Uganda considers review of power sector as Eskom exit looms large

Monday March 11 2019

High voltage power lines. The future of Eskom in Uganda has come into question after legislators called for its termination. FILE PHOTO | NMG


The future of Eskom, the South African power firm’s generation contract in Uganda has come into question after legislators called for its termination.

The Ugandan government said it was also taking a fresh look at the concession model it has used to run the electricity subsector in the past 15 years.

President Yoweri Museveni is reportedly in favour of reverting power generation to the Uganda Electricity Generation Company, which lost the mandate with the advent of partnerships with the private sector under contracting arrangements.

Eskom, through a locally-registered subsidiary, in 2003 won a 20-year concession to manage the then new 200MW Kiira power station and the 50 years old 180MW Nalubaale power station.

Under the deal, Eskom was to inject $100 million into the assets over the 20 year concession period but Eskom Uganda managing director Thozama Gangi admitted, when he appeared before parliament on March 1, that his company had invested only $25 million in the plants five years to the end of the concession.

Mr Gangi said $4 million has been approved for investment in the plants this year while another $26 million would come in over the next three years.



The Parliamentary Natural Resources Committee that was on a fact-finding visit to the plants accused Eskom of running down the generation facilities by focusing on operations rather than maintenance of the plants.

Dr Kefa Kiwanuka, who chairs the committee, wondered why Eskom was only rushing to invest in the plants towards the end of the concession and whether the project has the capacity to absorb the money in the remaining time.

Uganda Electricity Generation Company chief executive Dr Harrison Mutikanga said no major refurbishment of the plants has been done in the plants 15 years of Eskom management.

“A power station of Nalubaale’s age needs major refurbishments every seven to 10 years. Uganda Electricity Board did the last of such refurbishments more than two decades ago. Eskom has done no works of that scope during its 15 years at the station,” Mutikanga told the committee.

The $25 million Eskom has so far invested went mainly to upgrading the power stations’ control system to digital status and to conduct multiple studies on the power house’s cracking walls.

Eskom reckons the plants can still operate at optimal capacity subject to securing water release permits but the MPs found that some generation units have been down for more than five years.

The extensive cracks in the walls and stairways of the powerhouse at Nalubaale remain because, in Eskom’s estimation, solutions such as anchoring which were employed by the defunct Uganda Electricity Board are ineffective.

“This is a problem of alkaline silicate reaction,” Ms Gangi said adding that at least three separate consultants had been hired to find a solution.

“Mechanical interventions are of little value in this case because studies have shown that the cracking in the walls of the powerhouse was caused by alkaline silicate reaction, which is a chemical reaction,” Mr Gangi told the committee.

'Concrete cancer'

The reaction, commonly known as “concrete cancer,” is a swelling that occurs over time between the highly alkaline cement paste and the reactive non-crystalline silica found in many common aggregates with sufficient moisture.

It causes the expansion of the altered aggregate through formation of a soluble and viscous gel of sodium silicate.

The House committee objected to the fact that money went to paying consultants who did not add any value to the operation yet Eskom was comfortable with the expenditure.

Uganda Electricity Generation Company says without intervention, the powerhouse at Nalubaale has only 10 years of useful economic life left.

The two plants are important because they have the lowest feed-in tariff of just 1.5 US cents per kilowatt hour.

In spite of low offtake, which restricts Eskom to supplying just 38 per cent of power dispatches, its low tariff is used to dampen the impact of the 8 cents at which the privately-run Bujagali power station and a number of thermal and co-generation projects run by sugar millers inject power into the grid.

“The choices are stark. We either decide to invest in the extension of Nalubaale’s lifespan for another 30 years or decommission it in a decade. That would mean losing the moderating influence of this cheap source of power on the final tariff,” Mr Mutikanga said.

Bujagali’s ‘take or pay’ power purchase agreement has also forced authorities to hold part of Nalubale’s generation capacity in reserve to cope with surges in the entire generation system.

Questions over Eskom’s operations come at a time when Uganda is under pressure to review the power sector liberalisation model that open it up for private sector participation.

The Uganda Electricity Board, was spun into three separate functions — generation, transmission and distribution.

While that improved service levels, it was at the price of high consumer tariffs.

Uganda Electricity Generation Company believes that it would do a better job if it were allowed to take back generation.

Under the present arrangement, the firm earns about $2 million in annual concession fees from Eskom.

But, because it is not operating the business, it is not allowed to provide for depreciation and return on investment.

That means it is starved of the resources that would be used for maintenance and development of new generation capacity.