will supply additional cane for sugar production and power generation. The use of bagasse for power generation will eliminate open field burning of bagasse, which, at present, amounts to more than 50 truckloads per day (see Annex 2 for details). Phasing: At present, Uganda lacks both the capacity and an appropriate institutional framework for the type of commercially oriented rural electrification/ICTs and renewable energy development envisaged in this APL, and upon which a large-scale program can be built. The ten-year APL will be divided into three tranches, roughly equal in terms of time; the first phase would start small in termns of investment, while in parallel building the necessary capacity as well as the institutional and policy framework, and the pace of investments would pick up in the second and third phases. -- -  * First phase: Development of requisite framework and limited investments The central objective of the first phase is to put in place "on-the-ground" a functioning conducive environment and related capacity for comrnmercially oriented, sustainable service delivery of rural/renewable energy and ICTs. In the energy sector, there would be limnited investment, treating each sub-project on a case-by-case basis, to test (and refne, as necessary) and prove the readiness of business models and associated support systems for commercially oriented rural electrification and for meeting essential community needs, for scaled-up delivery in subsequent phases. For the ICT sector, where the institutional framework is relatively more ready, the main activities will be support for the Government's program for accelerated rural access to basic telephone service and the spread of Internet to district capitals, with a few pilot telecenters in deep rural areas. This project will provide subsidies and facilitate commercial debt finance for an IFC-sponsored rural electrification scheme in Bushenyi and Rukungiri districts to provide power from a mini-h ydro power plant to about 5,000 residential, commercial, institutional, and small industrial clients, such as this flour mill, which now uses a diesel generator (see Annex 2 For details). To achieve this, the project will: (i) develop financial mechanisms to: (a) activate efficient and effective mechanisms (Rural Electrification Fund { RE Fund} and Rural Communications Development Fund {RCDF}, both of which are already provided for in the law) for transfer of granits - from a variety of sources -6-  including IDA and bilateral donors - to subsidize initial capital investments by service providers in commercially unviable areas, and (b) get the program going, provide financial instruments to support term financing by local financial institutions on commercial termns for private sector enterprises; (ii) provide business development support services, including techno-economic information, to potential private sector participants: Uganda's private sector, particularly in the energy sector, lacks adequate experience with the development of fmanciable business plans as well as their implementation for service provision in rural areas. These support services would be provided to potential energy sector participants by existing facilitating entities, such as the Private Sector Foundation, on a "business-to-business" cost-sharing basis; (iii) provide technical assistance and capacity building and training appropriately targeted to relevant public sector institutions (central and local) including a to-be-established Rural Electrification Board, in support of their roles as enablers in policy setting, promotion, regulation, and monitoring/evaluation of conmmercially-oriented rural electrification and ICTs, and to effectively operationalize cross-sectoral linkages necessary rural transformation (see section C2). (iv) facilitate community discussion and mitigation of concerns about the nature and scope of commercially-oriented service provision of electrification and ICT services. The agents for this would be community-based organizations and NGOs. While the above activities are also broadly applicable to renewable energy, some additional issues related mainly to renewable energy would also be covered in the first phase. In particular, a specific regulatory issue is the establishment of the contractual framework and rules/obligations for wheeling power over the main grid for third party sales, related pricing, penalties/remedies for non-performance, etc. (see section B2, Government strategy). The technical assistance and capacity building are in line with the principles of the GEF-Bank Strategic Partnership for Renewable Energy: (i) develop a strategy and implementation plan for building the capacity of in-country intermediaries to identify, develop, appraise and move towards fmancial closure renewable energy investments, (ii) prepare a renewable energy resource information collection and dissemination system that provides reliable data that enables interested private sector investors to initiate their own assessment of potential projects; and (iii) activities to help reduce the gap in solar photovoltaic product prices, quality and range by moving Uganda in the direction of intemational best practices, as applicable to Uganda. * Second phase: Accelerating/building momentum for investment and continuing capacity building The central objectives of the second phase would be to: (i) accelerate investments and increase the regional coverage by shifting from the case-by-case approach of the first phase to processing sub-projects through the institutional framework, with continuing business development assistance, including making available generic packages, which individual entrepreneurs would tailor to their particular situation, of proven, low-cost technologies, workable financing modalities, and guidelines for community participation/acceptance developed in the first phase. The present ICT rural access objectives (see section B2a) are expected to fully met by the end of Phase 2. -7-  (ii) fine tune and strengthen the institutional framework in light of any difficulties encountered by sub-project developers, and increase the extent of decentralization in terms of responsibilities for program support and management, monitoring, and expansion, (iii) mainstreaming of successful pilots, with any necessary adjustments, undertaken in the first phase, and implement fresh pilots that reflect fresh opportunities as well as the experience with earlier pilots. The activities specific to renewable energy would follow from those initiated in the first phase, and would consist of building in-country capabilities, resource data dissemination, and continuing dissemination and promotion of intemational best practices. * Third phase: Rapid scale-up and consolidation of institution build-up The third phase's central objective would be to shift the focus to exponential growth in investments so as to reach the Government's long-term targets for rural electrification and renewable energy development, with rural transformation facilitated by scale-up of the successful pilots from the earlier phases. While capacity building would continue, its focus would shift from fresh initiation to consolidation of the outcomes of the first and second phase activities. The ERT program would be fully operational on a national scale and functioning in a highly decentralized mode. 2. Project development objective: (see Annex 1) The objectives of the proposed project (Phase 1) have been discussed above. 3. Global objective: (see Annex 1) The global objective has been discussed above. 4. Key performance indicators: (see Annex 1) The key performance indicators for the ten-year program relate to the: (indicators related to GEF-supported activities are shown in italics). * Number of homes, enterprises, public institutions (health clinics, schools, water supply facilities), trading centers, and communities with increased access to modem energy/ICTs; * Number of people benefiting from improved delivery of health, education, and water services; * Employment/economic gain due to SME participation in the project; * Sales of)solar PVhousehold and institutional systems * Price reduction in solar PVproduct market, improvement in product, and increase in the range of product availability; * Increase in the power generated from renewable energy sources (excluding large scale hydroelectricity); * Increase in local capacity for renewable energy development. The key performance indicators for the project (Phase 1) relate to the: (indicators related to GEF-supported activities are shown in italics) - 8 -  Energy sector * Establishment of regulatory system, satisfactory working of Rural Electrification (RE) Board, RE Agency and RE Fund, wheeling system and procedures; * Workable financial intermediation mechanism for rural electrification; * Satisfactory functioning of independent grid rural electrification operations; * Satisfactory functioning of energy systems provided to agriculture-linked users, clinics, schools, and water facilities; * Amount (MW) of renewable energy power generation facilities constructed, GEF share in total cost; * Volume of sales of solar PVsystems to households and institutions, GEF share in total cost; * Decline in prices of solar PVproducts; * Status of long-term renewable energy capacity building strategy and action plan, including financing of recurrent costs of renewable energy projects and institutional arrangements; * Clear evidence of Government commitment to a long-term renewable energy development program. ICT sector * Number of public and private telephones installed in previously unserved sub-counties. * Number of District Headquarters with Intemet POP and public Intemet access facility. * Number of rural telecenters established in 'vanguard institutions'. * Average cost per minute for various services in rural areas. a Ratio of private investment to government subsidy for public telephones, Intemet POPs, and telecenters. A description of the project's Monitoring and Evaluation program is given in Annex 2. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 20886-UG Date of latest CAS discussion: Nov. 18, 2000 la. Global Operational strategy/Program objective addressed by the project: The most recent CAS, presented to the Board in November 2000, seeks to build on the 1997-2000 CAS by continuing to focus on poverty reduction through sustained growth. Its over-arching objective is to support Uganda's economic transformation and poverty reduction strategy spelled out in Govenmuent's Poverty Eradication Action Plan (PEAP)/Poverty Reduction Strategy Paper (PRSP) . The PRSP was discussed by the Board on May 2, 2000 (IDA/SECM2000-145). A PRSP Progress Report Board discusion was held on May 31, 2001 (IDA/SECM2001-0219). The Poverty Reduction Strategy is based on four key pillars: * directly increase the ability of the poor to raise their income. The PRSP explicitly supports the proposed project: "Energy for the poor will be promoted by encouraging the use of more efficient cooking technologies and by smart subsidies for rural electrification, which will encourage entrepreneurs to invest in power infrastructure in rural growth centers. This will make it easier for the poor to have their output processed, increase their effective access to the market; it will also enable more households to gain access to electricity in their homes." In addition, as part of the -9-  cross-sectoral links, this project will help meet the energy and ICT needs of the Plan for Modernization ofAgriculture (see Annex 2 for details). * directly increase the quality of the life of the poor. The PRSP has targeted the improved delivery of public education, health, and potable water and sanitation services to improve the quality of rural life; the proposed project has developed appropriate cross-sectoral links with these sectors to facilitate improved service delivery. Within the education sector, the Government plans to continue to emphasize quality universal primary education, while developing a secondary education, including adult literacy, strategy; in the health sector, the core of the Health Policy and Health sector Strategic Plan is the minimum health package, while a National Strategic Framework will guide the work to control HIV/AIDS; and for the water sector, the goal is sustainable provision of accessible, safe water and sanitation facilities to the entire rural populatior. (see Annex 2 for details). * create an enabling environment for economic growth and structural transformation. The PRSP is focused on macroeconomic stability, macroeconomic incentives, equitable and efficient collection and use ofpublic resources, and removal of constraints on private sector competitiveness. Within the energy sector, three projects are being undertaken to alleviate key infrastructure constraints to development (see Section B2). - ensure good governance and security. Good governance and security are essertial for making progress on the first three pillars. The actions included under this pillar are: improving public service delivery and decentralization, reducing corruption, ensuring law and order and security, and providing disaster management. lb. GEF Operational Program addressed by the project: The proposed project is the first one under the newly-established GEF/World Bank Strategic Partnership for Renewable Energy. The project is fully consistent with the GEF Operational Program 6: Promoting renewable energy by removing barriers and reducing implementation costs. 2. Main sector issues and Government strategy: 2a. Power sector reforms and capacity additions on the main grid The Uganda Electricity Board (UEB) was established in 1948 as a quasi independent vertically integrated m,onopoly to generate, transmit, distribute and supply electricity within Uganda and other countries in the region. UEB has for long suffered from poor financial performance and operating efficiency, low productivity, inadequate funds for required investments, low tariffs, poor collection, and high losses. As a result, UEB is in a weak position and, by normal standards, close to insolvency. UEB unbundling: Realizing the negative impact on economic growth of the weakness of the power sector, Govermment approved a power sector restructuring strategy in June 1999. The strategy entails the unbundling of UEB's generation, transmission, and distribution businesses into separate companies, the establishment of a legal and regulatory framework necessary for private sector participation, and the creation of an independent power sector regulator. The Bank is supporting the Government through the Privatization and Utility Sector Reform, Power III, and Power IVProjects. In March 2001, the Government divided UEB into three independent corporate entities, one each for - 10-  generation, transmission, and distribution. The Government has re-allocated UEB's assets according to the requirements of the 1999 Electricity Act. As a result: * the Distribution Company now owns all power supply assets operating at 33 kV and below, along with assets associated with the retailing of electricity. * the Transmission Company owns all assets operating above 33 kV. * the Generation Company owns the hydro power stations. During a transitional period, the UEB Statutory Corporation will retain some liabilities that the Government could not delegate to the successor companies without the prior permission of counter-party to the contract (for example some multilateral and bilateral long-term debt). Upon settlement of these liabilities, or their delegation to one of the successor companies with permission of the counter party, UEB will cease to exist, according to the 1999 Electricity Act. In addition to the unbundling of UEB into separate generation, transmission, and distribution companies, the restructuring policy requires the privatization of the generation and distribution businesses through the establishment of long-term concessions. Under concession arrangements the existing assets will remain in public ownership but the private companies will have the right to operate and expand them. The winning bid for the distribution concession is expected to be announced in January 2002. Following the operational improvements due to the availability of additional electricity from the Kiira station (formerly Owen Falls Extension), the ERA authorized a 74 percent increase to the average level of tariffs, effective June 1, 2001, which raised the average tariff revenue from about US 5.6