30 November 2012

Uganda: Financing Energy Projects- Lessons From UMEME IPOs

Photo: New Vision
Umeme officer doing maintenance work.

The just concluded Umeme Initial Public Offer and its subsequent oversubscriptions from all quarters is a clear testimony of the public's interest in the sector. My kudos to all involved.

Uganda, like her sister countries in the region, is suffering an energy shortage, accruing from insufficient investment.

While in the past energy projects have been left to governments and multi-lateral investors, the current trend of events creates yet an opportunity for governments, policymakers, bankers and development partners to craft new routes supported by effective policies and management.

First, oversubscription for Umeme IPO suggests the measured risk by the public, to invest in the upstream, which is largely Umeme's area of focus, rather than in the downstream, which is mostly complicated and long term in nature.

However, this is the critical area in the supply chain that requires urgent financing in a huge way if this country is to ever overcome the shortfall.

Furthermore, there is need to educate the public on key benefits to invest in downstream energy projects, such as higher returns on investments and direct impact to the social and economic livelihood of Ugandans in general.

However, the Government also needs to have a skilled non-partisan team to implement these projects within set timelines to increase public confidence. Morseso efforts by any quarter to work towards reducing power tariffs for the end user would be of great public interest and likely to trigger immense inflows in the sector.

Uganda has the highest power tariff for all categories in East Africa, which is impacting negatively on her GDP and slowing down growth.

While experts estimated that the cost to generate a kilowatt of power between ranges $6-10 cents, today a kilowatt is costing $20 cents to a domestic Ugandan consumer and $18 cents to medium industries.

These margins are too high in the market, especially for the medium industries, which are the backbone of our economy.

Uganda has vast untapped renewable energy potential countrywide, an innovative financing option to exploit this resource, with low level stakeholders mobilised to invest, would undoubtedly bring down the cost of investment, and directly pull down the cost of power tariffs.

We are committed to the business and fully aware that this initiative and more will change the overall outlook as it achieves its main objective of providing affordable and quality services to Ugandans.

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