ERA: THE PATH OF LEAST RESISTANCE IS A CROOKED ONE

Last week Electricity Regulatory Authority (ERA) announced a 1.6 percent reduction in tarrifs for power consumers.

They gleefully reported that this amounts to a sh40b saving for consumers.

ERA can allow these reductions because the “cheaper” power from Karuma dam was coming and would lower the average tariff price.

Everybody including me, is always happy for cheaper goods and services, but not at the expense of the quality of the product or service.

"There is a connection between the mechanical driving down of tariffs and our ever increasing power outages...

Worked into the power tariff is the cost of operations and maintenance for the power generators, transmitters and distributors. As a way to keep tariffs down ERA has severally denied the industry players optimal operations & maintenance budgets.

While this allows them to report a lower tariff it also means that the industry players cut back on their operations and maintenance, a major cause of the regular outages we are experiencing.

Imagine for instance that Umeme has outsourced its troubleshooting function to a company X. Umeme wants to get the service at the lowest possible price without compromising quality. But there is only so low the contractor can go with his price, below which he will have to start cutting back on staff, increasing response times and in some instances leading to longer power outages. Gone are the days when Umeme “Kamyufus” responded in hours. God forbid now you lose a pole or transformer you will be out for a week, as I learnt painfully recently. God help you if you are upcountry.

Secondly, depreciation of assets is another charge to be factored into the tariff. Depreciation allows asset owners to “save” money for the replacement of the asset when it has outlived its natural life.  If the industry players are not allowed adequate depreciation allowances it becomes difficult to replace ailing assets.

Is it no wonder that when South African firm Eskom handed over the Kira-Nalubale dams, there was need for $10m remedial works on the complex..

When the question of replacement of assets was raised with one official, he brushed it off by saying government will replace the assets and they are not complaining.

"Government priorities shift by the day and it is full hardy to put replacement or development of new assets entirely at their feet....

The more sustainable position is to provide an adequate depreciation charge so that the industry players can replace or develop new infrastructure in line with growing demand not according to the whims of the government.

Given the avoidable delays in development with Isimba and Karuma dams this logic should not be hard to grasp.

ERA it can be assumed is looking to implement a Presidential desire to see power tariff, at least for big industry, down to US5cents per unit.

President Yoweri Museveni’s desire for cheaper power to drive industrialisation is hard to argue against. What the technocrats need to grapple with is how to deliver on that desire in a way that will ensure the continued sustainability of the sector well into the future.

While the contracts of the bosses of ERA are a few years, they owe it to posterity to ensure that when they have left we still have a power sector to talk of.

On my first trip to South Africa in 1996 no one knew what loadshedding was. In Uganda we were suffering daily loadshedding by then – if you had power in the day today, you wouldn’t have power in the night tomorrow. A recent return to the rainbow nation and loadshedding is now a permanent fixture in their vocabulary.

If you look back into the roots of the current dire situation, under investment in the sector is at the top of the list.

The way we are going we are heading there.

So you have reduced my tariff but for more times than I like, I have to power up my generator to produce power. Even at our current tariff it costs almost ten times more at US80cent per unit or about sh3000 per unit, to use a diesel generator than use the  power from the grid, so who is complaining about expensive power?

It is really a no-brainer. For any producer given the choice between cheap but intermittent power and dearer but consistent power supply, they would opt for the latter over the former.

Don’t take my word for it, lets do a survey especially of the big energy consumers and see what they say.

Lowering tariffs the way we are doing is good for the technocrats but not for our industrialisation ambitions.