On March 2022, The Independent quoted the State Minister for Privatization and Investment as having said that the new Government Company will offer affordable services. The Minister was appearing before a Committee of Environment and Natural Resources, on Thursday, 10 March 2022. Her remarks follow a Cabinet decision of September 2018 to rationalize Agencies, Commissions and Authorities. Included in these Agencies are those in the Electricity Sector.
This decision of Cabinet is not the first in the Electricity Sector. In 1993, Cabinet made a decision to provide reforms aimed at diversifying Public Enterprises which led to unbundling of the electricity sector. At the time, one Government Company (Uganda Electricity Board) provided the services. This Company was wholly owned by the Government and managed Electricity Generation, Transmission and Distribution in the Country. For some reason after a technical study, Cabinet resolved that this Government Company be split to form three Companies (Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL) and Uganda Electricity Distribution Company Limited (UEDCL).
The three Companies were formed to; improve performance of the sector, increase electricity supply capacity, improve sector efficiency, make the power sector financially sustainable and attract private and foreign investment into the Country. Cabinet further enacted the Electricity Act to provide for licensing, tariff setting, supervision and monitoring of these agencies/companies. The recent decision of September 2018 therefore is not the first one to affect this sector. However; as we implement the decision, there are critical concerns where no one seems to ignore;
As a Country, have we achieved or failed to achieve the 1993 set objectives? The decision of 1993 unbundling the sector has a number of objectives to be achieved. The objectives included improving operation efficiency looking at commercial and technical losses that stood at 40%. This meant that of the energy that is consumed only 60% could be traced and billed. Of the billed energy, only 70% could be paid for when the Government Company was in-charge. Load shedding was un-announced while the Government subsidized costs to make the customer bills affordable. The current model has got its challenges but has the Government undertaken a study to review the performance of the sector or whether the sector has created additional challenges?
How much shall we save? The Government has on numerous occasions promised to reduce electricity tariffs and charge below the cost of contracted generation tariff to industrial customers once this New Government Company has taken over. When the Government Company was in charge between 1956 -2001, only two generation plants were built. What if after rationalization, it is discovered that the cost reduction is less than 0.02% on the current tariff. Wouldn’t this affect effective and efficient running of the sector? The Company could not raise funds to connect additional customers, could not extend the transmission grid beyond the footprint left by Colonialists. Increase rural connections increased past 2001 after the segregation of roles. With rationalization of agencies, what strategies is Government putting in place to mitigate lessons learnt when the Government Company of 1993 was in place?
Efficiency Vs saving? We all agree that for Umeme to charge a return of 20% on its investment on US Dollars, is expensive. Besides, the company does not meet the expections of all of us. It is als true that on a number of accessions, Umeme claims the Government has not paid for the services rendered there by holding its monies. The Audit Report by Auditor General of UETCL for the financial year 2019/20 and 2020/21, Ugx 64 Bn was withheld by Umeme on account of unpaid bills by Government Agencies. Merging Generation, Transmission and Distribution into one, won’t this cripple service delivery?
Why only Electricity under one body? We all agree that electricity is an essential service required to power the economy so is health, Agriculture and Education. The decision of Cabinet in 1993 liberalized all the sectors including Health, Education and Agriculture.
All these sectors have Government players supplemented by the private sector. In the Health Sector, Mulago Referral hospital does not purchase its drugs, distribute them to other branches of the same Mulago and dispense the drugs in the pharmacies across the Country. Instead, there is the National Drug Stores working alongside Joint Medical Stores, Mulago Hospital working alongside many private hospitals, Health centers working alongside Medical centers in different districts and communities. The same model is seen in Education where Makerere University is not running a Primary School and a Secondary School curriculum so as to lower the cost of education. Ironically, these sectors do not have their prices regulated as is with Electricity, why do we think this model will out-turn such astronomical results?
Too many unmatched demands from Manufacturers. Can Manufacturers show proof of increased production on account of reduced tariff? The President has for all good intentions promised manufacturers a reduced tariff of less than US.5cents per kWh. The President believes that with a less than US.5cents, manufacturers will be able to increase production and export good to the outside markets thereby increasing our export revenues and improving on our Balance of Trade surplus.
In 2021, ERA implemented the Presidential directive at the expense of the other categories to provide manufacturers with a reduced tariff. There is no manufacturer who has increased production commensurate to the reduction in the tariff, instead the reduction is increasing on the bottom-line profits that the companies are posting. The manufacturers because of their groupings, have access to the president and they are now lobbying for less than the generation tariff. Your Excellence, this request need to be matched with a clear promise to increase production.
Supply from Generators: Who will pay for the infrastructure? Lastly, Your Excellency the Manufacturers/Investors have lobbied to have electricity supplied to their factories at a generation cost. In Countries where this is done even in Asia, the utility distributor is a Municipal Utility Distributor/Company (Xn) which contracts the generator (Yn) to sell a certain amount of power to it (Xn).
The Municipal Utility Distributor/Company (Xn) then contracts a transmitter (Tn) to transport that power to the Municipal Utility Distributor/Company (Xn) stations at a fee called the wheeling charge. The Municipal Utility Distributor/Company (Xn) supplies the manufacturers/investors at a price of the Generator (Yn) +Transmitter (Tn) and Distribution costs of Xn. Under this arrangement, the Municipal Utility Distributor/Company (Xn) must have capacity (technical and commercial) to negotiate contracts with the Generators to arrive at the best price. The Generators must also be flexible and in a competitive market to charge a rate that makes them realize their investment cost. In Uganda where the contracts are backed by the Government, is it possible that the generators will negotiate a rate below the contracted PPA rate? The only remaining option for the Manufacturers to feed directly from the generator other than the above, would be to build the line from the preferred generator to their factories with the approval of the regulator.
The rationalization of agencies is certainly good if well studied. Electricity sector is highly technical and delicate and implementation of a model before studying it could undo the benefits previously registered. It is important that careful consideration be given to these areas raised before making formal commitment. The ultimate decision at best could end up increasing the capital cost in the electricity basket with little value added/realized.
Hon Richard Sebamala is the Bukoto Central Member of Parliament