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....
