Opinion
Why I would rescind UMEME’s concession
Publish Date: Apr 10, 2014
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By Mathias Mulumba

Recently, Parliament unanimously passed a resolution that recommended termination of UMEME’s concession agreement, if approved by the cabinet. To me this presents a momentous opportunity for Uganda to repossess a critical factor of production.


To begin with, we need to appreciate fact that, energy is a basic necessity for human activity, economic and social development and access to electricity energy is a key component of alleviating poverty and an indispensable element of sustainable human development. In fact, the Government realised this and enacted a new electricity Act in 1999 in bid to solve the inefficiencies associated with the Uganda Electricity Board (UEB).

UMEME took over the distribution system and licence to distribute and supply power under a concession for a period of 20 years as a natural monopoly. The concession arrangement has, however, created market uncertainty in the electricity sector and increased risk to the power consumers in form of ever increasing profit driven power tariffs.

Even since UMEME took over, the electricity sector has not witnessed stable power tariffs and predictable regulatory environment. The natural monopoly market structure under which UMEME operates does not guarantee social benefits to the ordinary Ugandans. Per capita electricity consumption is still very low (69.5Kwh) due to low access and high power tariffs. Despite the Government efforts such as rural electrification to enhance access to and use of electricity, consumption is still constrained by higher and unaffordable tariffs which are currently seriously threatening growth. Almost everyone in Uganda has a grievance against the high cost of electricity, both domestic and commercial power consumers.

Ultimately, we were entering a situation where electricity prices will either ‘make’ or ‘break’ our economy. The cost per unit of voltage has risen too fast and continues to rise and is too high to be considered an affordable price path for ordinary Ugandans and the business community. Uganda's electricity tariffs are already among the world's highest. In East Africa, Tanzania electricity consumers pay $8 cents per Kwh, Kenyans pay $13 cents, Rwanda consumers per $18 cents and Uganda $22 cents. Meaning that, the more than 80% of the population that do not have access to electricity now would not afford the bills anyway. If electricity gets even more expensive, it will remain a luxury for a few Ugandans.

It apparent that if electricity prices rise inconsistently to an unmanageable rate, our economy is at risk and as a country, we won’t be able to power our economic development agenda with energy tariffs that are unaffordable by households and eating into industries' profits. This situation presents a serious problem that needs to be addressed because a public utility and critical factor of production like power cannot be ran by a company driven by profit motive but by an entity that aims to improve social benefits. To stimulate social and economic transformation, electricity must not only be available but it must also be affordable.

If electricity prices rise inconsistently to an unmanageable rate, in the end, higher tariffs will increase the operational costs of our industries and thus force them to transfer the additional cost to the consumer, who will then suffer double jeopardy as they have to pay higher bills for electricity at home while spending more on basic goods and services because of hiked prices. The best option now is to enact a law to rescind the concession agreement with UMEME so that electricity distribution and supply is managed efficiently through a corporate national entity more so like National Water and Sewerage Corporation. This will ensure that the entity is run as a learner and efficient organisation that will maximise social benefit for this country.

The writer is a masters student of Economic Policy and Planning, Makerere University
 

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