TAKE A LONG-TERM VIEW ON THE POWER SECTOR

Last week the South African power company Eskom’s 20-year concession to run the Kiira-Nalubaale power complex came to a close.

The plant was handed over to Uganda Electricity Generation Company Ltd (UEGCL) who will continue to run it on behalf of government for the benefit of the consumers.

Eskom’s involvement begun following the unbundling of the Uganda Electricity Board (UEB) into its constituent parts of generation, transmission and distribution at the end of the last century. Given the major overhaul the sector needed and government’s financial handicap, the idea in breaking up UEB was to attract private investment into the sector and benefit from the specialization that comes with the operation of individual parts of the value chain.

These objectives have been largely been met.

"Since 2000 more than $5b has been invested in the sector in terms of increased generation capacity and extension of the distribution network. For government this was a win-win situation since the private sector put up most of this investment, in addition government has seen increasing tax revenues from the sector and of course increased the electricity coverage in the country....

As an indicator when Umeme took over distribution the number of accounts stood at under 300,000. This number has now grown to more than 1.6 million. Umeme’s concession too is not being renewed when it comes due in 2025.

What has happened is a complete turnaround of the sector through the judicious use of private capital.

The sector has been good to all the investors who have been involved, no doubt.

Part of the reason government is not renewing the various concessions is because of the drive to push the cost of power from the generator to below US5cents. President Yoweri Museveni has set this as a goal for the sector and his people have advised that taking back the industry will go some way in bringing down the tariff.

"What they may not be telling the President is that while a lower tariff is desirable, even yesterday, it has repercussions on the maintenance and replacement and eventually the long-term sustainability of the sector...

The tariff charged by Kiira-Nalubaale has been the lowest of all the generators at about US1cent per unit of power. This low tariff has helped reduce the average tariff across the sector but at the expense of the health of the plant.

An audit of the power plant before last week’s hand over showed that the Eskom had only invested $51m on the plant over the last 20 years, woefully below what they should have been investing. According to the World Bank they should have invested at least two percent annually of the initial investment, which would have been at least $5.4m a year in the case of Kiira, which was built for $270m.

"By maintaining an artificially low tariff, UEGCL has inherited a plant that is in urgent need of $10m worth of remedial works and a potential $150m refurbishment bill for Nalubaale, which will be making 70 years next year....

The US1cent tariff allowed Eskom barely enough to operate and maintain the plant and not much else. To illustrate, one power unit has gone unused for ten years – from 2013, meaning no power has been generated there. Instead, it was being canibalised for spare parts.

We all want lower power tariffs, especially since our power demands have grown exponentially since 2000. We now need to charge multiple phones and devices, power TVs and cookers, not to mention keep multiple security lights on through the night. But we have to be careful not to settle for short term comfort at the expense of long-term sustainability.

Again, ask Eskom. In 2000 when we were being ravaged by daily load shedding, South Africa Eskom’s home country did not know the meaning of load shedding. However, a system inherited from the apartheid era, which while adequate for serving the white minority was beginning to buckle under the strain of the new demand from black majority.

While the political demand was to bring more and more black communities onto the grid, not enough attention was placed on how to do it sustainably, first of all using the existing generation capacity and provide for increasing this capacity.

Between 2000 to 2022 Eskom South Africa has only increased generation capacity to 45,000 MW from 43,000MW. In the 10 years prior Eskom’s generation capacity grew by 3,000 MW. While the headlines about Eskom’s failing revolve around corruption, pandering to short term comfort over long term sustainability is central to the problem.

As a result, Eskom now peak time demand has surpassed supply by as 6000 MW, which is three times Uganda’s total generation capacity, and the economy is suffering for it and the ruling Africa National congress (ANC) is paying a political price.

"The private sector rescued the sector and brought it to this stage, which for all intents and purposes, is barely the take off stage. To ensure that the take off is not aborted we need a realistic tariff which maybe painful in the short term but as the economies of scale kick in (assuming we have increased our generation capacity sustainably) the lower tariff will come....