The Monitor (Kampala)
6 November 2009
Kampala — A controversial report on reducing electricity tariffs in the country has sparked off a fight between Energy minister Eng. Hillary Onek and his Permanent Secretary, Fredrick Kabagambe-Kaliisa, Daily Monitor can reveal.
Eng. Onek yesterday summoned senior cabinet colleagues and top officials in the energy sector for a meeting to discuss findings of the Electricity Tariff Committee, advise on measures to reduce tariffs and propose amendments to the concession agreements signed with private power players.
However, in a leaked confidential memo obtained by Daily Monitor, Mr Kabagambe-Kaliisa has questioned his minister's work methods and the findings of the committee headed by Gen. Caleb Akandwanaho aka Salim Saleh.
Mr Kabagambe-Kaliisa has also questioned the credibility of the Saleh report by revealing that one of the members of the committee which drew up the document has written to the energy minister expressing interest in developing the Isimba Power Project in what could potentially be a conflict-of-interest.
In his memo, the permanent secretary says Eng. Onek vowed to reduce energy tariffs by 50 per cent through teamwork but bypassed the technocrats in the energy sector in setting up the Gen. Saleh committee.
"The technical people in the sector patiently waited for the opportunity to brainstorm on the possible areas of reducing the tariff and resolving the other teething challenges in the power sector," Mr Kabagambe-Kaliisa wrote.
"This opportunity never came as the matter was not discussed at all in any forum involving the various technocrats."
Eng. Onek wrote to cabinet on October 30 outlining proposals to reduce tariffs, based on the findings of the Saleh Committee. Listing several findings, including alleged fraudulent actions by some of the power companies, the minister proposed to review or renegotiate government's concession agreement with power distributor Umeme to remove "unfair clauses" that give the company "abnormal profits".
No way
However, in his memo, written this week, Mr Kabagambe-Kaliisa disagrees with most, if not all of the minister's proposals, accusing the report's authors of speculation, using wrong information and sheer incompetence.
"The resorting to speculation and the lack of evidences, all contribute to the downgrading of the quality of the report," the PS wrote.
Permanent Secretary: Fredrick Kabagambe-Kaliisa
"With all these shortcomings, it is unavoidable to conclude that the report was not professionally done and is therefore substandard."
The two senior government officials strongly disagree on the causes of the high electricity tariff in the country, the management and regulation of the power sector, and what needs to be done to bring the tariffs, which are some of the highest in the world, down to more affordable levels.
The minister says the restructuring of the electricity sector, which saw Uganda Electricity Board unbundled into separate generation, transmission and distribution companies, had not brought the desired efficiency.
The Saleh report claims billing anomalies in Umeme, in which only about one in two metres read is billed, "highly suspect" figures given for power lost to thefts and system aging systems, faulty metres and inflated costs by many companies involved in the sector have contributed to the high electricity tariffs.
The report claims that some "prominent persons" in government overturned the position of the Energy minister at the time and increased the recognised power losses from 33 per cent to 38 per cent leading to a loss of Shs370 billion between January 2005 and September 2009.
However, Mr Kabagambe-Kaliisa argues that the losses were within that range, not the 28 per cent claimed by the minister, and that the matter "appears to have been blown out of proportion" in the Saleh report.
Following the June 25 raid by the Police Anti-Fraud Squad on several energy sector companies and offices - including that of Mr Kabagambe-Kaliisa and former Umeme managing director Paul Mare - in which computers were taken away, Mr Onek has also called for criminal investigation by the police and the Inspector General of Government.
Unfit investigators
However, Mr Kabagambe-Kaliisa says the report authors "lacked the basic knowledge of Uganda's energy sector or the energy sector in general". His memo will raise questions about the accuracy of the information in the Saleh report and the credibility and impartiality of the members of the committee.
Mr Kabagambe-Kaliisa defends the concession agreements signed with each of the power companies
Neither Eng. Onek nor Mr Kabagambe-Kaliisa was available for comment by press time yesterday.
However, well-placed government sources told Daily Monitor that Eng. Onek had lost the confidence of many of the technocrats in the sector and "faces an uphill battle" to get them to implement his recommendations, including radical proposals to re-negotiate concession agreements and merge the Uganda Electricity Distribution Company with that in charge of transmission.
Details from yesterday's meeting at the minister's office at Amber House in Kampala were scanty.
Those invited to the meeting included the ministers for finance, justice, privatisation, the Solicitor General, the Secretary to the Treasury, and the director of the Privatisation Unit.
Also invited were the top executives of government's distribution, generation and transmission companies, as well as the Electricity Regulatory Authority.
Onek proposals
(a). Review/renegotiate Umeme concession agreements with a view of removing the unfair clauses in the contract that give Umeme abnormal profits. These include;
Umeme should not be compensated for its failure to collect the already billed energy.
Remove the unverified investments which are earning profit in the tariff.lUmeme's leeway to collect payments from customers be restricted to within 45 days and not 92 days as stated in concession.
Scrap allowance of income tax embedded in tariffs because since it began operations in 2004, Umeme has never paid the tax to URA.
Remove the clause in the concession agreement that enables Umeme take 25 per cent of increased revenue from growth in demand because there are no visible efforts by Umeme to encourage customers to connect--and those who do, wait close to two years to be connected.
Govt defers debt service for UETCL and UEGCL until the sector "recovers from the crisis period".
Reduce Eskom's operation and maintenance costs--since it is currently only using 60 per cent of the O&M, the rest going to Eskom South Africa.
Benchmarking the Jacobsen FUEL consumption rate down to industrial standard of 0.218 litres per kilowatt hour from 0.243.
Jacobsen adds a mark-up of Shs5 per cent on total fuel costs as fuel handling fee.
(b). Other policy measures;
We have commenced construction of another hydropower station, but this time with cheaper government funding. Contributions to the Energy Fund be increased so that the government can fully finance the Karuma dam construction.
The operational regulatory independence of ERA as enshrined in the law has been eroded. To help it regain its clout, government provides initial funding to strengthen its staffing and training.
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