Consumers want new targets set for Umeme

By Ibrahim Kasita and Brenda Asiimwe.

Electricity consumers want new performance targets set for Umeme starting next year.

The Electricity Regulatory Authority (ERA) is currently reviewing the distribution and supply licences of Umeme as required by the Electricity Act 1999.

The power distributor has submitted its performance target proposals to the Regulatory for review. Umeme proposes to reduce energy losses by 0.8% every year from the current 28% to 22.4 in the next seven years.

The firm also proposes to reduce non-collections by 0.2% per year until it is 3% at the end of the next seven years. Umeme is suggesting plans to connect a total of 78,000 new connections over the next seven years.

But consumers, during a public hearing to review the proposal at Imperial Royale hotel recently, complained to ERA that their [Umeme's] performance targets were “easy to achieve” and “it is unacceptable.”

This was after Charles Chapman, the Umeme managing director said all the targets were not only achieved but were surpassed. 

 “Umeme was obliged to invest $65m in five years, reduce losses from 33% to 28%, increase collections from 75% to 92% and connect at least 120,000 new customers every year,” he said.

 “Umeme has invested more than $130m, reduced losses to 28%, connected 220,000 new customers and collected over 95% in revenues.”

 But the public said that in the hind set Umeme got an unambitious contract and there was a need to set tough targets that are achievable.

Bonny Kiiza the director finance and planning Ferdsult Engineering Services, argued that the proposed reduction in energy losses by Umeme of 0.8% per year are too low and are unacceptable.

“This shows that Umeme is not interested in lowering energy losses because the company gets compensated by having energy losses allowances incorporated in tariff computation.”

Kiiza advised that Umeme be given the target to reduce energy losses to 11.5% by 2018.

“It is true the agreement [signed with Umeme] is very bad and is not good,” Vincent Kyamudidi, a member of Parliamentary Natural Resources Committee, argued.

 “There were poor negotiations and we need to review and renegotiate the contract for the good of the country.”

 Various stakeholders objected Umeme's proposal of reducing non-collection by 0.2% per year until is 3% by 2018.

 They argued that the firm proposes to roll out prepayment metering system next year and should therefore be talking of a target of 99.9% by 2018.

 On customer new connections, stakeholders explained that with the coming on board of Bujagali next year, the proposed Karuma power plant and other new mini-hydro plants, Umeme should be targeting at new connections of 250,000 per year during the next two years.

 “A target of electricity connection coverage in the country should be set at least to 20% by 2018 (from the current 10%),” Kiiza stated.

The other contentious issue resolved around Umeme's plans to invest $340m in the next seven years. The public noted that power distributor is entitled to a return on investment of 20% per annum which is incorporated in the end-user tariff.

They argued that a return on investment of 20% per annum is high, considering that interst rates charged by international financial institutions are hardly 10% per annum.

 But Sam Zimbe, Umeme general manager, agreed that the energy loss reduction target can be improved upon by ensuring there is adequate support from government in reducing power theft and mobilising additional investment.

He denied that the power company benefits from high energy losses, adding that there is an incentive to reduce them as high losses would hurt the whole sector.

 New connections targets need to be set in the context of what the sector can supply in terms of generation, and what it can afford in terms of investment, Zimbe stated.

 “However Umeme is strongly committed to growing the size of the network and the number of connections so that the electricity coverage in the country reaches at least 20% by 2018.

 On the 20% return on investments, Zimbe said it was bid by Umeme in the international tender in 2002 and awas accepted by government in the contract for the duration of the concession.

 “It is an adequate rate of return for equity investors in this industry and for a country like Uganda, which can be checked against relevant benchmarks,” he defended.

 “In order to achieve the electricity tariffs, the  various targets set for Umeme must be adequate and realistic.”

 Benon Mutambi, the ERA head, promised that all the views from the public will be considered before a decision is made for the benefit of all interested parties.

 He, however, warned that terminating Umeme's contract would be costly to the country by denying the much-needed private capital investments.