UGANDA REGULATOR NEEDS LONG TERM VIEW OF THE ELECTRICITY SECTOR

The Electricity Regulatory Authority (ERA) recently set new targets for power distributor Umeme, which will have far reaching implications on the efficiency and viability of the sector as a whole.

ERA set as part of its targets the reduction of power losses from just under 14 percent currently to 11.47 percent over the next five years to 2023.

In addition, the regulator requires that Umeme collect 99.9 percent of energy billed from current levels of 99.62 percent.

This is as it should be. The reduction in power losses has been a constant struggle for Umeme. Power losses are divided between commercial and technical losses.

In the former instance this is from people who consume power and do not pay – less of a problem now because of pre-paid metering. The main culprits in this case are government institutions. 

Technical losses are a result of poor installations, substandard equipment and the natural losses that occur in moving electricity current from A to point B.

"Improved bill collection has been the biggest revelation of the Umeme concession. Under the old Uganda Electricity Board (UEB) barely half the money for power billed was collected. But it is still important to keep Umeme on its toes to collect all the billed energy, because if they don’t these losses show up as higher tariffs for the rest of the law abiding consumers.

However, while setting those targets ERA then proceeded to tie one hand behind Umeme’s back.

As part of its targets ERA restricted Umeme to Distribution Operation and Maintenance Costs (DOMC) of not more than $50m annually over the next six years up to 2025.

Is that reasonable? Maybe not when viewed against the $60m they spent last year and the $70m they intended to splurge on the network this year.

Because it costs money to keep losses down, including overhauling the network and ensure collections, which includes rolling out more prepaid meters.

This year with the almost 800MW coming on line with the commissioning of Isimba and Karuma dams one can expect Umeme will invest more in the network and with a bigger network we can expect higher DOMC.

But ERA argues that the distributor is asking for too much money, that a newer network which has built over the last 14 years should have lower costs. They say that Umeme has been allowed $41.8m this year let them utilize it and show it is inadequate.

Which would be a fair point if you were talking about stocking tomatoes at the market stall or offals at the butchery.

"In the last decade of so we have come to expect a certain level of service from Umeme. When the transformer in our neighbourhood blows up we are less willing to wait weeks for a replacement. We may give Umeme a day at most to cause the replacement. By cutting back on DOMC don’t be surprised if Umeme’s performance slips because it is struggling to keep up withal the demands...

But beyond our immediate discomfort this kind of attitude by ERA may mean that inadequate maintenance of the network will feed off itself until years from now the distributor may ask for $100m a year in DOMC, a situation that can be averted by adequately providing now.

ERA does this under some misguided attempt to keep tariffs low. A popular move but we all know that what is popular is not always right.

The problem with these artificial caps on goods and services is that a time comes when the pressure to lift the pressure to remove them finally is unbearable prices will not climb in a nice orderly fashion but jump causing more pain to consumers than if we had allowed them to rise steadily over time.

We saw it with their adamance not to allow UgandaElectricity Generation Company Ltd (UEGCL) to include depreciation, amortization and return on investment to the tariff they charge. This is in effect means that when we need to build new generation capacity we have to run to government because UEGCL is not financially sound enough to play a meaningful role in developing the country power generation capacity.

"I don’t know anyone who doesn’t want cheap power, but let us not keep it artificially low and jeopardize the long term viability of the sector....

ERA needs to take a long term view of the sector, build it towards self-sufficiency without compromising its attractiveness as an investment.