7 December 2012

Uganda: Permanent Secretary Explains Losses in Energy Sector

There has been no policy option of terminating Umeme's 20-year power distribution concession based on fixed energy losses following the power crisis of 2006, according to officials.

The Electricity Regulatory Authority (ERA) set loss factors only for purposes of determining the tariffs. The permanent secretary, Fred Kabagambe-Kaliisa ministry of Energy was reacting to parliamentary ad-hoc committee "investigating" the electricity sector leaked report.

A report said a group of "prominent persons" took a decision to increase the threshold of distribution losses from 33% to 38% and that the group over ruled the then minister of energy and mineral development, Daudi Migereko, who had capped the loss at 33%.

However, Kabambe-Kaliisa said during the negotiations to review the Umeme's concession as result of the power crisis, Umeme was of the strong view that it was going to experience very high losses due to increased power thefts.

"In fact Umeme was of the opinion that the losses could easily escalate to more than 40%, since at one point in time a loss of 41% was recorded," the permanent secretary noted.

"However the negotiating did insist that losses should not escalate infinitely without serious measures being taken."

Kabagambe-Kaliisa said the innovation of the negotiating team was that there should be a cap on the loss factor beyond which level then government would terminate concession without compensating the company on the return made on the investments.

"This was the first time that measure was being introduced. This was not an innovation of the Minister of Energy and Mineral Development and the Permanent Secretary," he said.

"In determining the threshold for capping the exit point for Umeme, the negotiating team looked at the existing loss factor which at the time was 34.7%.

"So the question was what would be the ideal threshold for terminating without compensation for the Concessionaire's return? Umeme was focusing on 41% or so. At the same time, the existing losses were at 34.7%. Would it have been prudent to set the cap at 33% which would have meant that the contract is terminated before it is signed?"

The recommendation brought to the Minister of Energy and Mineral development and the Permanent Secretary to consider was to cap the energy loss at 38% as the termination point.

"This is a strong gossip and for the report to be credible, the committee must produce signed copies of minutes where people said they were "Prominent Persons". The point is that even if one wants to discredit another, he/she should not make up stories," Kabagambe-Kaliisa said.

"It is however important to note that the loss factor for tariff determination was set on an annual basis by the Regulator. Records are available to show the loss factors which were factored in the tariff during the period in issue and at no time was it 38% and all that information was tendered to the Committee."

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