4 February 2018

Uganda: Govt Seeks to Reclaim Control of Energy Projects

The Uganda government is keen on regaining the role of primary operator of the country's power infrastructure, with sources saying it is closely watching concessions of private players in generation and transmission.

The view is informed by concerns that the government's complete withdrawal was ill-advised given the sensitivity of the sector.

With two key generation plants at Isimba and Karuma set to come on board later this year, under the government's full control, technocrats and policy makers have been looking closely at the concession to South African firm Eskom, which operates the Kiira and Nalubale generation dams. Eskom's contract is due to expire in five years.

The concession to Umeme -- the main distributor -- is still running until 2025.

The EastAfrican has learnt that Uganda Electricity Generation Company Ltd (UEGCL) is already preparing to carry out repairs at Nalubaale dam. The dam was built in 1954 and, according to experts, is past its lifespan.

Eskom, as per concession agreements, should fix any anomalies in the dam but UEGCL's intended active involvement raises questions about whether the government is making a U-turn on its privatisation policy.

"Those are our assets and Eskom's contract is ending in five years so there is no way it can invest in the dam," said UEGCL chief executive Harrison Mutikanga.

"We are going to carry out a cost benefit analysis of the Nalubaale dam. It will help us determine whether to abandon it or not," Mr Mutikanga added.

The EastAfrican has seen a document outlining the government's move to regain divested companies. Top on the list is the electricity sector.

According to the document, the government is considering amendments to several laws including the Electricity Act 1999 and the Public Enterprises Reform and Divesture Act 1993, to clarify roles of different players, sourcing for funding, making the electricity sector government business and making it mandatory for the private sector to provide internship to students under its new power sector investment plan.

"The government is amending the Public Enterprises Reform and Divesture Act to return the management and oversight roles of all companies to ministries," reads a report of the Presidential Investors' Roundtable published in December 2017.

Proposal before Cabinet

The amendment implies that electricity generation, transmission and distribution companies will revert to the Ministry of Energy as one entity. This proposal is already before Cabinet.

The government brought in Eskom and Umeme in 2005, when it privatised the Uganda Electricity Board (UEB) and split it into three companies: Uganda Electricity Generation Company Ltd (UEGCL), Uganda Electricity Transmission Company Ltd (UETCL) and Uganda Electricity Distribution Company Ltd (UEDSCL).

An official at Umeme declined to comment.

"We are in a closed period. We are limited by the law on how much we can share (with the public) until we release the 2017 financial reports, which will come in the first quarter of 2018," the official said.

The government hoped to reduce energy losses that stood at 28 per cent then bring in private sector efficiencies, increase access to electricity and reduce high tariffs.

The privatisation of the sector did not achieve the intended objectives. For example, tariffs remain high, and access to electricity remains low at only 22 per cent of the population.

Owing to persistent problems in the sector, parliament appointed an ad hoc committee in 2011 to probe the electricity sector.

The committee's report was adopted by the whole house, which voted to throw out Umeme and Eskom on grounds of underperformance, unfavourable concession terms and for Umeme lack of proper registration with the registrar of companies.

The committee recommended that the disbanded UEB be reinstated as one company owing to duplication of responsibilities and that government should take over the sector. That was in 2014.

In addition, the Auditor-General's performance report 2017 shows there were also other non-repair works at two turbines and delayed execution of 13 projects since 2013, which according to the report, amounts to non-compliance based on terms of the concession.

"Whereas the non-compliance issues were noted throughout the period under review, UEGCL did not enforce compliance by the firm. There is risk that the Nalubaale and Kiira hydropower complex may not be in proper working condition by the time they're handed back to UEGCL at the end of the concession," said Auditor-General John Muwanga.

Despite the government ignoring the recommendations it now appears to be silently acting upon them.

It is understood that lack of access and high cost of electricity is a major cause of poor ratings in the doing business environment in Uganda, but one of the priorities under the Presidential Investors' Roundtable, which did not achieve much by end of its set deadlines of December 2017.

Even with the amendments to the Public Enterprises Reform and Divesture Act, the government will still face legal hurdles as per terms of the concession agreements.

Umeme secured a buy-out clause, which makes it costly for the government to terminate the contract.

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