1.4 trillion shillings disbursed in phantom electricity
Over the past 16 years, Uganda has paid at least 1.4 trillion shillings to 13 private power companies for electricity that was never consumed.
Although it was not consumed as it was never sent to the national grid, the electricity – which was produced by Independent Power Producers (IPPs) with whom the Uganda Electricity Transmission Company Limited (UETCL) entered into power purchase agreements – was considered to have been consumed. It was therefore technically called reputed energy.
Deemed energy costs of Shs87.7b for 13 Power Purchase Agreements (PPAs) are highlighted in the Auditor General’s Report for the year ended June 30, 2021.
While the Auditor General’s report only referred to monies paid to the 13 IPPs in the 2020/2021 financial year, the same report stated that the payments for said alleged energy had been going on for some time.
“I have noted that UETCL continues to pay significant sums related to reputable power purchases,” noted the Auditor General.
Sources within UETCL have since told the Saturday Monitor that the government has been paying the reputable energy since around 2004.
Saturday Monitor has established that all PPAs the government has entered into have what has been technically described as a “take or pay” clause that obligates the government to pay for all electricity produced by the IPPs. This is independent of the fact that this power has not been evacuated from the production plants.
Although this must raise eyebrows, Ms. Pamela Nalwanga Byoruganda, UETCL spokesperson, told Saturday Monitor that the agreements were signed at a time when Uganda was in crisis.
“The PPAs that we signed at the time [Uganda was] being burdened with load shedding and still had power deficits,” Ms Byoruganda said.
Ms. Byoruganda added that the “take or pay” provision was necessary to attract investment in the energy sector.
“The only backers who were willing to come in and build generation plants would only accept that you either take whatever we’re going to produce for you or pay for it,” she revealed, adding, “We have therefore signed these agreements as an incentive to invite investors to come because it would make it easier for them to borrow money knowing that even if the electricity was not consumed, it would still be paid for.
Between 1996 and 2006, power generation at the Nalubaale and Kiira dams in Jinja fell to around 120 megawatts against a demand of around 360 megawatts. This forced the electricity distribution company, Umeme, to introduce power cuts of 12 to 24 hours.
The government authorized the opening of thermal power stations in Lugogo, Mutundwe, Namanve and Jinja, but these caused production costs to skyrocket. They finally precipitated a rise in tariffs and the introduction of subsidies. The government paid up to 229 billion shillings in electricity subsidies in the financial year 2006/2007 alone.
The situation only reversed after the commissioning of the Bujagali power plant in October 2012.
This was followed by the commissioning of 13 mini-hydro plants including Mubuku One, Bugoye in Kasese, Kabalega in Hoima, Kanungu in Kanungu, Mpanga in Kamwenge and Adekokwok in Lira.
Ms Byoruganda now says the government has since taken the decision to review all agreements with a view to removing the ‘take or pay’ clause.
“Now that this generation has grown, including that of government-owned dams, the new deals we sign don’t have the ‘take it or pay’ clause. That should solve the problem of reputable power,” Ms. Byoruganda.
The Auditor General’s report states that while power purchase agreements and other implementation agreements committed the government to building infrastructure to evacuate electricity from generating stations to distribution lines, the The required infrastructure was never put in place.
Electricity producers, our sources revealed, have therefore capitalized on clauses that oblige the government to pay for electricity even when it has not been evacuated.
Such developments have raised questions as to why UETCL could have made such commitments without first establishing whether there would be money to meet the erection of the required infrastructure.
Ms Byoruganda, however, says some of the infrastructure should have been put in place by the Uganda Electricity Distribution Company Limited (UEDCL).
The two agencies, she argues, often don’t operate at the same pace or even get project funding at the same time.
“Funding for production could come faster than funding to build a line. An investor may come and see an opportunity to build a dam, but someone else has to plan to drain that power,” she explained.
“Because we are no longer using government funding, we have to go and seek funding to build an evacuation line. The two processes usually do not move at the same pace,” she added.
Impact on rates
Since June 2016, President Museveni has pushed for a reduction in the cost of electricity to at least five cents for manufacturers and six cents for domestic consumers. To his dismay, the Auditor General’s report says that cannot happen.
According to the report, payments for estimated energy and other losses are funded through the electricity pricing system. This means that the cost is passed on to the end consumer.
On April 6, the Electricity Regulatory Authority (ERA) published a new tariff structure that sets the average cost of domestic tariffs at 21 cents per kilowatt hour. The same category of consumers can also benefit from the vital tariff, which amounts to 7.6 cents per kilowatt hour, and the cooking tariff, which amounts to 11.64 dollars per kilowatt hour.
Commercial consumers must pay $16.4 per kilowatt hour; 12.4 cents for medium-sized industries; $10 and $9.7 for consumers in blocks 1 and 2 in the large industry category; $85 as well as $7.7 cents in the very large industries category; and 10.5 cents for street lighting.
While the new tariffs were meant to help consumers ‘recover from the effects of the Covid-19 pandemic’, Uganda Manufacturers’ Association (UMA) Board Member Mr. Jim Mwine Kabeho said the tariffs did not still do not compare favorably with those of other countries in the region.
“The problem is that the cost of electricity in Uganda, compared to countries like Ethiopia and Kenya, remains a challenge. 10 to 11 cents per kilowatt hour puts manufacturers at a disadvantage here. The government must negotiate with the electricity producers so that it goes down between 5 and 6 dollars per kilowatt hour”, explains Mr. Kabeho.
Julius Wandera, director of business and consumer affairs at ERA, however, says comparisons between tariffs in the region are misleading given that some countries in the region heavily subsidize the energy sector.
“You can’t compare rates unless you use cost-reflective rates. Tanzania, for example, subsidizes its tariffs up to 70%, Kenya 15%, Burundi subsidizes heavily, while Rwanda does not subsidize. A comparison is therefore likely to be misleading,” says Wandera.