GOVT WALKING DANGEROUS PATH IN ELECTRICITY SECTOR

Last week MPs on an inspection tour of the Namanve thermal power plant, learnt that two of the plant’s seven turbines had been shut down for lack of funds and the entire plant may be shut down by year end,if government doesn’t release funds meant for maintenance of the plant.

Uganda Electricity Generation Company Ltd (UEGCL) through the energy ministry has already requested sh61b to undertake deferred major maintenance and implementation of this year’s capital investment plan.

This has become even more urgent after last year’s release of sh19b for 2023/24 never reached UEGCL, even though it was released by the finance ministry.

The MPs heard that a total shut down by December 2025 would be inevitable, if this money was not released promptly...

UEGCL presented other concerns surrounding the Isimba and Karuma power plants, but we will save those for another day.

This a harbinger of things to come.

Just in case we forgot, our plans for developing especially through industrialization will remain pipe dreams if we did not straighten out the power sector.

Over the last two years UEGCL has repossessed Kiira-Nalubale dams from South African firm Eskom and the Namanve thermal plant from Jacobssen. And at the end of March the Uganda Electricity Distribution Company Ltd (UEDCL) will be taking over the grid from Umeme, when the 20 year concession will be up.

One of the major reasons we handed over our distribution and generation networks to private players, was because they were not only inefficient but they were proving an unsustainable drain on the treasury. The idea was by passing them on to private players they would be a net contributor of revenue to government, would raise funds to invest, thereby expanding capacity with the eventual aim of assuring power supply and bringing more people onto the grid.

Through out the concessions Eskom, Jacobssen and Umeme have contributed to government coffers rather than the reverse.

Uganda Electricity Board (UEB) from which UEGCL, UEDCL and Uganda Electricity Transmission Company Ltd (UETCL) were hived off, struggled majorly for lack of funds....

Over the last 25 years billions of dollars have been invested in the sector, most of it from private players, bringing us to the happy situation where we have a surplus of power.

Currently Uganda has an installed power generation capacity of more than 2,000 MW against a peak demand of just over 1,000 MW.

Although it has to be said, that the surplus capacity is costing us a lot of money, a failure of government execution, but that again is a story for another day.

The private sector was able to carry out these investments, because it did not have to run to government everytime they had to finance adding new generation capacity or expand the grid. The private players went to the open market and on the strength of their cashflows and balance sheet funded their operations and investments.

Meanwhile, the private players did not airlift staff from South Africa or the UK or Norway to run these private concessions. Ninety percent of their staff were Ugandans, who will remain in the country after the infrastructure is returned to government.

So the problem then, in the UEB days and now, is not that we don’t have qualified people to run the electricity sector but that government bureaucracy and inefficiency is weighing the sector down.

"The lesson of the last two decades of private sector participation in the sector maybe that the private sector is a better operator, but more importantly that government needs to keep an arm´s length distance from industry in order for it to work...

UEGCL’s experience in the last two years is proof enough of this.   

It has been done before. The experience of National Water & Sewerage Corporation (NWSC) , which was close to being flogged 30 years ago, is a good example. Government allowed management to turn it around, recapitalized it by converting debt to equity and providing the necessary cover to source financing for its major projects.

Water is more emotive than electricity so if government can do it in the water sector it can do it in the power sector.

If government is serious about the energy sector they need to recapitalize these agencies and cut them loose to operate commercially, otherwise the beginnings of a return to the loadshedding and inefficiency of the old UEB days seem inevitable.

 

TRUMP REVOLUTION THROWING UP UNCOMFORTABLE FACTS

Since the beginning of February the new US Department of Government Efficiency (DOGE) has cancelled more than a billion dollars in government contracts that were deemed unnecessary and therefore wasteful.

It would be interesting to see what these savings are channeled towards in coming days.

Trump, a member of the economic elite in America, which has argued for lowering taxes for businesses, has decided to answer critics of this initiative by showing that by cutting out the “waste” in government the country can very well afford the tax cuts he intends to ram through.

"The revelations from DOGE are that a lot of money was being funneled to programs with questionable benefits to the US people or the people they are intended for.

Hence the shutting down of USAID.

That being said, Trump’s actions are being driven by a right wing ideology that calls for leaner government and more benefits for businesses. The critics say, by business we are talking about the rich. It doesn’t help that Elon Musk, the world’s richest man now heads the DOGE.

The principle for pushing for government efficiency is hard to argue against. You may frown at the way it is being done, but one can argue that when you are going up against entrenched interests, the slowly-slowly approach may not work. Shock and awe may be the way, so as not to allow the said interest groups to regroup and retaliate.

This column has argued previously that wealth inequalities within populations are more a factor of government inefficiency than the failure of the market.

The market generates the wealth and governments, through taxing economic activity and the budget distributes this wealth. Not by handing out money at street corners, but by funding security, infrastructure, social services and public goods, which when taken advantage by the population will give more and more people a chance to benefit from the market.

The US, the world’s biggest economy has got there by leveraging the power of the private sector. However, the US has major wealth and income inequalities – many lesser developed countries have better stats, whose responsibility can be put squarely at the government’s feet.

What the DOGE is finding out bears this thesis out. Millions of dollars were being paid out for dubious projects inside and outside the country, while major initiatives in education, health and general infrastructure went begging.

In my ideal world, the government is in place to serve the people. It does this by primarily ensuring safety of life and property for everybody. This does not only mean having a functional security apparatus, but also ensures that the legal system works for everyone and corruption is eliminated.

In such an environment business can thrive, in the process creating jobs and paying taxes.

The taxes collected are then deployed to improve and expand public goods, which then allow more and more people the opportunity to benefit from economic growth.

So if your economy is growing but less and less people are not enjoying its benefits, look to government and not business...

To that extent DOGE is a long overdue initiative in the US. That would probably be the work of the Inspector General of Government (IGG) here in Uganda.

It is interesting that businessmen are pushing this agenda in the US. Because government inefficiencies have a way of affecting business and weighing it down.

In the real world things are not as cut and dried. The first thing that happens when people get into government is to ensure they stay there. In our part of the world this maybe by force of arms, but also by catering to your supporters.

That is where the trouble starts, because in pandering to these loyal constituencies, government efficiency is compromised.

That is why it is not wise for government, any government, to be in business. Because business sustainability, which comes with increasing profitability and growing market share, are secondary to the need of government to retain power...

So in a country like the US where all business is in private hands, the temptation to expand government to accommodate supporters, is the next logical thing. And as night follows day, results in growing inefficiency.

Trump and Musk seem to be flipping the script. Their actions suggest that government efficiency is more important than kowtowing to cronies. They are betting on improved services for the people being the incentive for the people to keep them in power. That they will not rely on cronies for that.

While the current push for government efficiency has affected us in faraway east Africa, it will be interesting to see how it plays out in coming months.

Will the bureaucrats mount a fight back or have they been scuttled and their threat dissipated.

Time will tell.

 

CHICKEN COMING HOME TO ROOST WITH USAID SUSPENSION

US President Donald Trump’s administration has thrown the aid industry into a panic with suspension a week ago of his country’s charity arm, USAID.

It has been reported since, that billions of dollars have been put on ice, thousands around the world will be out of a job and millions of beneficiaries are looking forward to a very uncertain future.

Created in 1961 by the John F. Kennedy administration, USAID has been involved in supporting, among other things global health, food security, democracy and governance initiatives.

The Trump administration accuse them of being fat and lazy and even worse, of being corrupt and money launderers. Allegations have been rehashed of how only a fraction of the aid actually reaches the intended beneficiaries, with the bulk of it going to administration, procurements and high living.

For these and many more accusations, the aid industry has come under heavy criticism for decades. These accusations are not new or unique to USAID.

The industry’s record has been spotty at best and dismal at worst.

"For instance since the 1960s Africa has been a recipient of more aid than the Marshall plan, that reconstructed war torn Europe after the second world war, but remains riven with poverty, disease and war...

Aid campaigners would blame that on poor governance on the continent. On the flip side others would argue that bad governance on the continent is a direct result of over reliance on aid. A situation that did not arise by mistake.

The history of development shows that countries advance by mobilizing their own resources – land, labour and capital, to improve the living standards of their people. This has forced governments to move from autocratic monarchies to more inclusive democracies, as the political elite had to negotiate with the people to pay taxes to finance development.

The monarchs of Europe thought they would have their cake and eat it, taxing their subjects to finance their lifestyle and questionable wars, without being accountable to the people. They did this for a time –for centuries, before the people rose up and said enough is enough. Many monarchs paid with their heads for resisting the new power sharing arrangements with their subjects.

The lesser developed countries of Africa were promised they could short circuit this development process by first colonizing us and then in post-colonial Africa, by providing us with aid.

In hindsight aid has not been about transforming society or development, but about influence peddling. Aid has been the carrot that kept us in line. And as long as we kept in line, it mattered little what our leaders did with the money, hence the eruption of corruption in post-independence Africa and the lack of economic transformation.

Aid has given African governments a free pass not to develop relationships with their people (democracy), by abrogating funding responsibility to the aid industry. That is why for instance we are tearing our hair out because USAID was a central player in the health industry and their departure is an existential threat for many.

It is easier to fly to Washington (per diems all around) and negotiate for more money than it is to negotiate with your population to pay more tax.

The truth is we have been lulled into a false sense of security with all this aid sloshing around.

Shortly after the NRM came to power there was a school feeding program instituted because, coming out of war, harvests were not the best. By 1990 it was determined we did not need that food aid any more. I remember the end to that food aid – mainly chicken curry and tinned fish, almost caused strikes because the school kids had developed a taste for the tinned food and could not imagine living without it.

Today its inconceivable Uganda would need food aid, but one can see how dependency could have been easily created.

The suspension and possible closure of USAID should be cause for soul searching.

"We need to ask ourselves how a foreign entity can be so central to the health of our people? An entity, which on the face of it, may have altruistic motives but is susceptible to the political vagaries of a country for who our welfare is not top of their agenda?

The record will show that aid is insidious in its creation of dependency. Because we have aid we cannot marshall home grown remedies to our lack of revenues to finance our development. Why think hard when someone is falling over themselves to throw money at you.

I am not hopeful, but this event should make us take a long overdue look at how we can mobilise our own resources and how we prioritise the expenditure of those resources.

But as I said I am not very hopeful, especially since USAID or a variation of it, will return within the year.

 

USAID: TIME FOR A HARD RESET

So USAID may be closing office soon. A big blow to our health sector for one. USAID is key in provision of antiretrovirals, anti-malaria fight and everytime we have a haemorragic fever outbreak or the other.

With a health budget of sh3trillion or about sh65,000 per Ugandan, the argument for help with our health budget is not difficult to make.

It would make sense that if USAID was suspended we would have to rearrange the rest of our budget to fill in the gaps that have ensued. We would have to take a long hard look at  our health priorities and arrange expenditure to reflect this.

We would have to ask ourselves some hard questions. Do we need such a big government or not? Can we cut back on our travel budgets with their attendant per diems and readopt virtual meetings? Do we need to stop the lip service and go after the corrupt without fear or favour?

We would want to look again at our taxes. Do we need to raise them? Or at least put more effort into roping more people into the tax net? Collecting less than 20 percent of GDP is nothing to write home about.

"Interestingly this situation we find ourselves in, has a lot to do with the donor largesse we have enjoyed over the last four decades...

The progression of development went roughly as follows. 

When the monarchs of Europe wanted more money to fund their lavish lifestyles and fight more wars, they looked to tax the people more. At some point the people said enough, we need to have more say in the way our taxes are spent. Under pressure the monarchs allowed for the creation of parliaments to, among other things, make sure their monies were being spent for the benefit of the tax payers. Monarchs who resisted, had their and their families´ heads lopped off.

They did not have the benefit of foreign aid, maybe when they went out and colonized countries and appropriated their resources for themselves. But for the most part they had to rely on their own resources to develop.

What this meant was taxing their populations. But you couldn’t just tax your populations any howly. There had to be a negotiation -- If we pay you more we expect more. And if you don’t leave up to our contract we kick you out at the next polls.

And that is how democracy evolved as a continuous dialogue and negotiation between the power elite and the citizen.

Unfortunately for us, this process was short circuited by first colonialism and then by aid.

Now our governments, when their budgets fall short, the knee jerk reaction is to fly abroad to beg for alms. It is much easier than negotiating with your people for more taxes...

As a result not only has the evolution of democracy been stalled but we are also very corrupt. After all it’s not our money we are stealing and as long as the government pays it back, who cares. Imagine though if more people paid taxes, than the less than two million who currently do, there would more noise about corruption.

So by bailing out our governments the aid industry encourages corruption, frustrates the development of institutions and then it is no wonder that after billions of dollars have been thrown at the continent over the last seven decades, we have little to show for it.

But one can see how this state of affairs is unlikely to reverse soon. 

"The US needs the influence that comes with USAID’s activities. The recipient governments need more and more aid to forestall the hard discussions they will inevitably have to have with their populations. A vicious cycle that cannot be broken without much discomfort and pain...

This USAID situation should serve as time for intense soul searching, leading to a hard reset.

 

COMPOUNDING, THE EIGHTH WONDER OF THE WORLD

Book Review: The Joys of Compounding by Gautam Baid

If you pick up The Joys of Compounding expecting just another book about stocks, numbers, and financial charts, think again. Gautam Baid takes a well-worn topic—value investing—and turns it into a much broader conversation about lifelong learning, decision-making, and self-improvement. Yes, it’s about making money. But it’s also about how small, consistent efforts in every part of life—whether it’s learning, relationships, or career growth—add up to something extraordinary over time.

Baid’s journey itself is pretty inspiring. He started out working in a call center on the night shift, far from the world of high finance. But through relentless reading, discipline, and a deep love for learning, he broke into the investment world, proving that compounding knowledge is just as powerful as compounding wealth.

My big takeaways from this book.

1. Investing Is a Long Game

One of the core messages in this book is that wealth isn’t built overnight. Baid is a strong believer in value investing, a strategy made famous by Warren Buffett and Benjamin Graham. The idea is simple:

• Buy stocks that are undervalued (i.e., trading below their real worth).
• Hold onto them for the long run, letting time and compounding do the heavy lifting.
• Avoid chasing trends, hype, or short-term gains.

Baid explains how margin of safety—buying a stock at a price lower than its intrinsic value—protects investors from big losses. He also emphasizes the importance of patience. If you’re looking for a get-rich-quick scheme, this book isn’t for you. But if you want to understand how smart investors consistently win over decades, you’re in the right place.

2. Mental Models: Thinking Like a Winner

One of the book’s strongest sections is about mental models—frameworks for making better decisions. Baid borrows heavily from Charlie Munger (Buffett’s right-hand man), who believes that understanding concepts from multiple disciplines—psychology, economics, history—helps you make better choices.

Some of my favorite mental models from the book:

• Inversion Thinking – Instead of asking, How do I succeed?, ask What will make me fail? and then avoid those mistakes.
• First-Principles Thinking – Break a problem down to its basic components instead of just following conventional wisdom.
• Compounding Knowledge – Read every day. Study different subjects. Over time, knowledge layers onto itself, making you smarter and better at decision-making.

Baid argues that financial success isn’t just about money—it’s about thinking clearly, avoiding cognitive biases, and making rational decisions.

3. Lifelong Learning and Self-Improvement

Baid is obsessed with continuous learning. He makes a strong case that knowledge compounds just like money does. Reading a few pages of a good book every day, writing down key lessons, and reflecting on them consistently can lead to massive personal growth over time.

Some of his practical tips for lifelong learning:

• Read widely—finance, history, philosophy, psychology, anything that broadens your worldview.
• Take notes and review them periodically.
• Surround yourself with people who challenge you intellectually.
• Stay curious—don’t get comfortable with what you already know.

This applies to everything, not just investing. Want to get better at your job? Read and study. Want to be a better writer? Write every day. Small improvements add up over time.

4. Character Matters More Than You Think

A refreshing part of the book is how much Baid emphasizes ethics and integrity. He points out that plenty of smart investors fail—not because they aren’t intelligent, but because they’re greedy, impatient, or dishonest.

He shares Warren Buffett’s famous quote:
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently."

His advice? Play the long game. Be honest. Build relationships on trust. In both investing and life, the people who operate with integrity and patience are the ones who ultimately win.

If you’re serious about investing and want to learn how to build wealth the right way (i.e., slowly but surely), this book is a must-read. But even if you’re not that into stocks, The Joys of Compounding offers invaluable lessons on thinking better, learning smarter, and making good decisions.

It’s a book about money, yes—but more importantly, it’s about how small, consistent efforts in every part of life can lead to extraordinary results. If that idea excites you, give it a read.

 

UEGCL PROFITS UP, FINANCIAL SUSTAINABILITY IN QUESTION

Uganda Electricity Generation Company Ltd (UEGCL) saw profits jump 60 percent to sh54b in the year to June 2024 from sh34b the previous year, on the back of increased income from their power stations.

However, the Auditor General questioned the company’s long term viability due to its huge debt obligations and a tariff that does not cover its costs.

UEGCL has a huge debt overhang, about sh5.6trillion, whose servicing is straining their working capital.

According to UEGCL’s financials the debt to asset ratio is above 50 percent.

“The undesirable ratio is attributed to significant on lent loans for Karuma and Isimba HPPs (Hydroelectric Power Plants) and inadequate loan repayment on both loans,” the auditor general said in his report on UEGCL. The report showed that interest of about sh529b towards the two dams’ debt is in arrears, as of June 30^th 2024.

“This signifies a high financial risk given that the company majorly relies on debt to fund assets. Furthermore, it might hinder the company’s access to future loans, limiting its financial flexibility.”

The Auditor General went on to warn that, “the company’s current assets are insufficient to cover its short term obligations… the company’s liquidity position is unhealthy.”

The Auditor General advised that the on lent loans, amounting to more than sh4trillion for Karuma and Isimba, be converted to equity. Essentially that government shoulders the burden of paying the loans Improving UEGCL’s financials and improving its leeway to not only maintain current infrastructure but also develop new plants when needed.

While the Auditor General noted that UEGCL was more than able to meet its interest obligations on its outstanding debt – interest cover ratio of 4:1 versus a desirable rate of 2, he noted that interest payable or interest payments still due, rose in the year to sh530b “which may cause potential challenges in meeting future interest payments.”

"This looming cash squeeze is as a result of the inadequacy of the tariff, which is not reflective of cost, UEGCL is charging for the power it generates...

The Auditor General recognized this and advised UEGCL “To renegotiate the power purchase agreement (Karuma, Isimba), so that invoicing is based on capacity rather than energy sold. In addition, the license for Nalubale-Kiira power plant should be reviewed to provide a more cost reflective tariff.”

 A cost reflective tariff would factor in operational expenditure, taxes, capital recovery and an allowed return. As it is now none of the UEGCL operated plants recovers the investments made by government nor earns a return.

 UEGCL is at a decided disadvantage because of the difference in Power Purchase Agreements (PPA) it is operating under its major plants at Karuma and Isimba, compared to its contemporaries in the private sector.

A recent report of the contribution to the end user tariff of the various power plants showed that the 250 MW private player Bujagali accounted for $2.1 cent or 16.9 percent of the tariff or about the same as the combined tariff of Karuma and Isimba with a combined total capacity of 730 MW.

UEGCL is paid for only the power it generates at Karuma and Isimba, whereas the private sector players are paid for capacity they have available whether or not they sell power to the grid.

This is part of the reason the Auditor General has complained that UEGCL is not making optimal use of its assets, going by its low return on assets of 1.25 percent, considerably lower than the acceptable five percent.

He also counselled that the finance ministry should fund the Namanve capacity charge, which he thought would provide more stable revenue streams that would enhance the company’s cash position. This would not be necessary if these costs were included in the tariff instead of as a subsidy from government.

"This recommendation flies in the face of recent announcement by the Electricity Regulatory Authority (ERA) where they reduced the tariff by five percent, ostensibly saving the end user sh155b. Were the tariff to be kept stable, those savings could have been used to rehabilitate plant or pay down Umeme’s concession for instance.

Policy makers will do well to listen to the Auditor General who advised in his report that the tariff at Nalubale-Kiira should be increased to be reflective of cost, the Karuma and Isimba PPAs, which only allow them to charge for power produced and not installed capacity, are hobbling the company’s operations a situation that is not sustainable.

The Auditor General echoed the findings of a 2023 report that used Kenyan counterpart KenGen as a benchmark.

That exercise’s main recommendations were for the institution of a cost recovery-based tariff, conversion of Karuma and Isimba debt to equity, a sale of shares on the Uganda Securities Exchange (USE) to improve its balance sheet and stabilization fund to meet UEGCL’s current and most pressing obligations.  

While Uganda with its fairly stable power supply and huge surplus, is currently the envy of our neighbours, this situation maybe a temporary one if the industry is not managed with a view to long term sustainability.