11 June 2018

Uganda: Budget - Why Umeme Is Key for New Power Generation Projects

A substantial amount of this year's budget is expected to be allocated towards the completion of the two power dams as the infrastructure sector prepares to take the lion's share of the budget.

The government has set December 2018 as the target to launch both projects, which should bring about 783MW of electricity to the national grid. That amount is more than three quarters of the country's current energy output. With more power coming onto the national grid, a pertinent question that the government faces is whether there is enough demand to consume all the energy.

Most of Uganda's energy contracts are structured under the pay-or-take model, where the owner of the power project is paid money regardless of whether the energy produced is dispatched or not. That is as long as the company can prove that it is producing the energy. Creating demand for this power is critical.

"If you work out the numbers, over 70 per cent of our power is consumed by industrial consumers. It's fundamental that when the new generation comes on board, we concentrate on large consumers. We need big industries to take up this power," Selestino Babungi, the managing director of Umeme Limited, said recently.

The government plans to open up 25 industrial parks across the country that are expected to consume at least 450MW, according to figures from the Electricity Regulatory Authority.

Then there is Tororo district, where a number of heavy factories are being set up. Beside the increased capacity of cement plants, such as Tororo Cement, Hima Cement and Simba Cement, there is the phosphate plant by Guangzhou Dongsong, which, on completion, will need 200MW alone.

Babungi said: "... we should model new [power] generation around industrial and commercial consumers because when you use power for industrial development and commercial consumption, it will lead to job creation and economic development which puts money in the pockets of households."

That is where Umeme Limited, the main power distribution company in Uganda, is supposed to play a crucial role in ensuring that the distribution network is well-financed to ensure that energy generation plants make a substantial impact on the economy.

Umeme says that throughout 2017, it "focused on capital expenditure that had the most significant value, with particular focus on additions to the distribution network." The need to get more customers onto the distribution network is likely to also knock down the power tariff and ease on the cost of production that different businesses incur.

According to figures from Umeme, there were 174,447 new customer connections made in 2017, although 16,607 were funded under a government programme with some support from development partners. In total, the number of Umeme customers stood at 1,125,291 at the end of 2017, up from 950,814 the previous year.

Umeme is expected to keep its focus on getting more people onto the national grid. In its tariff application to the Electricity Regulatory Authority, a lot of Umeme's 2018 budget is a continuation of the work the company has been carrying out in 2017. Described as "work in progress", Umeme has set aside $49 million for this component.

Another critical area that Umeme is to focus on is the investment in the network "as this is the major driver of growth in the business."

These investments are mainly in substations, which help in the dispatch of the power across different transmission lines.



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