IS IT POSSIBLE FOR SMOKE WITHOUT FIRE?

MPs are up in arms at what they see as an unfair bailout of thermal power generator Electromaxx, controlled by businessman Patrick Bitature.

They claim government has paid $13m (sh48b) for the Tororo 90MW thermal power plant, particularly annoying prospect when government is in the throes of a cash squeeze.

Such stories serve to score cheap points against the government to the detriment of economic players, until they are put under a microscope.

While the politicians will not let the facts get in the way of a good story, the truth will set us free.

Electromaxx has a Power Purchase Agreement (PPA) to produce power at the thermal power plant.  The plant uses Heavy Fuel Oil (HFO) to generate power which is fed into the grid via the substation in Tororo.

The PPA stipulates the generators obligations and government’s as well, which among other things outlines how they will pay for power. We will not get bogged down in the details of the PPA but let us just say that government owes Electromaxx millions of dollars in back payments under the agreement.

To back track a bit. To build a plant of that magnitude – it was reported to have cost $60m (sh200b) to set up, no one, fishes in their pocket to pay for the massive civil works, the generators and the installation. You borrow the money from the bank. The loan it is envisaged will be paid serviced using the money you will get from generating power according to the contract.

So, when government does not pay you as planned, inevitably you are going to come under the gun, especially from your creditors – not only the banks but your suppliers as well.

As a way to extricate themselves from this unfortunate situation, it was agreed that government takes the plant off Electromaxx hands.

The politicians argue that why should such a deal be done when we have hydropower surplus. Thermal power plants are often used as back up capacity, if you have them and don’t need them now you keep them available for the time when they are needed.

While we enjoy relatively consistent power now, most of our power comes from hydro power, which can be affected by the vagaries of nature and climate change. A drop in water levels or damage to one plant or the other – all events we have witnessed in the last few years, can cause the grid to trip and throw us into darkness. Also in the recent past vandalism of transmission lines have cut off parts of Uganda off the grid. It was envisaged that the Tororo plant will serve a s a stop gap measure to sustain power in the Tororo industrial area, eastern Uganda and for power exports to Kenya.

There is an Energy Policy, drawn up in 2018 that recognizes this risk. In the policy it is required that the energy generation mix includes 10 percent thermal power, among more than one plant.

 So, it makes sense for government to control the Tororo plant as it does the Namanve plant which it took over after operator Jakobsen Elektromaxx concession came to a close last year.

I would imagine the Electromaxx owners would have been loved to paid a nice bulk figure, but government’s cash situation is that that is not possible.

So, the tow parties have agreed that government will take over the Tororo plant, but maintain Electromaxx as the operators for the next five years, allowing them to get paid over that time.

Essentially, they have changed the agreement from Build Operate & Own (BOO) to a Build Operate & Transfer (BOT) arrangement, which is a fundamental change in the agreement which would change the nature of the PPA.

Meanwhile the millions of dollars government owes to Electromaxx remain outstanding, which negotiations remain ongoing.

Two things stand out for me in this whole sorry saga. It is prudent for a country, which has aspirations for industrialization to have a steady supply of power. Contracts especially export contracts, can not go begging because you had power outages. The penalties for such can bring down whole industries. So inbuilt redundancy in the network is prudent. Ofcourse one can argue that right now we are running surplus generation capacity but when more than 90 percent of your generation capacity is hydropower, even that surplus is at risk.

Secondly, the backstory to this is that it is extremely difficult do business with government. As at the last budget reading government had domestic arrears of sh8trillion, for which they have provided sh200b, isn’t it any surprise that the gains of the last 30 years are not being felt equitably around the population?