We are not the problem - Umeme
Sep 15, 2011
<b>FELIX Osike</b> and <b>Chris Kiwawulo</b> interviewed Luka Buljan, the consultant for Actis Capital, a subsidiary of UK’s Commonwealth Development Corporation which owns Umeme, about their operations and the 20-year contract with the Government.
FELIX Osike and Chris Kiwawulo interviewed Luka Buljan, the consultant for Actis Capital, a subsidiary of UK’s Commonwealth Development Corporation which owns Umeme, about their operations and the 20-year contract with the Government. Below are the excerpts:
Question: You won the concession to distribute power for 20 years. It is now seven years down the road, what have you done?
Umeme has made a few drifts. It inherited a system that was in very bad shape. The network was dilapidated.
Poles had fallen down, sub-stations were overloaded and some transformers were bursting. The billing system was in a mess.
So what has changed?
We spent the first two years trying to ensure that nothing falls over. We also embarked on training people. After that, Umeme created a basis on which it could invest in the network.
It has so far replaced 100,000 poles out of a total of 240,000 poles countrywide. It has also replaced 2,000 transformers out of 6,000.
The big problem with transformers is that they are vandalised. We have 150-200 transformers being vandalised every year.
People steal the oil. We have refurbished 1500km of the network and built another 1500km. We have refurbished 40 out of the 60 sub-stations, and we built four new sub-stations.
We have put up a new billing system and infrastructure. There were 230,000 customers on the network when we took over, but by the end of this year, they will be 450,000.
This is the first investment at the distribution end of the power sector in Africa by your company. What challenges have you met?
Some of the problems we encounter are that the network is in bad shape. It needed a lot of work and investment and we are working on that.
The other big problem that we face is the supply not being enough. Our customers are unhappy and we understand their unhappiness.
But we want them to understand that Umeme just delivers the power, it does not produce it.
There was also drought. Several months following the start of the Umeme concession in March 2005 water flow through the Kiira and Nalubaale dams, which produced all the power for the grid was affected by a prolonged drought.
Output from the dams was curtailed from an average of 230Mw to 120Mw, at times even lower.
Severe load shedding ensued, which was only reduced with significant deployment of emergency thermal generation. Thermal power is very expensive.
How much has been paid to thermal plants?
The Uganda electricity sector will have spent $1.1b on buying power from thermal plants from 2006 to 2011.
This cost did not exist in the sector prior to 2006 and is the main reason for the significant increases in tariffs in 2006/7.
There were also foreign exchange movements. When the emergency thermal generation was introduced to Uganda, the exchange rate was sh1,700-sh1,800 to the US dollar.
Since then, the exchange rate has deteriorated to over sh2,500 to the dollar.
Because the electricity tariff is denominated in shillings and yet most of the costs are incurred in dollars, to recover the incurred costs, the tariff needed to be adjusted upwards.
The Electricity Regulatory Authority and the Government chose not to raise the tariff. So the amount of government subsidy had to be substantially increased.
How much is the total subsidy to date?
Total subsidy injected into the sector by the Government (excluding contributions from the World Bank) from 2006 to 2011 is more than $470m.
The delays in construction of the Bujagali dam also resulted in longer utilisation of thermal generation plants.
The dam was supposed to be completed in mid 2011, but it is now not likely to be fully commissioned before mid 2012.
This one-year delay is expected to cost approximately $285m in thermal power generation costs, of which $175m will have been contributed by the Ugandan Government.
The other problem is losses and theft of power. Losses were between 38% and 40% but they are at 28% now.
But some experts say the losses have remained at about 31.5%. If you had reduced them to 28%, wouldn’t power would be more affordable and reliable?
There is a double benefit. One is that when losses go down, there is more power to deliver to the customers and it has a positive impact on the rates.
But unfortunately, right now oil used in production of thermal power is very expensive. The shilling has been under pressure (depreciating). So, all those are pushing the tariff up.
How much has Umeme invested in the network?
Umeme has invested about $130m (sh364b) in the last seven years and that has substantially upgraded the network, although not the whole network because we have not yet got everywhere.
That should reflect itself in a better quality of supply.
But there is still load shedding?
Load shedding is something that Umeme is not responsible for because it only distributes power. It does not produce it.
There is high demand for electricity than the available supply. That is the main reason behind load shedding.
However, this is somewhat a product of Uganda’s success. It is a product of demand having grown.
Demand has grown because the economy has grown. The urban centres have grown. As a result, there is a mismatch between supply and demand.
If you have invested $130m, how much have you recouped?
We have recouped about $7m (about sh20b).
The tariffs have increased by 98% since 2005, is there any hope for a reduction?
The very important change is when Bujagali comes
Question: You won the concession to distribute power for 20 years. It is now seven years down the road, what have you done?
Umeme has made a few drifts. It inherited a system that was in very bad shape. The network was dilapidated.
Poles had fallen down, sub-stations were overloaded and some transformers were bursting. The billing system was in a mess.
So what has changed?
We spent the first two years trying to ensure that nothing falls over. We also embarked on training people. After that, Umeme created a basis on which it could invest in the network.
It has so far replaced 100,000 poles out of a total of 240,000 poles countrywide. It has also replaced 2,000 transformers out of 6,000.
The big problem with transformers is that they are vandalised. We have 150-200 transformers being vandalised every year.
People steal the oil. We have refurbished 1500km of the network and built another 1500km. We have refurbished 40 out of the 60 sub-stations, and we built four new sub-stations.
We have put up a new billing system and infrastructure. There were 230,000 customers on the network when we took over, but by the end of this year, they will be 450,000.
This is the first investment at the distribution end of the power sector in Africa by your company. What challenges have you met?
Some of the problems we encounter are that the network is in bad shape. It needed a lot of work and investment and we are working on that.
The other big problem that we face is the supply not being enough. Our customers are unhappy and we understand their unhappiness.
But we want them to understand that Umeme just delivers the power, it does not produce it.
There was also drought. Several months following the start of the Umeme concession in March 2005 water flow through the Kiira and Nalubaale dams, which produced all the power for the grid was affected by a prolonged drought.
Output from the dams was curtailed from an average of 230Mw to 120Mw, at times even lower.
Severe load shedding ensued, which was only reduced with significant deployment of emergency thermal generation. Thermal power is very expensive.
How much has been paid to thermal plants?
The Uganda electricity sector will have spent $1.1b on buying power from thermal plants from 2006 to 2011.
This cost did not exist in the sector prior to 2006 and is the main reason for the significant increases in tariffs in 2006/7.
There were also foreign exchange movements. When the emergency thermal generation was introduced to Uganda, the exchange rate was sh1,700-sh1,800 to the US dollar.
Since then, the exchange rate has deteriorated to over sh2,500 to the dollar.
Because the electricity tariff is denominated in shillings and yet most of the costs are incurred in dollars, to recover the incurred costs, the tariff needed to be adjusted upwards.
The Electricity Regulatory Authority and the Government chose not to raise the tariff. So the amount of government subsidy had to be substantially increased.
How much is the total subsidy to date?
Total subsidy injected into the sector by the Government (excluding contributions from the World Bank) from 2006 to 2011 is more than $470m.
The delays in construction of the Bujagali dam also resulted in longer utilisation of thermal generation plants.
The dam was supposed to be completed in mid 2011, but it is now not likely to be fully commissioned before mid 2012.
This one-year delay is expected to cost approximately $285m in thermal power generation costs, of which $175m will have been contributed by the Ugandan Government.
The other problem is losses and theft of power. Losses were between 38% and 40% but they are at 28% now.
But some experts say the losses have remained at about 31.5%. If you had reduced them to 28%, wouldn’t power would be more affordable and reliable?
There is a double benefit. One is that when losses go down, there is more power to deliver to the customers and it has a positive impact on the rates.
But unfortunately, right now oil used in production of thermal power is very expensive. The shilling has been under pressure (depreciating). So, all those are pushing the tariff up.
How much has Umeme invested in the network?
Umeme has invested about $130m (sh364b) in the last seven years and that has substantially upgraded the network, although not the whole network because we have not yet got everywhere.
That should reflect itself in a better quality of supply.
But there is still load shedding?
Load shedding is something that Umeme is not responsible for because it only distributes power. It does not produce it.
There is high demand for electricity than the available supply. That is the main reason behind load shedding.
However, this is somewhat a product of Uganda’s success. It is a product of demand having grown.
Demand has grown because the economy has grown. The urban centres have grown. As a result, there is a mismatch between supply and demand.
If you have invested $130m, how much have you recouped?
We have recouped about $7m (about sh20b).
The tariffs have increased by 98% since 2005, is there any hope for a reduction?
The very important change is when Bujagali comes