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.
