Should government take over UMEME job?

Karuma, Isimba power raises new questions

Kampala, Uganda | HAGGAI MATSIKO | On the face of it, Uganda’s sole national electricity distributor, Umeme Ltd, has a stronghold on the sector. It has seven more years on its concession, has recently posted stellar financial and operational performance, and – with workers’ pension fund NSSF as the majority shareholder – is largely a company with conc Ugandan flavors. So why has the renewal of its concession become a hot fighting topic in the corridors of its head office in Kampala, Ministry of Finance and State House?

Apparently, after years of focusing on increasing electricity generation capacity, the government is now desperately looking at how to transmit and distribute the power expected from the new 600 MW Karuma and the 183 MW Isimba.

The two dams are expected to be commissioned in December and August respectively.  And the new power must find where to go profitably or else the projects risk becoming white elephants.

An official at the Finance Ministry intimated to The Independent that the plans for distribution of the new power are already behind schedule.

Although the urgent need to find means of transmission and distribution of the new power is clear, the choice of who will implement it is less clear. Umeme wants the deal because it would mean a doubling of its business.

In fact, Umeme has over the years invested $500 million to show readiness for this moment. It has also already carried out studies which indicate that it needs to invest between $1.4billion and 2 $ billion.

But for it to get the new deal, it says, its concession must be extended from expiring in 2025 as per the 2005 concession. And its arguments make sense – from a purely business perspective.

A sector insider told The Independent that for every dollar spent on generating a unit of power, another dollar is required to transmit and distribute it. Government estimates that some $3 billion is required to transmit and distribute the new power being generated. While transmission requires 30 percent of this, distribution requires a whopping 70 percent.

The power distributor says, if the billions of dollars it needs to raise and invest into the network to distribute the new power are to be recovered within the remaining seven years, the lenders will be very expensive. The more practical way would be for it to raise funds to be recovered over 15 years. However, even this has a catch – no lender would be ready to lend Umeme money to be recovered over 15 years if it has only a seven year concession. It must table a 15 year concession, at least.

Luckily for Umeme, officials at Ministry of Finance appear to agree with its argument. But they also have strict instructions from President Yoweri Museveni—to ensure that any new deals result in cuts in the cost of power to consumers; especially industrialists.

That is where the overseers of the Umeme concession, the Uganda Electricity Distribution Company Ltd (UEDCL) come in with what they say is a proposal that could easily guarantee the lower tariffs Museveni wants. Instead of Umeme, UEDCL says, the government should invest in the distribution network.

Clearly, judging by correspondence coming out of UEDCL which leased Umeme the concession, it appears not everyone is impressed.

UEDCL’s managing director, Joseph Katera, last December wrote to Secretary to the Treasury, Keith Muhakanizi laying out options for financing the distribution network.

In summary, Katera noted that it was more affordable for government to invest in the network than for Umeme to do the same.

UEDCL appears to have got inspiration from generator UEGCL, which wrestled control of the construction of Karuma and Isimba and is angling to wrestle the control of Nalubale and Kiira dams from Eskom and become the dominant power generator.

Already, UEGCL is pushing for a take-it-all deal on Karuma and Isimba power, akin to what that government awarded the proprietors of the 250 MW Bujagali power in order to be in position to make them profitable ventures.