Uganda Needs Cheap Electricity Supply and Not Privatisation-2012.

Saturday, June 23rd, 2012

Uganda Needs Cheap Electricity Supply and Not Privatisation-2012.

The Electricity Industry in Uganda has for the last twelve (12) years under gone several structural reforms all aimed at addressing the problems associated with electricity supply and distribution network.

Contrary to the intentions of the Power Structural Adjustment program, Ugandans are currently facing the worst power crisis in its history. There is a 24 hour load shedding program which has seen several businesses close down leading to loss of revenue for the country hence increased inflation. This has been compounded by the loss of over 100MW from the power grid caused by government’s failure to pay accumulated debts owed to Independent power producers (IPPs) like Aggreko.

Globeleq took over the Uganda Electricity Distribution Company Limited (UEDCL) in partnership with South Africa’s state owned electricity firm Eskom. (Umeme is 56% owned by Globeleq and 44% by Eskom). Umeme will manage and operate the electricity distribution system in Uganda for 20 years based on the concession agreement signed in May 2004. The electricity distribution network was leased from the UEDCL, an entity of the government of Uganda. Umeme was and is to invest capital to improve the network infrastructure and establish new connections thus a promise for safe and reliable electricity and long term commitment (for 20 years). The privatization is not by the sale of assets, which remain owned by UEDCL, but by a 20 year concession, which makes Umeme responsible for investment, charges and management of the distribution system.

In the first 18 months Eskom and Globeleq invested only $5m in the system. In September 2006 they promised to invest a further $100m., using loans rather than the shareholders’ equity capital of Eskom and Globeleq. It is not clear how much of the $100m in reality was the money from donors, rather than Eskom or Globeleq. Umeme also benefited from an $11 million loan from the World Bank affiliate International Development Agency to buy materials, which was turned over to Umeme. These materials were all supposed to be installed in the initial 18-months period, but were not.

These electricity companies and the regulatory body are wholly owned by the government of Uganda mandated to preserve and protect public interests.

The main consideration for the signing of the Concession Agreement was promised on an understanding that UMEME would invest US$65M in the distribution of electricity within the first five years of operation, acquire the relevant technology to upgrade the electricity distribution system, guaranteeing broader coverage of electricity usage, reduce electricity losses, create a modern billing system that would ensure that customers would be able to get accurate and regular bills, tariffs per unit of electricity consumed would be lowered considerably and load shedding would be abated.

However, in 2006 Umeme had introduced repeated price rises, was in dispute with Uganda over lease payments and tax break. In 2005 Umeme increased prices by 24%, and again in 2006 by a further 37%. An unsuccessful court case was brought on behalf of all Ugandans belonging to the Uganda Electricity Users Association (UEUA), claiming that the procedures used did not involve consumers and were not transparent as they are required to be under Ugandan law. And recently in January 2012 UMEME still increased the electricity tariffs by 40%. In Uganda, price increase is being used as a way of restoring the financial health of electricity companies. And this has a disproportionate impact on the poor, by making electricity even less affordable.

Umeme has also been demanding a tax break, claiming it should benefit from half of the tax allowances of the state holding company UEDCL, which means a windfall to Umeme of £3.5million.

Access to electricity is low in Uganda; therefore it is everyone’s call to the government and all the key players in the power sector that the electricity pricing policies should be based on long-term commitment of public finance to expansion of the system to provide affordable electricity.