Uganda’s business executives have expressed fresh worries over rising energy costs despite new power projects, saying that they are pushing up the cost of doing business to historic highs.

With the full commissioning of 250MW Bujagali hydropower dam in October last year, electricity shortages, by far the biggest concern in Uganda’s economy in recent times, should have become a thing of the past. Yet businesses are still footing huge bills on alternative power sources as distribution continues to flounder.

READ: Bujagali finally comes on stream, eases power crisis

This, happening at a time when Uganda is producing surplus electricity of 22MW at peak demand and up to 43MW off-peak, is a further indictment of the capacity of the distribution utility firm Umeme, whose failures are being blamed for the miserable figures that the economy will post this financial year. 

Cheaper hydropower

Captains of industry said in the last quarter of 2012 businesses did not feel the impact of cheaper hydropower from Bujagali, although there has been some improvement during the first couple of months of this year.

“Load shedding since the commissioning of Bujagali was at its worst in November/December 2012, averaging 40-50 hours a week. Since January 2013, load shedding has averaged just under 10 hours a week,” said Nick Jenkinson, the managing director of Nile Breweries Ltd, the local subsidiary of brewing giant SABMiller.

The irony is that the Nile Breweries plant is located a few metres from Owen Falls Dam, one of the country’s main hydropower sources in Jinja. For SABMiller, which also owns water bottling company Rwenzori, power accounts for about two per cent of total costs.

A 2011 report by Africa Infrastructure Country Diagnostics shows that the demand for electricity in the wider East African region is growing at an estimated 5.3 per cent per year.

The World Bank estimates Uganda has the third highest number of households without electricity at 5.5 million after Kenya’s 6.2 million and Tanzania’s 7.2 million.

Rwanda has 1.7 million and Burundi 1.4 million. But, regionally, Uganda experiences the second lowest number of power outages at 11 a month after Kenya which, even with a relatively more reliable power grid, still gets an average of seven blackouts a month.

Rwanda has the highest at about 14 per month, followed by Burundi and Tanzania, both with 12 blackouts in a month, according to a recent World Bank report.

Due to breakdowns

Although Umeme keeps its communication lines open and advises manufacturers about planned power outages, businesses “still suffer the occasional unannounced power outage, usually due to breakdowns of the distribution system,” executives said, adding that the firm should have anticipated the  upsurge in capacity once Bujagali came on line, and invested in an adequate distribution network.

READ: Umeme fails to distribute surplus power

Equally, commercial establishments in the central business district and upcountry, especially telecom firms, are still racking up heavy bills as power failures interrupt their infrastructure networks.

Stanbic, the bank with the largest branch network, has to switch between the national grid and other sources.

“We have some branches that are not connected to the grid, but even those that are, still experience power cuts. And so we have to run them on generators,” said Stanbic spokesman Fred Mugisha.

Technically, Uganda produces a surplus but in practical terms, power outages have not ended. According to the World Bank’s 2013 Doing Business scorecard, Uganda has slipped three places, to 127th out of 185 countries on the issue of electricity.

This score largely relates to the process of applying for and getting an electricity connection from the distributor, all this taking 90 days and requiring at least Ush52 million ($19,370) to complete—but Uganda would post an even worse score if the World Bank factored in the recent failures of Umeme, and their cost to businesses.

Umeme spokeswoman Charlotte Kemigyisha said the utility firm has been replacing old equipment with bigger capacity transformers at substations to rid the network of overload in the Kampala metropolitan area.

One of these is a 7.5MVA transformer from Njeru substation to replace the 5MVA one that had become overloaded, leading to massive power outages in the southern and western parts of the metropolitan area. This provided room to complete an alternative feed from the Kampala South substation, meant to solve overload problems.

Distribution pitfalls apart, Umeme’s failures have implications for the Ugandan taxpayers, who have to dig deeper into their pockets to afford a higher tariff as Bujagali repays over $800 million in debt.

Today, when the debt is still high, the consumer pays more by way of tariff. UETCL has to pay $106 million annually, excluding annual payments on loans associated with transmission lines. Experts say the tariff will only go down when the debt is reduced.

The Bujagali tariff is lower than the thermal power one, which was subsidised. But consumers still paid 30 US cents, although manufacturers paid 9 US cents.

Saddled with the crippling subsidies, the government in 2012 shut down the expensive emergency thermal power plants that had been established to plug generation shortfalls from 2005.