ELECTRICITY AS AN EXPORT? WHO WOULD HAVE THOUGHT

That year we were the brightest of the brightest. The instructors set us a quiz to determine our knowledge of country.

The one question I will never forget was “What are Uganda’s cash crops?” Chicken feed for the 1,000 of us seated on the floor of the grass thatched classroom. Coffee, tea, cotton. What about maize, they asked. And cassava? And beans? Aren’t they cash crops?

Credit to us, we all fell silent as we let these new “facts” register, rather than protest and make bigger fools of ourselves.

All our school lives, 13 years up to that point, we had parroted in exam after exam, coffee, tea and cotton as Uganda’s cash crops.

Fast forward to 1997. I found myself on the commodities trading floor of HSBC bank In London, where they told me $150b in transactions passed through that room daily, Uganda’s GDP at the time was $6b, and I happened upon a research note that said coffee we would fall below 50 percent of the country’s total exports by the turn of the century.

That was a mind bending proposition, because in that year coffee exports accounted for six in every $10 of our exports, down from 90 percent in 1986.

"In today’s Uganda where coffee exports not only account for 30 percent of export value, but the sale of the aromatic bean has been overtaken by gold exports, that’s not news. It was at the time.

A quarter century later and the brightest of the brightest of our youth are probably due for another mind bending moment.

In April, the Kenyan media reported that their imports of power had hit an all-time high in the first quarter of the year. They imported 408.78 gigawatthours (GWh) up 42 percent from the same period last year. The source of their imports? Uganda and Ethiopia.

Uganda Electricity Transmission Company Ltd (UETCL) reports exports of electricity were back to pre-covid levels at $44m (sh170b) last year, small when seen against total receipts of $5b but significant none the less. Going by the growth trajectory of the last four years this number is set to double by 2028.

We have always exported power to Kenya but with new generation capacity we are exporting more and more, especially now we are a member of the East Africa Power Pool (EAPP), which is connecting power generators to the region so power can be transmitted wherever it is needed in the region.

Trade in electricity within the EAPP has grown six fold to 3400 GWh annually since 2005 when it was begun.

So it makes sense to increase our generation capacity – one study showed we have at least 4000 MW of hydroelectric power potential, but also invest more in the high voltage transmission lines required to evacuate the power.

Currently lines from Gulu-Nebbi-Arua, Kabale-Mirama and Masaka-Mbarara are in the works. As long as our electricity sector is efficient, so as to ensure demand for our power abroad, the enormous power needs locally and regionally would make such investments no brainers.

It will not help that projects, which should ordinarily take six years to develop take more than a decade 

-- see Karuma dam, as these delays are an additional cost that would price us out of the market. We are not big players, seeing by the total trade in power in the region of 3400Gwh versus our exports last year of 485 GWh. Also because the region has surplus of power generation capacity – 90,000 MW versus peak demand of 54,000 MW, it is a buyers’ market, meaning no one will take our power if it is not competitively priced.

Producing for export means we are subjecting ourselves to more exacting standards than we tolerate at home. Our trading partners do not expect frequent power outages, brown outs and power surges. They will probably sue us for such infringements unlike our pliant locals.

 Exporting power should be an exciting thing, if only because it could serve as the new trick question for our pre-university youth, something like “Which of our exports does not go out by road, rail or air?”

 

UGANDA GOVERNMENT WANTS TO SUPPORT YOUR BUSINESS? RUN A MILE

It was a tragic sight. Dozens of orange buses were being towed and trucked out of their long term parking yard at Namboole stadium. In the dead of the night, as if the owners were embarrassed by the failure of their business.

I think it still happens, but I was once bemused by people who move house at night. The explanation for this ranged from, the tenants don’t have time to move in the day as they are at work to you move at night so the thieves don’t see you to many of these tenants were fleeing rent arrears.

The orange buses belong to the Pioneer bus company, which folded for all practical purposes, a decade ago when a year into operations in 2013, Uganda Revenue Authority (URA) came calling for sh8b in import duty that had come due. They were never the same again.

By the promoters own admission, they had kicked off operations ahead of schedule, as a stop gap measure for a strike by Uganda Taxi Operators & Drivers Association (UTODA).  UTODA was facing off with the newly created Kampala Capital City Authority (KCCA), which was insisting that the then powerful association make good on its dues to the city.

Initially they were making cash hand over fist, but as they say you will know who is swimming naked when the tide goes out. Once the taxis got back on the roads after their little tantrum, Pioneer bus could not handle the competition and cracks started to appear.

A cursory look around Kampala on any given day and it would not be hard or long before a mad boda boda rammed into you, to determine that the transport system is need of a major overhaul.

The running of Kampala’s transport system has been left unregulated and to the whims of the taxi drivers and the aforementioned boda-boda operators. Leaving the market to its on devices is a good idea, until it isn’t.

The way the market works is through a series of continuous experiments. Every transaction or business is an experiment whose result is logged somewhere in some ethereal brain. There are more failures than there are successes and these failures are crushed brutally, every year, every month, every day, to make room for the successful experiments.

"Every so often in human history some people, with little or no understanding of how the market or business operates, come along, often empathizing with the losers and proceed to rig the market to guarantee one result or the other – often for their political cronies. It always ends in tears....

The market, like God, shall not be mocked.

Sadly it is not the political cronies who suffer but the tax payer, who shoulders these losses by suffering poor infrastructure, failing social services and rising crime.

Pioneer buses was in trouble from the first passenger it took on. Backed by a group of politically connected promoters, the bus company thought they could lean on government to get the concessions they needed to make the business work.

Unfortunately, the hastily got concessions did not come through jeopardizing the company’s future success and its promoters’ future prosperity (?).

 

The URA raid may have been the promoters’ road to Damascus, but the company’s fate was sealed when a more fundamental concession never came through. This was the institution of bus lanes that would be exclusively used by the company on their routes from Kampala to Bweyogerere and back...

These were important because people intimately familiar with the business, worked out that for the business to make sense at the low fare prices being proposed, each bus had to do at least eight return trips a day on the aforementioned route. The Kampala-Bweyogerere route was a pilot, afterwards other routes were to be added.

Spurred by some romantic story that opportunity only strikes once, the promoters rushed into battle without crossing their ‘t’s and dotting there ‘i’s, which left government room to renege on the deal. And that was that. But you also have to wonder about businessmen who can commit tens of billions of shillings to an enterprise without basic policy in place.

Private capital is one of the most efficient ways of running services, if only because the motives of the owners are aligned with those of the customer, believe it or not. For the business man to make money he has to serve more and more people. The days of price gorging and fat margins are gone and government too can ensure this does not happen by allowing competition. Business works under the sword of final censure, they don’t serve the customer, they die...

Ironic as it sounds, government interests are not always aligned with the customer. Financed by the bottomless pit of tax payer money, governments can throw good money after bad and not feel the pain, especially if these businesses feed their supporters.  

Seeing how business left to its own devices can lead to chaos, at least in initial stages until the stragglers are culled, how can government support business to help it in service delivery?

If nothing else, all government bureaucrats need continuous training to understand how businesses work. This is important to help them design policy to improve the business environment and negotiate effective and sustainable concessions for intending businesses.

It will also help them recognize that without a dynamic, robust business community it will be impossible to deliver service and uplift the living standards of all citizens and therefore guarantee the longevity.

The rest is basic – a national development strategy, burnish corruption, improve the quality of human capital, beef up law enforcement agencies to ensure a level playing field for all actors and facilitate appropriate financing.

As it is now look with a jaundiced eye at any government support for your business.

 

UMEME AND THE IMPORTANCE OF THE RIVER

Last week power distribution company Umeme released its report ahead of its Annual General Meeting (AGM) at the end of this month.

We already know that while Umeme revenues crossed the two trillion shilling mark -- one of only two companies, with telecom company MTN being the other, to ever cross that mark in the history of Uganda, profits were down 92 percent. The plunge in profit was as a result of provisions made ahead of the eventual end of the company’s 20 year concession.

Umeme took over the running of the distribution arm of the former Uganda electricity (UEB), which prior to privatization was split into the distribution, transmission and generation arms.

"At the start of the Umeme concession UEB was generating 180 MW, was losing half that power through technical and commercial losses and barely managed to collect payment for 60 percent of the power billed for, which in 2005 was sh160b...

The major reason UEB was privatized and the sector was liberalized was, to attract new investment into the sector. The government at the time had maxed out on its borrowing limits, revenues were low and yet for the economy, to have a realistic chance of recovering, a more efficient power sector was required yesterday.

I hear some people arguing that the opening up of the power sector has seen foreign interest expropriate millions of dollars during the last 20 years, but they forget to mention that in order to earn those millions of dollars, hundreds of millions of dollars had to be invested in the sector first.

In Umeme’s case the company has invested $832m or about sh3trillion at today’s prices. This investment financed the extension of the grid and has seen Umeme customers grow ten-fold from 200,000 when the concession begun to about two million at the end of last year.

It helps too that generation capacity has jumped similary to 1,847MW, with 700MW of this due to the private sector. It can be argued too that the financing of Karuma and Isimba dams by government would not have been possible if the power tariff had not risen to a point where it made sense for private investment.

Government’s stated reason for winding down the concessions is because the private players are not allowing it to meet its stated aim of selling power at US5cents a unit.

As part of the concession agreements the private investors negotiated a return on investment and for government to pay for power even if it is not consumed, these invariably pushed up the tarriff but was the cost of unlocking the investment needed in the sector.

So government in a bid to force the tariff down have decided to do away with the private players. Which is within its right.

But the situations that led to the unbundling of the UEB – a need for continuous massive investment in the sector still prevail.

"UEB was not unbundled for lack of demand, as the two million customers signed to the grid will attest. UEB was not unbundled because the people running it were incompetent, electrical engineers at least in those days, were the brightest engineers around....

The power sector was privatised primarily because we did not have the funds to invest in it. Has that changed today? No.

The reason there is a cash squeeze in the economy is because we are not collecting enough revenue to finance our budget and the donors who are supposed to carry the deficit seem to be slow or are unwilling to live up to their commitments.

So where will the money come from to continue with the investment program Umeme has been carrying out for the last 20 years?

The naysayers will argue that Umeme is a going concern and therefore should have no problem sourcing more finance for new developments. The ability of Umeme to source new funds was premised among other things, on the credibility of the concession agreement they were working under. Lending to the government will be another story.

And because the investments to the sector are by nature very big, they will increase our debt burden as a country. The same people who have criticized Umeme will be complaining that government is borrowing too much.

As Justice minister Nobert Mao said last week, when people make decisions there are often the stated reason and the real reason. The real reason for not renewing the Umeme concession will be revealed with time.

But in the meantime the importance of the river will not be known until it dries up.