Uganda: Scrapping power subsidy, but can market forces shape price?

Parliament opted for a forensic audit instead of allowing government to spend an extra $23.5m to pay thermal generation companies



Uganda parliament’s decision to institute a forensic audit into abuse in the energy sector could see an increase in demands by industry players to scrap the government subsidy. Parliament will among others investigate funding of the thermal generation power project.

Parliament decided on a forensic audit instead of allowing government to spend Ush61.3 billion ($23.5 million) above the vote on account to pay thermal generation companies when subsidising the energy sector seemed to have become a bottomless pit. 

Parliament approved Ush92 billion ($35.4 million) in April to cover the subsidy until June. Another Ush31 billion ($12 million) had been approved as part of the vote on account at the end of June.

Had it been approved, government would have spent Ush184 billion ($71 million) in less than three months.

Uganda Electricity Regulatory Authority executive director Benon Mutambi says the subsidy payments accumulated to Ush299.53 billion ($115.3 million), in less than one year after a $212 million IDA loan got exhausted in October 2010. Government has been providing an annual subsidy of Ush92 billion ($35.4) for the past seven years in addition to the loan.

Government and the donors had agreed to subsidise electricity in Uganda until the commissioning of Bujagali hydro-power project which was expected in October 2010 but was delayed for at least one year.

Mr Mutambi now says that given the other demands on government finances, like provision of health care, universal primary and secondary education, the 12 per cent mostly middle Ugandans that consume electricity shouldn’t get a subsidy. The total tariff stands at Ush800 KWh ($0.31).

Aston Kajara, the minister in charge of investment in Uganda, also argues that the money required to subsidise electricity has become too high and that consumers should either foot the bill or stay in darkness.

He adds that parliament’s delayed decision approval could have the same effects as the sixth parliament’s refusal at approve Bujagali.  

The refusal to approve money forced Umeme the electricity distributor to increase power rationing to 24 hours in every four days although the company has been carrying out 24 hours of load shedding every two days.

The intense load shedding has been lifted despite the announcement by Minister of Energy Irene Muloni that the electricity deficit had reduced due to a 40MW increase in hydro power generation at Nalubale. She says the thermal generation companies had also switched back on except Aggreko-Kiira whose license has not been renewed.  

Audit into abuse

Kampala Central Member of Parliament Muhammad Nsereko who moved the motion to conduct an audit into abuse in the energy sector says parliament needs to investigate the inconsistencies in the amount of energy supplied and find out whether the thermal generation companies deserve the large amounts they are demanding.

An inquiry chaired by General Caleb Akandwanaho into tariff reduction had observed that electricity companies were taking much more money than they deserve but its recommendations were never fully implemented.

The committee for example noted that Umeme raised their power losses by at least 10 per cent to 38 per cent when they were negotiating their agreement with government in 2005. Umeme’s electricity losses currently stand at 27 percent and Mutambi says that Ugandans pay $4 million for every 1 per cent of power lost.

The committee also observed that thermal generation companies with the help from the Uganda Electricity Transmission Company Ltd arbitrarily increased fuel costs by $1.2 million without ERA’s permission.  

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