7 November 2009
Kampala — THE permanent secretary (PS) of the energy ministry, Fred Kabagambe Kaliisa, has dismissed the Salim Saleh report on electricity tariff reduction as not credible and unsustainable.
In a letter to energy minister Hilary Onek, copied to the President, Kaliisa wants to stop the report in its current form from being presented to the Cabinet, arguing that basic facts on power losses are wrong.
"It is very important that those weaknesses in the report are pointed out prior to it being submitted to the President and Cabinet. In any case, a public document should have a minimum standard," the letter, a copy of which was seen by Sunday Vision, said.
The PS has also questioned his minister's method of work. "The report was submitted to you in the second week of October 2009 and you proceeded to prepare a Cabinet memorandum without any of the technical staff in the ministry and myself being in the know," said his November 5 letter. "This has never happened in the ministry."
He further noted that the report was being leaked to the press even before it was released. In the letter, which was also copied to the Vice-President, the Prime Minister and four other ministers, Kaliisa pointed out that there are a number of inaccuracies in the report and, therefore, some of the conclusions are based on wrong information.
He denied the claim in the Salim Saleh report that the contractual loss figure was raised to 38% by a group of 'prominent persons', which translated into sh370b in compensation paid by the Government.
"This is a misunderstanding of the issue and we cannot afford to mislead the Cabinet."
He explained that the loss benchmarks in the Umeme concession are of two categories: one is the cap for termination of the contract and the other is the benchmark used for tariff determination.
"The 38% loss benchmark refers to the cap beyond which, if exceeded by Umeme, the contract would be terminated without the Government compensating the company."
He stressed that it was not the benchmark for determining the tariff. The loss factor used in the tariff was between 31% and 34%, his table for the years 2006 to 2009 shows.
"The factor of 38% has never been applied and, therefore, the financial loss purported in the report does not arise."
He clarified that the actual distribution loss at the time of the contract was 35% and that it would, therefore, not have been reasonable to set the cap for terminating the contract at 33%. "This would have meant that the concession would be terminated as soon as it was signed."
Fuel consumption
The PS also questioned the comparison of fuel consumption among the different heavy fuel oil plants.
The report had stated that the Jacobson plant consumes 0.24 litres per unit of electricity generated, Electro-maxx 0.27 litres while Invespro has the lowest consumption at 0.20 litres.
But the PS noted that Jacbson was already operational while the other two were not. "It is not professionally correct to benchmark an operating plant with others which are not yet in operation."
Tariff reduction
The most fundamental shortcoming of the report, according to the PS, is the recommendation on reducing the tariffs by 44% - or sh188 per unit - from the current sh426.
The unsubsidised tariff for domestic consumers is sh730 per unit, whereas sh426 per unit is the subsidised price, he stressed.
If power losses were reduced and cheaper energy was generated, such as hydro, he wondered: "Should we put that gain on reduction of the subsidised tariff... or should the choice be to remove the subsidy?"
These, he said, are the real issues for the Cabinet to consider, "not just a statement that we can reduce a tariff today by 44% from sh426 per unit".
Distortion
The PS also pointed out a number of inconsistencies in the report. One example, he said, is where the report puts the consumption rate of the Aggreko plants at 0.262 litres per kilowatt on one page, and a different consumption rate on another page, "thus giving exaggerated results".
Kaliisa further refuted the conclusion of the report that the power crisis in Uganda was caused by the reforms in the power sector.
"It is an established fact that the power crisis was caused by prolonged drought which not only affected Uganda but the entire region, coupled with the delay in constructing Bujagali project."
Blaming one individual, former Umeme boss Paul Mare, is unfair, the PS suggested, since the reform process was driven by the Government and the contracts were awarded through competitive bidding.
He expressed concern over the way forward, noting that the minister is using different courses of action.
He noted that Onek, on November 5, invited several colleagues to constitute a negotiation team for reviewing the concession agreements.Yet, a month earlier, he had directed ERA to appoint a special committee to review the electricity sector management, where Salim Saleh and two of his co-authors, Perez Bukumunhe and Muhammad Serunjogi, would be co-opted. A week later, the PS said, Onek reconstituted the team, now appointing Salim Saleh as a consultant.
"I wish to state categorically that, if the energy and mineral sector had been managed in the above manner over the last 10 years, I highly doubt whether we could have achieved the modest and evident key outputs in the sector," Kaliisa concluded.
He cited as some of the successes Uganda's oil discovery, the stabilisation of the power supply and attracting foreign investments worth over $1b in the power sector.
Asked for a reaction, Onek yesterday refused to comment. "I don't discuss these issues with the press," he said before hanging up.
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