While Umeme, govt and parliament tussle, Ugandans live in darkness
Posted Wednesday, December 4 2013 at 14:37
- The Uganda electricity distribution network is still poor and in urgent need of massive investment.
Two weeks ago, an ad hoc committee of parliament recommended that the government cancel its contract with Umeme for the distribution of electricity in the country.
The committee raises many complaints against the concession agreement and Umeme’s performance; a few correct, some legitimate, others completely wrong and many erroneous.
In fact, by relying on many erroneous and ill-informed arguments to recommend an arbitrary cancellation of the concession, the committee inadvertently demonstrates why it was vital for Umeme to insist on the very provisions in the concession that parliament feels are unfair to the Ugandan people.
When the government decided to unbundle Uganda Electricity Board (UEB) into three separate entities to manage electricity generation, transmission and distribution, it hired an international company called Fieldstone Private Capital Group Ltd to help handle the matter.
After two years of work, the government put out a tender for generation and distribution concessions. Five companies expressed interest and came to Uganda to do a due diligence on the sector. After studying the country’s political and regulatory framework all of them pulled out without submitting a bid.
What were the issues? They are largely of a political nature. Uganda had subsidised the electricity tariff for a long time. The electricity tariff had remained unchanged from 1993 to 2002.
The prevailing price then was far below the actual cost of generating, transmitting and distributing electricity; it’s value having been eroded by inflation and foreign exchange depreciation. The country had also ignored or condoned rampant power thefts.
Thirdly many people who were in default were not being taken to task. Note: in Kenya the electricity tariff is subject to constant adjustment every year to both domestic inflation and foreign exchange depreciation.
Culture of impunity
Consequently, Ugandan electricity consumers took it for granted that electricity was cheap and that its price could not change. A culture of impunity had also grown and consolidated so that thieves and defaulters could steal and/or refuse to pay and remain untouched. These were causing high nontechnical losses in the sector.
To compound this, UEB had spent decades with little or no investment in improving the distribution lines, transformers and meters. The sector was unattractive to investors. UEB was a government parastatal and no one cared whether the tariff covered the costs of electricity production.
The solution to this conundrum was doubled edged: to reduce technical losses would demand heavy investment in upgrading the power lines and transformers, meters and even more investment in human resource.
If any private investor did this, they would have to charge this cost through the tariff; second, to reduce nontechnical losses an investor would have to ruthlessly clump down on power thefts by raiding homes and small businesses to apprehend illegal connections, hire a security force to curb thefts of power lines, transformers and tampering with meters and finally ruthlessly cut off many defaulting customers off power to force them to pay.
This operation would destroy the image of any investor before his customers. Besides these measures had political implications. Potential investors feared that the public would not accept increases in the tariff.
Investors complained that the regulator did not have the capacity to make independent decisions. This is because the Electricity Regulatory Authority (ERA) had once increased the tariff but the government intervened and suspended it.