Two things struck me while deep inside the
cavernous bowels of the 600MW Karuma power dam on a recent visit to then
northern Uganda facility.
One, that it is an amazing feat of
engineering.
Basically some of the River Nile’s waters
will be diverted underground, a 70 meter drop at the bottom of which it will
turn six turbines and finally be ejected about 8 km to rejoin the mighty river
on its journey north.
"And just to get a sense of the extent of the work already done, in preparation for the dam enough rock to fill 15 Namboole stadiums was evacuated to make way for the $2.2b project. The Karuma power dam is only one of two such dams on the continent, with the second being the Ruacana power station in Namibia.
My second realisation was that considering
the size of Karuma, which will be the biggest power project in the country when
commissioned at the end of 2019, we have a long way to go to meet the stated
target of 17,000 MW generation capacity in the next ten years.
With only 20 percent of Ugandans connected
to the grid, it is clear there is a lot of suppressed demand locally. This is
before you consider, the potential uses in the mining, agro-processing and
other industries or the unserved external markets of South Sudan and Eastern
Congo and those looking to bridge their own capacity gaps in northern Tanzania,
Rwanda and Western Kenya.
The real challenge for this country is how
to finance these projects.
Given the average cost of $3m per MW according
to the recent large hydro-power projects it will cost $51b or twice the current
size of the Uganda economy to finance this ambition. Of course all the power
will not be generated by tapping our hydro-electric power generation capacity,
at last count 4000MW along the Nile alone.
Internally with a tax to GDP revenue of 14
percent and savings to GDP of 15 percent our scope for local mobilisation of
the resources needed to rather limited. On the up side it also means there is
also a lot of leeway to collect more revenue or to encourage more savings by
the citizens.
However even with oil revenues, this
unlikely to be managed fast enough.
So we are going to have to rely on loans
and private capital to meet our obligations.
It has to be said that we had it relatively
easy with the financing for the Karuma and 183 MW Isimba dam as we were dealing
with one financier.
With a past project the 250 MW Bujagali dam
there were multiple financiers led by the World Bank’s private sector lending
arm the International Finance Corporation (IFC). Multiple financiers is standard practice for
big projects, as the lenders seek to mitigate the risk by sharing the burden
with other partners. Despite the best efforts of the government and the project
promoters, the financing was still pricey. As a result government has had to
help refinance the project to ensure a lower tarrif.
The point is, the way to get cheaper money
is to lower the perceived risks of such projects.
"In working out risk of a project financier’s look for four broad parameters does the project resonate with their mission, is the project viable, can it support the desired return and finally is the management credible and competent....
This last part is important in view of the
government’s plans to recreate the old Uganda Electricity Board (UEB) by
merging the distribution, transmission and generation companies as part of a
wider restructuring of the government departments, agencies and commissions.
The restructuring being sold as money
saving initiative may in fact cost the government more in lost specialisation.
For instance Umeme, the company that runs
the distribution concession has done in the last 13 years of its concession
what its predecessor UEB could not do in almost 50 years of operation. It has
revamped and expanded the distribution grid, it has added a million consumers
to the grid from the 280,000 they found in place, it collecting almost all the
money due to its from clients and has reduced losses on the grid significantly.
They have been able to achieve this because
they have specialised distribution of power which is different from
transmission and generation.
This improved competence has opened them up
to external financing and allowed them to invest heavily about $600m since the
concession opened in 2005.
Umeme in its own right, is going out into
the open market to tap the markets for cash to finance its capital expenditures
and this is not by mistake. Over the last decade or so they have developed
verifiable competence in what they do and their ability to do it profitably, year
after year and as a result they tick the aforementioned boxes of what
financiers are looking for in potential clients.
Using this as an example, this why a return
to the old UEB would be a bad idea. While UEGCL is now building capacity to
build and manage power generation facilities, subsuming them in amorphous
structure would not only throw away the benefit of specialisation but will
short circuit an ongoing process of creating capacity for it to stand on its
own and drive our ambitious power generation targets.
