The recent Auditor General’s report was, as ever, an eye
opener about how government its departments and authorities conduct their
financial affairs.
It is mind boggling how parts of government get away with
financial mismanagement year after year and nothing seems to be done to the
responsible officials.
I was particularly interested in the state enterprises
performance.
"Of the 24 state enterprises the Auditor General reported that just under half or 14 of the 29 enterprises showed a profit. For many the quality of the earnings didn’t stand up to scrutiny, when viewed against their asset bases, but that is a story for another day....
No details were given of the individual company accounts but
one wondered how Uganda Electricity Generation Company ltd (UEGCL), Uganda
Electricity Transmission Company Ltd (UETCL) and Uganda Electricity
Distribution Company ltd (UEDCL) continue to be loss making.
The three companies are as a result of three way split of
the former Uganda Electricity Board (UEB). The thinking was that the unbundling
of the dinosaur would improve specialisation and make the component parts much
easier to flog off to private operators.
So with Eskom taking over the Kiira and Nalubale dams and
Umeme taking over the power distribution, UEGCL and UEDCL remained as
custodians of the assets that the government had leased to the private players.
The transmission function remained with government.
You are loss making when your expenses exceed your revenues.
In that case you are not making enough money --- often a failing of the
marketing department or your costs are unrealistically high.
The financials of UETCL and UEDCL were not available online.
But UEGCL’s numbers were and they showed that the company
earned income from the concession fees paid to it by the operators of power
generation plants and some grants. I suspect this is the same for the other two
entities.
Depreciation and amortisation is the greatest expense, wiping
out UEGCL’s entire income. When you add on staff and admin costs it sinks UEGCL
further in the red.
So either UEGCL’s is not pricing its services well enough or
costs have run amok.
"As it turns out UEGCL is not allowed to charge depreciation on the assets in the concession – dams, which it owns. The depreciation they booked was for assets that were used to supervise the projects and not on the fixed assets like the dams...
While if fully provided for this would sink UEGCL further in
the red, adding it to the portion of the tariff due to UEGCL would increase
their top line considerably.
More importantly it would mean these would be funds the
company would revert to, to finance other hydro-power developments.
Depreciation is not paid out but retained in the company to at least finance
replacement of existing assets.
But one can understand the logic of removing these charges from the books. It artificially keeps the tariff low but compromises the ability of UEGCL or the other companies to carry out their mandate sustainably...
What it means that under the current arrangement for all
subsequent power plant developments UEGCL will have to fall at the feet of
government to provide the required funds, unnecessary if they were allowed to
charge for it.
Given the government’s shifting priorities this is not an
ideal situation for any manager to be in.
It’s no surprise then that government is now resorting to
expensive loans to finance its power expansion ambitions. A classic case of the
chicken coming home to roost. Because it seems expedient to bury our head in
the sand and keep tariffs artificially low, this short sightedness then comes
back to bite us and actually hampers the appropriate roll out of new power
plants in the future.
This year the 183 MW Isimba and the 600 MW Karuma power
projects are coming on line and one can expect that government will continue
with this pattern of doing things in attempt to keep tariffs low.
We have a set target to increase power generation to 17000
MW by 2028, this means that under the current arrangement UEGCL will be unable
to budget to build or cooperate in the building of new plants unless government
provides the funds.
We can expect the convoluted process to construct Isimba and
Karuma to played out in subsequent power generation projects because UEGCL’s
has its hands tied.
Essentially what government is doing is not allowing UEGCL to succeed. It is hard to see how the company will break even under the current circumstances and therefore compromise its capacity to fulfil its mandate...
As I said I couldn’t see the financials of the other two
companies but it would come as no surprise if they are treated the same.
And one last thing that unlike other Independent Power
Producers (IPP), UEGCL is not allowed to add a Return on Equity (ROE) to their
portion of the tariff. Again for the reason that it would raise the tariff to
uncomfortable levels. This too hobbles UEGCL’s long-time viability and
usefulness to the country.
"Across the border in Kenya UEGCL’s counterpart KENGEN relies on its own resources to expand power generation. It is no wonder that KENGEN, a profitable company in its own right, has greater generation capacity than Uganda despite our greater potential to generate power – at least hydro-electric power...
