Oil revenues alone cannot fund Uganda’s energy transition, experts warn

KAMPALA — Uganda’s expected oil revenues will provide an important source of financing for the country’s Energy Transition Plan (ETP), but they will not be sufficient to meet the massive investment required to transform the energy sector and achieve broader development goals, experts have warned.

The concerns were raised during a dialogue on energy transition financing and petroleum revenue management organised by the Civil Society Coalition on Oil and Gas (CSCO) with support from the Natural Resources Governance Institute (NRGI).

The meeting brought together government officials and civil society actors to examine whether proceeds from Uganda’s Petroleum Fund can support the country’s shift to cleaner and more sustainable energy systems.

Speaking at the dialogue, National Planning Authority (NPA) planner Mr Aron Werikhe said Uganda has made significant progress in expanding electricity access, which has increased from 24 percent in 2021 to 51.5 percent today.

He attributed the growth to investments in power generation, including the commissioning of the 600-megawatt Karuma Hydropower Project and the increased adoption of off-grid solar technologies.

Mr Werikhe said the government aims to connect 300,000 households to electricity annually, although actual connections currently range between 190,000 and 220,000 households.

However, he noted that inadequate investment in transmission and distribution infrastructure remains a major obstacle.

“The issue is not what we are generating. We have enough power, but some of it is lying idle because of underinvestment in transmission,” he said.

According to the Energy Transition Plan, Uganda aims to achieve universal access to electricity and cleaner cooking, modernise and diversify its energy mix, ensure affordable and reliable energy supply, reduce emissions in line with climate commitments, and position itself as an energy hub in East Africa.

Government projections indicate that 45 percent of the population will have access to grid electricity by 2030, while the National Energy Policy 2023 targets universal electricity access and 50 percent clean cooking access by 2040.

Mr Werikhe said implementation of the Energy Transition Plan will require substantial financing, with estimates showing Uganda will need about $325 billion for clean energy investments. Of this amount, the country is expected to face a financing gap of approximately $100 billion.

The plan also seeks to support green industrialisation, job creation, poverty reduction, climate resilience, environmental restoration and social inclusion.

Presenting an analysis of projected petroleum revenues, Oxfam Uganda’s Extractive Industries Coordinator, Mr Magara Siraji Luyima, said Uganda’s estimated 6.5 billion barrels of recoverable oil reserves could generate between $1.5 billion and $2.5 billion annually, depending on international oil prices once commercial production begins.

He explained that all petroleum revenues will be channelled through the Petroleum Fund as provided for under the Public Finance Management Act.

The fund receives revenues from taxes, royalties, profit oil, government participation through the Uganda National Oil Company (UNOC) and other petroleum-related earnings.

Mr Magara cautioned that even under favourable oil price scenarios, petroleum revenues would not be enough to finance Uganda’s long-term energy transition ambitions.

“Even if you committed all the money from oil to energy transition, you would still not raise the money. That means oil is not something that we are going to rely on alone to finance our energy transition,” he said.

He added that not all revenues deposited into the Petroleum Fund would be available for immediate spending because part of the money is transferred to the Consolidated Fund for government expenditure, while the remainder is saved in the Petroleum Revenue Investment Reserve for future generations.

The experts argued that Uganda will need a broader financing strategy combining petroleum revenues, domestic resource mobilisation, private sector investment, development finance and international climate funding.

Participants also raised concerns about revenue collection in the extractives sector, citing the gold industry where export earnings have grown significantly but government revenues have remained relatively low.

Some called for stronger oversight of mineral exports and the restoration of gold royalties to improve domestic revenue mobilisation.

The dialogue also highlighted recent gains in transparency following Uganda’s participation in the Extractive Industries Transparency Initiative (EITI), which has improved public access to information on revenues from the extractive sector.

As Uganda moves closer to first oil production, participants said the key challenge will be ensuring petroleum revenues are managed transparently and invested in projects that promote sustainable and inclusive development.

They noted that while oil revenues could provide a significant boost to the country’s energy ambitions, successful implementation of the Energy Transition Plan will depend on diversified financing sources and strong governance systems.