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Uganda on brink of power cuts

By Ibrahim Kasita

Added 14th December 2012 11:11 PM

LAST year, Uganda experienced acute power supply problems when UETCL failed to pay thermal power producers who switched-off their machines

LAST year, Uganda experienced acute power supply problems when UETCL failed to pay thermal power producers who switched-off their machines

By Ibrahim Kasita

 UGANDA is reverting to a fully-blown electricity supply crisis sooner than expected unless money is found to finance operations in the energy sector.
 
And the easiest and quickest way to raise the money needed for the sector is to adjust the end-user price per unit of electricity consumer.
 
The Electricity Regulatory Authority (ERA) sets the tariffs at such levels “sufficient to recover all reasonably incurred operating costs and a reasonable return.”
 
But during a public hearing held on Wednesday in Kampala to review the annual tariff review and the introduction of the automatic tariff adjustment, consumer asked to stay the adjustments.
 
The public hearing is part of the efforts to promote transparency, objectivity and participatory approach in decision making on matters of importance and interest to stakeholders in the electricity sector.
 
However, the public decision to postpone the tariff adjustments, normally approved in mid-January, will cut the revenue needs for the sector.
 
This will plunge the country into acute power supply shortages as generators will switch-off their machines.
 
Power distribution company, Umeme, will then start to withdraw money from the escrow account.
 
Arrangements were made under contractual provision between Uganda and Umeme whereby a particular bank receives and disburses rent fees for the power network to Uganda Electricity Distribution Company (UEDCL) on fulfillment of agreed conditions.
 
And Already in October Umeme requested for the reinstatement of the lease payments totaling to $16.307m in the 2012 tariff. The firm is supposed to pay equally the same amount next year if the tariffs are approved.
 
Benon Mutambi (Ph.D) the Electricity Regulatory Authority (ERA) head explained that if the proposed tariffs are delayed or not reviewed, power firms will have no approved budget and there will no approved investment plan.
 
“Umeme will withhold payments for power to Uganda Electricity Transmission Company (UETCL) and UETCL will default on payment obligations to (power) generators,” he said.
 
Last year, Uganda experienced acute power supply problems when UETCL failed to pay thermal power producers who switched-off their machines.
 
The industrial sector (small, medium and large) were largely hurt as the production activities depend on power
 
This was after government agreed that it was not in position to continue providing high subsidies to consumers directly, which in any case could be used to finance other sectors like health and education.
 
The decision is in response to government’s position not to continue providing high subsidies to consumers directly.
 
The subsidy obligation stood at more than sh400b for just 2011 alone. To avoid this problem, the Authority (ERA) has come up with automatic tariff adjustment mechanism whereby the end user tariff will vary on a month basis to take care of changes in inflation, exchange rate and oil prices.
 
Reflecting the true cost of producing electricity per unit will help the energy sector not only meet its revenue needs but also save for other new power projects as demand grows more than 10%.
 
There is need to add new generation capacity very year exceeding 50 MW because demand for power is projected to exceed the current supply within 24 month from today.
 
Given the undesired statistics, the current levels of electricity supply cannot support heavy industries like steel mills, textile mills and aluminum processing plants.
 
Therefore to create favourable environment for investment in such industries there is need to internally raise money domestically to increase sufficient electricity generation capacity.
 
The National Development Plan (NDP) clearly identifies limited generation capacity and corresponding limited transmission and distribution network is among key constraints to the performance of the energy sector.
 
The NDP further set out increasing power generation capacity as the first objective to address this problem and construction of larger hydropower plants as the first intervention strategy.
 
This calls for sustainable financing mechanism for the entire energy sector and end-user tariffs must accept to pay for the true cost of electricity they consume to give private firms confidence to invest in the sector.
 
And investors will only put their money to areas where they are sure to not only get their money back but also get returns on investments
 
“Licensees (power firms) need their budget to be approved otherwise they cannot spend. (They) also require approval of their investments,” Mutambi appealed.
 
“When licensees (investors) apply to the regulator for the review of the tariffs and the regulator delays/fails to carry out the review, this translates into regulatory risks.”

LAST year, Uganda experienced acute power supply problems when UETCL failed to pay thermal power producers who switched-off their machines

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