Power cuts: No respite for Umeme's large users

Wednesday October 21 2015

Umeme technicians repair power lines in Kampala. PHOTO | FILE

Umeme technicians repair power lines in Kampala. PHOTO | FILE 

By Bernard Busuulwa, The EastAfrican

Uganda’s electricity distributor Umeme has recorded declines in overall energy losses within its network in a decade, but large power consumers in the country are yet to realise the benefits as frequent power cuts escalate companies’ running costs.

Total energy losses have dropped from38 per cent in 2005 to 19.2 per cent recorded in June this year, a notable achievement driven by fresh investments in new substations and transformers, sophisticated billing systems and tougher enforcement actions targeted at illegal connections.

Umeme plans to invest $440 million during the period 2013-2018 on network expansion, rollout of prepaid meters and improvement of customer support services, according to its investment strategy.

But large consumers, who contribute 70 per cent of Umeme’s revenues, say reduced power losses have not translated into actual benefits due to Umeme’s worn out electricity supply infrastructure in fast growing urban areas.

This has resulted in routine power outages, with some companies especially in the industrial and telecommunications sectors subjected to more than 10 hours of loadshedding in September, surging bills incurred on diesel generators and depressed earnings.

“Power supply is still very unreliable because electricity is usually on and off without a consistent pattern. This has led to considerable losses in production and higher running costs,” said Ramesh Babu, Abacus Pharma Limited’s managing director.

In September, Abacus, a medical products manufacturer, experienced a total of 118 hours of loadshedding or 10-18 hours of power outage daily. As a result, the company used 13,000 litres of diesel which cost us Ush20.8 million ($5,619), Mr Babu explained.

Economists estimate energy costs account for more than half of production costs in the region.

The problem has been compounded by increased demand for electricity recorded after the commissioning of Bujagali dam in 2012. Total electricity demand per year has increased to 550 megawatts compared to 450 megawatts recorded prior to Bujagali’s 250 megawatts coming onto the national grid, Umeme revealed.

Umeme attributes delays in refurbishing some sections of its network to slow investment approvals provided by the Energy Regulatory Authority (ERA), but the industry regulator claims doubtful submissions contained in some of the power distributor’s project plans are responsible for lengthy verification periods and delayed approval of new investments.

Approvals

Currently, ERA takes more than 12 months to approve new investment projects initiated by Umeme, while average project execution time is estimated at 18 months, a scenario that frustrates efficient implementation of projects.

Low grid penetration in remote areas has increased operating costs incurred by telecoms tower operators.

American Tower Corporation (ATC), Uganda’s largest tower operator owns 1,400 masts around the country but 500 of these lack access to power. According to Stephen Lwalanda, a senior manager at ATC, some masts are without electricity for more than 12 hours a day, while the company spends about Ush1.3 million ($351) on diesel supplies for each mast every month.

“Such a situation leads to depressed profit margins and less sustainable operations,” he says.

In spite of delayed investment approvals, Umeme plans to invest $20 million - $30 million per year on new projects meant to fix supply bottlenecks experienced by large consumers, company sources say.

Besides poor electricity supply patterns, uncertainty over changes in power tariffs has similarly weighed down on some large consumers in light of massive depreciation of the  Uganda shilling against the US dollar witnessed since January.

The local unit has lost nearly 30 per cent against the greenbuck, a negative trend demonstrated by an historic low of Ush3,700 registered this month under rising pressure from corporates seeking to accumulate dollars before next year’s General Election, currency traders claim.

Exchange rate movements account for a dominant share of 45.7 per cent of electricity tariffs compared to inflation and oil prices; this implies additional increases in power tariffs as the shilling falls further.

With no signs of power tariffs coming down, local manufacturers appear constrained to expand output and this has resulted into average production levels of 45-50 per cent in the industrial sector, sources revealed.

Electricity tariffs for large industrial users increased from Ush315.6 ($0.085) per kilowatt hour in the first quarter of 2015 to Ush320.5 ($0.086) per kilowatt hour during the second quarter of this year, data compiled by ERA shows. This tariff band was raised to Ush328.7 ($0.089) per kilowatt hour for the period July-September 2015.

But Umeme downplays this.

“In terms of predictability, government has set a target of cutting power tariffs down to 4 US cents after five years through construction of Karuma and Isimba hydropower dams. This sends a strong signal to investors about the future policy direction of the sector,” argued Umeme’s managing director Selestino Babungi.

Mr Babungi adds that in view of this, investors will be better positioned to design new projects, mobilise funds and execute them on time, while manufacturers will also be able to plan expansion and realise solid benefits.

Umeme is cross listed at the Uganda and Nairobi Securities Exchange; its share price at the bourse opened this month at Ush620 ($0.168) compared to Ush595 ($0.160) recorded in August shortly after it declared a Ush4.5 billion ($1.2 million) half-year loss for 2015.

The recovery is partly attributed to investor optimism about quarterly tariff adjustments that absorb currency depreciation pressures and rising demand for energy in a country where only 15 per cent of the population enjoys access to electricity.

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