___________________

Last week, power distribution company Umeme released its report ahead of its Annual General Meeting (AGM) at the end of this month.

We already know that while Umeme revenues crossed the two trillion shilling mark -- one of only two companies, with telecom company MTN being the other, to ever cross that mark in the history of Uganda, profits were down 92 percent. The plunge in profit was a result of provisions made ahead of the eventual end of the company’s 20-year concession.

Umeme took over the running of the distribution arm of the former Uganda Electricity (UEB), which before privatisation was split into the distribution, transmission, and generation arms.

At the start of the Umeme concession, UEB was generating 180MW, was losing half that power through technical and commercial losses, and barely managed to collect payment for 60 percent of the power billed for, which in 2005 was shillings 160 billion.

The major reason UEB was privatised and the sector was liberalised was to attract new investment into the sector. The Government at the time had maxed out on its borrowing limits, revenues were low and yet for the economy, to have a realistic chance of recovering, a more efficient power sector was required yesterday.

I hear some people arguing that the opening up of the power sector has seen foreign interest expropriate millions of dollars during the last 20 years, but they forget to mention that to earn those millions of dollars, hundreds of millions of dollars had to be invested in the sector first.

In Umeme’s case, the company has invested $832m or about shillings three trillion at today’s prices. This investment financed the extension of the grid and has seen Umeme customers grow 10-fold from 200,000 when the concession began to about two million at the end of last year.

It helps too that generation capacity has jumped similarly to 1,847MW, with 700MW of this due to the private sector. It can be argued too that the financing of Karuma and Isimba dams by the Government would not have been possible if the power tariff had not risen to a point where it made sense for private investment.

The Government’s stated reason for winding down the concessions is that the private players are not allowing it to meet its stated aim of selling power at $5 cents a unit.

As part of the concession agreements the private investors negotiated a return on investment and for the Government to pay for power even if it is not consumed, these invariably pushed up the tariff but were the cost of unlocking the investment needed in the sector.

So the Government in a bid to force the tariff down has decided to do away with the private players. Which is within its right but the situations that led to the unbundling of the UEB – a need for continuous massive investment in the sector still prevails.

UEB was not unbundled for lack of demand, as the two million customers signed to the grid will attest. UEB was not unbundled because the people running it were incompetent, electrical engineers at least in those days, were the brightest engineers around.

The power sector was privatised primarily because we did not have the funds to invest in it. Has that changed today? No.

The reason there is a cash squeeze in the economy is because we are not collecting enough revenue to finance our budget and the donors who are supposed to carry the deficit seem to be slow or are unwilling to live up to their commitments.

So, where will the money come from to continue with the investment programme Umeme has been carrying out for the last 20 years?

The naysayers will argue that Umeme is a going concern and, therefore, should have no problem sourcing more finance for new developments. The ability of Umeme to source new funds was premised among other things, on the credibility of the concession agreement they were working under. Lending to the Government will be another story.

And because the investments in the sector are by nature very big, they will increase our debt burden as a country. The same people who have criticised Umeme will be complaining that the Government is borrowing too much.

As Justice minister Nobert Mao said last week, when people make decisions there are often the stated reason and the real reason. The real reason for not renewing the Umeme concession will be revealed with time.

But in the meantime, the importance of the river will not be known until it dries up.

This article was first published in the New Vision edition on May 6, 2024, under the same headline